Bitcoin vs. Stock Trading- What Are the Main Differences?
There is little doubt that Bitcoin is changing the face of business as we know it today, and the once-clear line that delineated the relationship between stockbroker and securities dealer is becoming more and more blurred by each passing day. Many brokers will testify that it’s no longer business as usual, as the volume of transactions on the financial markets continues to shrink.
One of the main reasons for the disruption is the increase in demand for Bitcoin. Bitcoin’s rise, especially during the 2017 period, has attracted more individual users as well as medium to large corporations and concerns to Bitcoin trading.
The question is: why are people favoring Bitcoin over regular commodities and stock trading? To clear things up, we’ll analyze the differences between the two and shed some light on the pros and cons of Bitcoin trading, so that those looking to venture into either Bitcoin or stock trading can do so with an open mind. A deeper understanding will also allow potential Bitcoin traders to become fully aware of the associated risks.
However, before we get deeper into those factors, let’s first run through a basic and brief Bitcoin primer for those that may still be somewhat unfamiliar with this new form of currency. Essentially Bitcoin is what is termed a “cryptocurrency,” which basically means that it only exists within the realms of the virtual or online world.
Bitcoin does not assume any physical monetary form in the same way that your terrestrial (real world) currencies do but can still be used online to purchase items from various websites, transfer funds, make secure deposits, and so on.
One of the main reasons for the rapid rise in the popularity of Bitcoin has been due to the fact that Bitcoin is the internet’s first decentralized currency. What this means is that, unlike terrestrial currencies, there is no central controller of the currency, such as a government or a bank. This makes the cryptocurrency highly attractive to users and investors alike, as the currency is free of those conventional financial restrictions.
Another very attractive feature of Bitcoin, as well as other online cryptocurrencies such as Ethereum, is that they are able to provide the user with total online anonymity. This makes it the perfect currency medium for anyone who either does not have a bank account or does not want to be identified online.
It also provides a higher level of online safety, as the user does not have to divulge any personal details or sensitive financial information such as credit card details, bank details, address details, and so on.
This makes it the perfect currency and payment option for online casino gamblers, or those users who would otherwise be restricted from investing in or depositing funds with an online entity (such as an online casino) where such activity would normally be restricted or not allowed.
A perfect example of this can be found in the fact that a large number of online casinos still do not allow American players due to US online gambling and money laws. However, with a cryptocurrency such as Bitcoin, this can be circumnavigated.
Perhaps the most important difference between Bitcoin and stock trading is level of liquidity, especially considering the nature of trading. In trading, price fluctuations and volatility play a major role, and so, therefore, is of paramount importance.
Stock trading is a $5 trillion market which is quite huge in comparison to Bitcoin trading, which is currently valued at around $3 billion, and the size of these markets have huge implications for both.
Firstly, due to its relatively small market, Bitcoin trading is susceptible to small and insignificant factors that trigger huge price fluctuations, hence Bitcoin’s high volatility. Stock trading, on the other hand, is a huge market that requires huge disturbances for any notable price fluctuations to take place.
Stock trading is, therefore, more stable and less risky for traders, while Bitcoin is less stable and more of a gamble for traders. When you think about it, you can either reap huge ROI or suffer crushing losses when dabbling in Bitcoin trading.
Perhaps it is this volatility, as well as its unpredictability, that makes Bitcoin such an attractive investment, something that should definitely inspire the gambler in you to act.
Bitcoin trading is a relatively new phenomenon in comparison to stock trading, where prices are more or less at their peak. Without factoring in miracles and massive financial crisis, it’s safe to say that the profits and losses in stock trading all depend on economic fundamentals (market). However, this is not the same with Bitcoin.
Bitcoin potential is not only based on economic factors but is also dependant on various underlying technologies. What this means is that it has the potential of eclipsing its value, regardless of market factors. As long as the $21 million cap is not reached, then Bitcoin traders stand a chance of doubling, tripling, or even quadrupling their profits or losses.
For those who like to gamble on the market, Bitcoin trading is the best bet, as opposed to stock trading. However, for those seeking a small but consistent profit guarantee, then stock trading is the way to go.
The Cushion Effect
When it comes to trading, you make either a profit or loss on your investment; there is no in-between. As such, traders prefer those markets with the potential of limiting losses in the event that if it does indeed happen, they are more or less covered or can mitigate those losses.
In stock trading, this “cushion effect” is completely overlooked, as it does not, at least in principle, offer the opportunity to minimize losses beforehand.
Bitcoin trading works well with stop-loss protections, which happens when traders predetermine the level at which they can sell the price of BTC. If, for instance, traders buy BTC for $1,000, then they can set a stop-loss protection at $950.
Once the price of BTC reaches $950, their BTC is sold. This prevents a situation where the price continues to drop, and the trader eventually gains half or even less on the initial investment.