How Short-Term Speculators Use Volatility In Foreign Exchange and Crypto

In the world of investing, there are different strategies that can be employed in order to make a profit. Some investors take a long-term approach, holding onto their assets for years or even decades in order to see appreciation.

Others, however, prefer a more short-term approach, looking to take advantage of market volatility in order to make quick profits. This article will explore how short-term speculators use volatility in the forex and cryptocurrency markets.

Volatility explained in simple terms

Volatility is a measure of how much the price of an asset, like a currency, stock, or cryptocurrency, fluctuates over time. It’s usually measured by using the standard deviation of the asset’s price over a certain period of time, such as a day, week, or month.

Volatility can be caused by a variety of factors, including economic news and events, central bank policy, and even political uncertainty. When there’s a lot of volatility in the market, prices can move very quickly, which can be both good and bad for traders.

On the one hand, volatile markets provide opportunities to make quick profits. But on the other hand, they can also lead to big losses if you’re not careful. That’s why it’s important to understand what volatility is and how to trade it effectively before putting your money at risk.

Forex vs crypto basics

When it comes to short-term speculation, there are a couple of different approaches that traders can take. Some focus on forex markets, while others prefer crypto. Both asset classes have their own advantages and disadvantages, which can make one more suitable than the other depending on the situation.

There are definitely some key differences between forex and crypto. For one, the volatility in crypto is much higher than in forex. This means that you can both make and lose large amounts of money in a very short period of time.

Forex markets are traditionally more liquid than crypto markets. This means that there are usually more buyers and sellers available, which can make it easier to get in and out of trades quickly. However, this also means that forex prices move less, as there is more money to be moved in order to move the price.

In forex, you’ll typically want to look for opportunities during periods of high volatility. This is when price movements are at their most extreme, giving you the best chance to make some quick profits. However, you need to be careful not to get caught up in the frenzy and over-leverage your account, which can lead to big losses just as quickly.

Crypto markets, on the other hand, tend to be less liquid. This can make it harder to trade in and out of them quickly, especially in some of the more exotic coins. This also means that they can be more volatile. This can be an advantage if you’re a skilled short-term trader who relies on high momentum in order to make money.

In crypto, you’ll actually want to enter during periods of low volatility. This may seem counter-intuitive, but because crypto is so volatile, those brief moments of stability can often lead to huge price movements. So if you can stay patient and pick your spots, you can really capitalize on some major price swings.

Contract differences between forex vs. crypto

There are a few key differences between forex and crypto contracts. The most notable difference is that crypto contracts are settled in cryptocurrency, while forex contracts are settled in cash.

This means that when you open a forex contract, you are effectively buying or selling the currency pair in the underlying market. When you open a crypto contract, you are effectively buying or selling the cryptocurrency, over the blockchain. This can cause some confusion, especially if you are new to the concept of blockchain.

The fees for day trading are also quite different between forex and crypto. In forex, you typically have to pay a spread commission to your broker for each trade. The spread is the difference between the ask and the bid price and is usually a percentage of the total value of the trade.

For example, if you’re trading $100 worth of currency, your broker may charge a commission of $2.50. So, your total cost for the trade would be $102.50. But with crypto, you usually just have to pay a small flat “maker” or “taker” fee to the exchange that sits around 0.10% – 0.25%.

Leverage as a driver for profitability

Leverage is one of the key drivers of profitability in Forex and Crypto trading. It allows traders to control a larger position size with a smaller capital outlay. This gives them the potential to make a greater return on investment, but it also increases the risk.

Another big difference is the amount of leverage that these asset classes provide. In forex, you can use up to 1:1000 leverage (or more), while in crypto, the contracts with the highest leverage are capped at around 1:200.

This means that you can take on much more size in forex, which makes sense considering that this market is traditionally calmer.

Some short-term speculators use leverage in combination with high volatility to generate outsized returns. As long as you are operating with proper risk management systems, a healthy amount of leverage, and your top strategies you tip the odds in your favor.

Others may use leverage to hedge their positions. This means they take an offsetting position in another currency or asset, which will protect them from losses if the market moves against them.

Leverage can make you lose money, but used wisely it can be an important tool for short-term speculators looking to profit from volatility in the forex or crypto markets.

Pros & cons of day trading

Set aside all the numbers and strategies, what are the true pros and cons of day trading these two markets?

Pros

• Potentially large profits: Day traders can make a lot of money if they are able to capitalize on the right opportunities.
• Increased activity: Day trading can be a very exciting way to make money, as it requires constant vigilance and quick decision-making. However, if you are good at spotting short-term patterns, then this might be your game.
• Enabling smaller accounts: Leverage truly enables trades who are underfunded to enter the market with positions that can make a difference in the overall P&L at the end of the day.

Cons

• High risk: Day trading is very risky, as prices can move against you very quickly. This can lead to large losses if you are not careful, especially when leverage is involved.
• Can be stressful: The constant monitoring and decision-making required for day trading can be very stressful for some people. Most people are better off with a longer-term investment strategy.
• Increased fees: Day trading, in general, is a high-performance activity which means that you enter and exit the market several times per day. This puts a lot of stress on your portfolio balance, especially if you add leverage to the mix.

Conclusion – Which one should you choose?

Some would say that forex is a more stable market to trade in, while others believe that the cryptocurrency market is where the real action is. So, which one should you choose? It really depends on what you’re looking for.

If you’re looking for stability, then forex may be the better choice. However, if you’re looking for more explosive conditions where there’s more opportunity for profit, then the cryptocurrency market may be a better fit.