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What is The Risk of Cryptocurrencies Trading
Written by: PaxForex analytics dept - Friday, 23 March 2018 0 comments
Sometimes known as coins, cryptocurrencies are a 21st-century creation — a mixture of digital assets, huge amounts of computing power and a network of servers on which to store shared data. Unlike everyday money, they are decentralized — meaning they are not issued or guaranteed by central banks and therefore fall outside the purview of regulators. The currencies are secured against hacking by cryptography and can be converted into real-world money anonymously. This has attracted some criminal elements, a point emphasized by regulators and critics.
There’s a lot of hype with Cryptos. Because most do not know what they are investing in and would rather listen to the crowd. Prices crash once you have bought into it. Taking a loan or using all your life savings can be hugely risky, especially if you do not have the prerequisite knowledge on the tech and the coins. Be informed. Ask the right people. Arm yourself with knowledge before jumping on the hype-wagon. This would significantly reduce your risk and most importantly, position you to invest in the long-term fundamentals of the technology.
The notice comes two months after the UK regulator issued a statement and consumer warning about the risks of Initial Coin Offerings (‘ICOs’). In a similar vein to the message earlier this week issued by the European Securities & Market Authority (ESMA), an EU financial regulator based in Paris, the FCA stated this September that ICOs are “very high-risk, speculative investments.”
Cryptocurrency CFDs allow investors to speculate on a change in price of a cryptocurrency such as Bitcoin or Ethereum and use leverage.
In general terms, cryptocurrencies and digital tokens are an extremely volatile asset class. While the volatility of bitcoin has reduced substantially over the years as the world’s leading digital currency matures into an internationally-accepted investment asset, other cryptocurrencies can still experience intra-day price movements of 50 percent or more in either direction. As the crypto market is largely news-driven and each cryptocurrency has its own idiosyncratic risk, sensationalist headlines, rumors, and malicious media campaigns from rival blockchain projects can result in significant intra-day and intra-week price drops.
Trading and investing in cryptocurrency may have the potential for a big payday. But I can tell you from experience when you see such volatility, press coverage and your neighbors start giving you advice on when to buy and sell, is probably a good idea to pump the breaks. Crypto investing and trading is a very new market. It requires specialized knowledge that may be inscrutable to the uninitiated. Rampant growth has led to volatility. And while it may seem attractive to invest in digital currencies, this brand new field does have some instability to consider before investing.