Investing in crypto assets, also known as “virtual currencies” such as Bitcoin, can be difficult for beginners. From the point of view of diversified investing, let’s introduce the advantages of foreign exchange FX (hereinafter referred to as FX), which also manages “currencies”, after comparing it to crypto assets.
Forex May Be More Suitable Than Crypto Assets For New Investors
There are three main reasons why Forex may be more suitable for newbies to investing than crypto assets.
・ Price movement is relatively small
・ Basic economics knowledge such as interest rates are easy to apply
・ In many cases, the cost is disclosed in advance.
Price movement is relatively small
In general, crypto assets are more volatile than currencies. The magnitude of price movements is also an opportunity for profit, but for those new to investing, large price movements will be a major obstacle.
It depends on the brand so it cannot be said unconditionally, but forex newbies are considered safer with FX, which has relatively low price movement.
Basic economic knowledge that is easy to apply, such as interest rates
Forex invests in foreign currencies and basic economic knowledge such as the economic scale, interest rates, and policies of that country can be used for trading.
On the other hand, crypto assets are data that exists on the Internet. Although forgery and other fraudulent activities are technically impossible, it is often difficult to provide financial support in relation to other traditional investment objectives. Therefore, it cannot be said that most of the situations where economic knowledge is directly useful for trading crypto assets.
While it is desirable for both to gain knowledge, FX is considered more suitable for newbies in investing in the sense that it is relatively easy to understand.
In many cases, the cost is disclosed in advance.
Cryptoassets and Forex have transaction costs called “spreads”. It refers to the difference between the buy rate and the sell rate. For example, if the spread is 1 yen, the sell rate is 99 yen if the buy rate is 100 yen.
The smaller the spread, the better you can trade. It is important to compare the spreads as they are different for each company, but in the case of crypto assets, there are few exchanges that publish spreads in advance.
On the other hand, in the case of Forex, there are many Forex companies that publish spreads in advance as “fixed spreads in principle”. Since comparing spreads is easy, even beginners will find it easy to find a Forex company that can trade favorably.
Points beginners should pay attention to in Forex trading
However, when a newbie investor embarks on Forex, he or she should pay special attention to the following three points.
[Points that beginners should be careful about with Forex]
・ Trading with surplus funds
・ Reduce effective leverage until you get used to it
・ A final tax return is required for profits above a certain level
Trade with surplus funds
Not limited to Forex, but when investing in risky assets, be sure to use excess funds. Due to the potential for loss, fixed-purpose funds are not suitable for trading.
Decrease your leverage until you get used to it
In Forex, you can generally trade up to 25 times the amount of your own funds deposited as margin. Such transactions with more than equity are called “leverage transactions”, and when they trade with 25 times equity, they are expressed as “25 times leverage”, and a 25 million yen transaction with a margin of 1 million yen is. is possible.
The value obtained by dividing the holding position by equity is called “effective leverage”. For example, if you have 1 million yen in your own funds, you can hold a position of up to 25 million yen, but you can maintain it at 10 million yen. In this case, the effective leverage will be 10 times.
It is desirable for beginners to keep the effective leverage low, as the risk increases as the hold position increases. There are also fears that “loss reductions” may occur.
Loss reduction is a procedure in which the Forex company closes a strong position, and it occurs when the loss in valuation increases and the effective leverage exceeds a certain level.
Valuation gains and losses are added to equity for an efficient calculation of leverage. For example, if the position is 1 million yen and the position is 10 million yen, the effective leverage is 10 times, but if the position has a valuation gain of 500,000 yen, it will be 10 million yen ÷ (1 million yen + 500,000 yen), which is 6.67 times less. On the contrary, if there is a valuation loss of 500,000 yen, it will increase up to 20 times of 10 million yen ÷ (1 million yen-500,000 yen). When the effective leverage exceeds a certain level, the loss is reduced and the level varies depending on the Forex company and the price.
To avoid loss reductions, it is a good idea to keep effective leverage low when opening a position.
A final tax return is required for profits above a certain level
If you get more than a certain amount of profit with Forex, you will be required to file an income tax return.
The level “above a certain level” varies depending on the individual situation, but for example, in the case of employees, it is usually necessary to file a tax return with a profit of more than 200,000 yen.
Forex companies likely to be particularly suitable for beginners
The following conditions can be considered as a Forex company particularly likely to be recommended for beginners.
[Conditions considered suitable for investment beginners]
・ Small amount transactions are possible (1 to 1000 currency transactions)
・ In principle, fixed propagation
The business unit of Forex differs depending on the Forex company. Forex companies with small trading units are preferable as newbies are likely to have high needs for low value trading. Among the Forex companies that can trade small amounts, there are the following Forex companies which in principle adopt fixed spreads with high cost transparency.
・ FX Broadnet (1000 currency units, fixed spread in principle)
・ Foreign Exchange Japan (1000 currency units, fixed spread in principle)
・ JFX (1000 currency units, fixed spread in principle)
[Reference]Click here for the pros and cons of FX Broadnet, word of mouth, etc.
[Reference]Click here for an overview and features of Foreign Exchange Japan
[Reference]Explains the reputation, outline and transaction costs of JFX (MATRIX TRADER)
Newbies who think crypto assets are next level should consider investing in currencies and the like.
Cryptocurrency assets can be considered relatively difficult transactions for newbies to investing due to the magnitude of price movements. In this sense, many beginners may find it relatively easier to work on similar currencies in terms of “currency” management.
Of course, as long as it is an investment there are risks in Forex so you need to be careful but if you are a beginner you should consider Forex and the like.
List of information for Forex beginners
What is FX? Basics of Getting Started with FX for Beginners
Forex Account Opening and Review Steps, How to Choose a Trader and Precautions
Comparison Ranking of Forex Company Accounts ── Spreads, Swap Points, Currency Pairs, etc.
How To Start Forex-Explanation For Every Popular Forex Company
｜ Phrase / Editing: editorial service of coindesk JAPAN
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