News | September 01, 2022, 4:41 PM | The content is supplied by a Guest author
When starting your trading journey, one of the most important things to know is not to invest only in one asset. Trading involves many risks and spreads the money on assets like cryptocurrencies, stocks, and real estate to mitigate those risks. When faced with the choice of selecting between trading bitcoins or stocks, you will need to consider the risks and benefits of each option. This guide will help with providing the necessary information needed to decide between bitcoin or stocks.
Understanding Stocks Investment
Investing in stocks of a business involves being a fractional owner of the business, although if care is not taken, there is the possibility of getting carried away and losing it all. When you buy stocks, you become a shareholder of the business, considering the number of shares bought.
Although investors are liable to dividends from their stocks, the value of the shares increases as the company grows. Thus, assessing the future of a business before investing is imperative. Investing in stocks is a long-term investment since it is impossible to make massive money until the company’s value increases.
Merits of Stocks Investment
- Historically, the profits generated from investing in stocks over a long time are huge, although the volatility is high for short-term stock trading.
- There are assets backing stock since when purchased. It is like buying part of a company. Hence, stocks have intrinsic value. Thus, when the company grows, the stock value of the investors also increases.
- Investing in stocks is simpler than ever, thanks to several online brokers’ elimination of trading costs. You can invest in stocks or select an index fund to buy a balanced portfolio of stocks.
- Several government entities have strict regulations governing stock exchanges and brokerage companies. Companies are obligated to give investors certain information via the SEC.
Demerits of Stocks Investment
- Stock volatility is lesser than bitcoins when held in an index fund that holds a diverse range of stocks. Compared to cryptocurrencies, individual stock volatility may be higher. Due to this volatility, it is advisable to own stocks as part of your long-term investing strategy to give you time to bounce back from any temporary losses.
- There is probably less possibility for spectacular increases occasionally occurring in broad stock indices in cryptocurrencies. Compared to cryptocurrencies, which can change by 10% in a single day, stocks have historically returned roughly 10%.
Understanding Bitcoin Trading
When introduced to cryptocurrencies, the first cryptocurrency that almost every crypto trader knows the name of is bitcoin. Many traders aim to accumulate riches as soon as possible, which is why some prefer to trade. Unlike investing, with trading, traders can make money within a short time.
Any changes in the price of bitcoin are what traders trade in; thus, the need to be up to date as regards any events or news that can affect the price of bitcoin. However, trading is riskier than investing due to the volatility of the bitcoin market. Bitcoin trading involves purchasing bitcoin at a low amount and making profits by selling it when its value increases.
Merits of Bitcoin Investment
- Since bitcoin is not decentralised, it has the possibility of being a hedge against local currencies.
- There is the possibility of making huge returns as the bitcoin price can go up and probably reach its all-time high.
- Bitcoins lead to the birth of other cryptocurrencies, thus, making many coins available to traders to invest in.
- It is becoming adopted as a payment method by many big businesses, thereby increasing the price of bitcoin.
Demerits of Bitcoin Investment
- Bitcoin trading has high volatility, so the same propensity to make huge profits can also lead to huge losses.
- As reported in SE cases over the years, there is a possibility of getting hacked and exposed to cyber thefts. It may be impossible to recover the money.
- Unlike stocks, there are no assets backing bitcoin; thus, it lacks intrinsic value.
- It is banning its usage in some countries, whereas some are adopting it, showcasing the risks involved with its regulatory process.
Since its introduction, bitcoins have seen substantial price increases, but investors need to know what they are buying rather than blindly following other traders. If you want to invest in bitcoins, consider how it aligns with your risk profile and financial requirements. No matter how accurate your market analysis is, trading bitcoins is a risky investment in which you might lose money. Thus, portfolio diversification is recommended.
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