The European Union has published new regulations applying to retail Forex, CFD, and the few remaining binary options brokerages in its territory. If you have an account with one such brokerage, the regulations will affect you when they come into force during the late spring and summer. This article will outline how the new regulations will impact your bottom line.
Details of the New ESMA Regulations
In March 2018, the European Securities and Markets Authority (ESMA), the financial regulator and supervisor of the European Union, announced new regulations concerning the provision of contracts for differences (CFDs) and binary options to retail investors. It is unclear exactly when the regulations will come into force, but some time in May or June 2018 looks to be the most likely date, and Forex and CFD brokerages located within the European Union (including the United Kingdom, for the time being) will be forced to comply. The regulations will need to be renewed by ESMA every three months to remain in force over the long term.
The regulation concerning binary options is very simple: they may not be sold. In simple terms, this is the end of binary options as a product sold from within the European Union.
The regulations concerning CFDs are more complex but still relatively straightforward. Firstly, there is some confusion as to what exactly is a CFD, with many traders thinking that spot Forex is not considered a CFD and will therefore be exempt from the new regulations. They are wrong: spot Forex is technically defined as a CFD. In fact, every asset you see available for trading at Forex / CFD brokers will most likely be subject to the new regulations.
The new regulations will implement the following changes for retail client accounts (more on who is a retail client; later).
-
The maximum leverage which can be offered will be 30 to 1. That will apply to major currency pairs such as EUR/USD, GBP/USD, USD/JPY, etc.
-
Other currency pairs, major equity indices, and gold will be subject to a maximum leverage of 20 to 1.
-
Individual equities cannot be offered with leverage greater than 5 to 1.
-
Cryptocurrencies are subject to a maximum leverage of 2 to 1.
-
Brokers will be required to provide negative balance protection, meaning it will be impossible to lose more money than you deposit.
-
Brokers will be required to close a clients open positions when the account equity reaches 50% of the required minimum margin by all open positions. This ;margin call; provision can be tricky to understand, so will be explained in more detail later.
-
Bonuses or any other form of trading incentives may not be offered.
-
Brokers will be required to display a standardized risk warning which will include the percentage of their clients who lose money over a defined period.
Understanding the ;Margin Call; Regulation
The best way to understand the 50% margin call provision is to use an example. Imagine a client opens an account with a Forex broker, depositing ;100 in total. The client opens a short trade in EUR/USD, by going short one mini-lot (one tenth of a full lot). One full lot of EUR/USD is worth ;10,000, meaning one mini-lot is worth ;1,000. To find out the minimum margin required to support that trade, we divide the size of the trade (;1,000) by 30, which comes to ;33.33. This is the minimum required margin to maintain the trade. Half of that amount is ;16.67. Now assume the trade goes against the client, with the price of EUR/USD rising above the entry price. As soon as the price rises far enough to produce a floating loss of ;83.33 (;100 - ;16.67), the broker must close the trade out, even if the trade has no stop loss or has not yet reached the stop loss. In theory, this means that a client;s account can never reach zero. Examples involving multiple open trades will be more complex, but will operate according to the same principles.
What Will This Mean for Traders?
The regulations will only apply to ;retail clients;, so you might try to apply to be classed as a professional trader. To get a broker to classify you as anything other than a retail client, you will have to show you have financial qualifications, a large amount of liquid assets, plenty of experience trading, and usually that you also trade frequently. Most traders will be unable to qualify, although it is worth noting that one London-based brokerage, IG Group, has stated that their proportion of clients now classified as recently increased from 5% to 15% of their total customers.
The major impact these regulations will have on traders is simple ndash; the maximum trade size they can possibly make at brokers regulated in the European Union will shrink. Many will say that the maximum leverage limits still offer far more than any trader could need, and I agree. I am wary of leverage and I hate to see anyone using leverage greater than 3 to 1 for Forex under any conditions, or any leverage at all for stocks and cryptocurrencies. Commodities can also fluctuate wildly in value. Too many people forget that the biggest danger in leverage is not overly large position sizing, it is that a ldquo;black swan rdquo; event such as the CHF flash crash of 2015 could happen and wipe out your account through huge price slippage. However, there is another factor that is widely forgotten: why assume that a trader rsquo;s account at one Forex broker is all the money they have in the world? For example, a trader might have $10,000 in the bank. If they deposit $1,000 at a broker offering maximum leverage of 300 to 1, they can trade up to $300,000. At a leverage limit of 30 to 1, that trader will have to deposit their entire $10,000 fund to trade at the same size. In a real sense, that trader might now have to take on more risk to operate in the same way, because if the broker goes bust, while beforehand they might lose $1,000 now they could lose $10,000! Even without negative balance protection, that broker would still have to come after them to try to get an extra $9,000 which they theoretically risk. Yet we saw after the CHF crash that brokers don rsquo;t come after every single client whose losses exceeded their deposit, due to legal costs and reputational issues. This shows that although the stated purpose of the regulation is to protect traders from excessive losses, the story is not as simple as you may think.
Beyond having to deposit more margin, and automatic margin calls, the other major change for traders will be that they will enjoy negative balance protection. This is a positive development which hopefully will make brokerages focus more heavily on the risks they are taking with their business model in the market. At the same time, a possible side effect of the new regulation is the potential increase in average deposits, leading to brokerages being more stable and better capitalized with client funds. Two final notes: brokerages will have to report on their websites the percentages of clients who are losing and making money, although the period over which the statistics must refer to is currently not clear. This will help to shed light on the debate over what percentage of retail traders are profitable, although some brokerages have already released what they claim to be accurate statistics showing that clients with larger account sizes tend to perform better as traders. Additionally, bonuses and promotions will be banned. I welcome this, as not only do they trivialize the serious business of trading, they are almost always a trick offering the illusion of free money whilst preventing traders from withdrawing any profits until a large number of trades are made (read the fine print the next time you squo;).
What If Yoursquo;re Not Happy Remaining in the EU?
Traders with accounts at affected brokers who cannot obtain professional status classification and feel they really need higher leverage than the ESMA limits outlined above might look for a solution by opening accounts with brokers outside the European Union. The most obvious destination would be Australia or New Zealand, where it will still be possible to find reasonably well-regulated Forex brokerages offering leverage in the range of 400 to 1. A recent development that is not talked about much is the growing difficulty of transferring funds to and from Forex brokerages in less tightly regulated jurisdictions. You might decide to open an account with a brokerage in Vanuatu, but you may find that a bank within the European Union might just refuse to send your money there for a deposit. This means that going far offshore, depending upon where you live, may not be a feasible option. In any case, the new regule impossible to live with, and overall there is a compelling case that they are a net benefit to any trader, so why migrate?
How Can I Invest in Bitcoin & Cryptocurrencies? | Trading Forex
Bitcoin and other crypto-currencies have been in the news lately, as their prices have soared in recent months, making those fortunate enough to have invested early wealthy far beyond their expectations, at least on paper. The question as to whether it is wise to invest in Bitcoin or other crypto-currencies such as Ethereum or Litecoin now, or ever, is another topic which I am not going to cover here. I have recently questioned whether Bitcoin is in a bubble, as if it were, it would be an extremely dangerous investment liable to incur a loss of 90% or more at some future time. If you do decide to invest in Bitcoin or other crypto-currencies, how should you do it? After all, crypto-currencies do not physically exist so you can’t take them home and put them in a safe.
Investing vs Trading
More and more Forex brokers are offering trading in Bitcoin, and a few are also offering other crypto-currencies. This means a possible solution is to open an account with one such broker and simply buy some Bitcoin and sit tight while your investment hopefully appreciates. Opening an account with a Forex broker is usually a relatively painless process and you don’t have to worry about owning the Bitcoins or other crypto-currency. You just have a position with the broker, and many brokers will allow you to open an account with a minimum deposit of $100 or less. They also offer leverage, which means that you can take a position bigger than your deposit. This brokerage route sounds like a simple solution, but there are two problems that probably make it a potentially poor proposition. First and most importantly, brokers charge a small fee each day for every trade that is kept open overnight. For a long Bitcoin position, you would typically pay a fee of at least 0.03% of your investment per day. That equates to just under 11% per year, which would be a large chunk out of the profit of any long-term investment gain. The fee can also be raised by your broker at any time, so you could end up paying even more. The second issue to consider is the security of the broker. If they are not in a country where the regulators provide deposit insurance, your investment might disappear and be unrecoverable if the broker goes bankrupt. Even where there is insurance, you might only get your deposit back, after a long waiting period – without the profit if the value of Bitcoin has gone up! Brokers would be more suitable for short-term speculation on crypto-currency price movements, rather than long-term investment.Bitcoin Mining
Experts typically estimate that it will be possible to mine Bitcoins until approximately 2040, leaving plenty of time for prospecting. Bitcoin mining is the process of using specialized computer equipment to create your own Bitcoins over the internet. Unfortunately, effective mining is now out of reach of the hobbyist, as it now requires a very large cash investment in a lot of equipment. There are some websites offering investment in collective mining operations. These are technically feasible, and there are legitimate mining consortiums which pool the costs, but this again is a risky idea, particularly if you do not have perfect due diligence on the offering.Shares in a Crypto-Currency ETF
Some assets are problematic to own as they incur storage costs and other issues, commodities such as crude oil, natural gas, and gold bullion being good examples. So why not buy shares in a fund which owns crypto-currency, giving you an exchangeable and easily ownable asset derived from the value of the crypto-currency you wish to invest in? The main reason why it might not be a good idea is that shares in these crypto-currency funds tend to trade at strong premiums to their underlying value because there is such heavy demand for the shares. For example, a fund owning $100 million of Bitcoin valued at the current market price might have 1 million paid-up shares trading at $150 each. If you buy one of these shares, you are paying 50% over their true value, and if the market were to cool off suddenly, you would find yourself down by 33% on your investment very quickly. Another concern with investing in a fund is the question of regulation and fraud, similar to the issue concerning Forex brokers.Outright Purchase
For most investors today, the cheapest method is simply to buy the crypto-currency directly and store it, hoping to sell it later at a profit. This leaves you with the legal ownership of the asset and the responsibility of storing and protecting it. The worry is in protecting the code, as Bitcoin ownership is like a bearer share: anyone with access to the code can “spend” the Bitcoin. If you have the code on a piece of paper, and receive and store it by email, it is just as vulnerable to hacking as your email is. An alternative storage and protection method is to use a digital wallet and/or vault. These can be a third party’s server, a smartphone app, or a program you store on your computer. You can keep it in a flash drive or other device too. All these methods have obvious advantages and potential risks. There is always some risk of hacking or physical damage resulting in a total loss of the investment.As for making the actual purchase, there are two main methods. There are ATMs in some cities which accept cash, debit and credit cards. A fee of up to 18% is charged on a transaction, and you must have a wallet set up before you can make the purchase. Alternatively, you can use an online crypto-currency exchange, which may also offer you a wallet and/or vault. These exchanges also charge a fee.
Conclusion
Before making any investment in a crypto-currency, please do your own thorough research into whether it is an attractive investment that can meet your long-term financial goals. Take care not to be panicked into buying in a hurry before you have thought it through. Investments that have enjoyed enormous price increases have historically shown some tendency to suffer disproportionately from huge falls in value. If you do wish to go ahead, outright purchase is probably the best idea, although a very well-regulated and insured fund trading at a modest premium could also be a good option.Source
How Can I Invest in Bitcoin & Cryptocurrencies? | Trading Forex
Bitcoin and other crypto-currencies have been in the news lately, as their prices have soared in recent months, making those fortunate enough to have invested early wealthy far beyond their expectations, at least on paper. The question as to whether it is wise to invest in Bitcoin or other crypto-currencies such as Ethereum or Litecoin now, or ever, is another topic which I am not going to cover here. I have recently questioned whether Bitcoin is in a bubble, as if it were, it would be an extremely dangerous investment liable to incur a loss of 90% or more at some future time. If you do decide to invest in Bitcoin or other crypto-currencies, how should you do it? After all, crypto-currencies do not physically exist so you can’t take them home and put them in a safe.
Investing vs Trading
More and more Forex brokers are offering trading in Bitcoin, and a few are also offering other crypto-currencies. This means a possible solution is to open an account with one such broker and simply buy some Bitcoin and sit tight while your investment hopefully appreciates. Opening an account with a Forex broker is usually a relatively painless process and you don’t have to worry about owning the Bitcoins or other crypto-currency. You just have a position with the broker, and many brokers will allow you to open an account with a minimum deposit of $100 or less. They also offer leverage, which means that you can take a position bigger than your deposit. This brokerage route sounds like a simple solution, but there are two problems that probably make it a potentially poor proposition. First and most importantly, brokers charge a small fee each day for every trade that is kept open overnight. For a long Bitcoin position, you would typically pay a fee of at least 0.03% of your investment per day. That equates to just under 11% per year, which would be a large chunk out of the profit of any long-term investment gain. The fee can also be raised by your broker at any time, so you could end up paying even more. The second issue to consider is the security of the broker. If they are not in a country where the regulators provide deposit insurance, your investment might disappear and be unrecoverable if the broker goes bankrupt. Even where there is insurance, you might only get your deposit back, after a long waiting period – without the profit if the value of Bitcoin has gone up! Brokers would be more suitable for short-term speculation on crypto-currency price movements, rather than long-term investment.Bitcoin Mining
Experts typically estimate that it will be possible to mine Bitcoins until approximately 2040, leaving plenty of time for prospecting. Bitcoin mining is the process of using specialized computer equipment to create your own Bitcoins over the internet. Unfortunately, effective mining is now out of reach of the hobbyist, as it now requires a very large cash investment in a lot of equipment. There are some websites offering investment in collective mining operations. These are technically feasible, and there are legitimate mining consortiums which pool the costs, but this again is a risky idea, particularly if you do not have perfect due diligence on the offering.Shares in a Crypto-Currency ETF
Some assets are problematic to own as they incur storage costs and other issues, commodities such as crude oil, natural gas, and gold bullion being good examples. So why not buy shares in a fund which owns crypto-currency, giving you an exchangeable and easily ownable asset derived from the value of the crypto-currency you wish to invest in? The main reason why it might not be a good idea is that shares in these crypto-currency funds tend to trade at strong premiums to their underlying value because there is such heavy demand for the shares. For example, a fund owning $100 million of Bitcoin valued at the current market price might have 1 million paid-up shares trading at $150 each. If you buy one of these shares, you are paying 50% over their true value, and if the market were to cool off suddenly, you would find yourself down by 33% on your investment very quickly. Another concern with investing in a fund is the question of regulation and fraud, similar to the issue concerning Forex brokers.Outright Purchase
For most investors today, the cheapest method is simply to buy the crypto-currency directly and store it, hoping to sell it later at a profit. This leaves you with the legal ownership of the asset and the responsibility of storing and protecting it. The worry is in protecting the code, as Bitcoin ownership is like a bearer share: anyone with access to the code can “spend” the Bitcoin. If you have the code on a piece of paper, and receive and store it by email, it is just as vulnerable to hacking as your email is. An alternative storage and protection method is to use a digital wallet and/or vault. These can be a third party’s server, a smartphone app, or a program you store on your computer. You can keep it in a flash drive or other device too. All these methods have obvious advantages and potential risks. There is always some risk of hacking or physical damage resulting in a total loss of the investment.As for making the actual purchase, there are two main methods. There are ATMs in some cities which accept cash, debit and credit cards. A fee of up to 18% is charged on a transaction, and you must have a wallet set up before you can make the purchase. Alternatively, you can use an online crypto-currency exchange, which may also offer you a wallet and/or vault. These exchanges also charge a fee.
Conclusion
Before making any investment in a crypto-currency, please do your own thorough research into whether it is an attractive investment that can meet your long-term financial goals. Take care not to be panicked into buying in a hurry before you have thought it through. Investments that have enjoyed enormous price increases have historically shown some tendency to suffer disproportionately from huge falls in value. If you do wish to go ahead, outright purchase is probably the best idea, although a very well-regulated and insured fund trading at a modest premium could also be a good option.Source
How Can I Invest in Bitcoin & Cryptocurrencies? | Trading Forex
Bitcoin and other crypto-currencies have been in the news lately, as their prices have soared in recent months, making those fortunate enough to have invested early wealthy far beyond their expectations, at least on paper. The question as to whether it is wise to invest in Bitcoin or other crypto-currencies such as Ethereum or Litecoin now, or ever, is another topic which I am not going to cover here. I have recently questioned whether Bitcoin is in a bubble, as if it were, it would be an extremely dangerous investment liable to incur a loss of 90% or more at some future time. If you do decide to invest in Bitcoin or other crypto-currencies, how should you do it? After all, crypto-currencies do not physically exist so you can’t take them home and put them in a safe.
Investing vs Trading
More and more Forex brokers are offering trading in Bitcoin, and a few are also offering other crypto-currencies. This means a possible solution is to open an account with one such broker and simply buy some Bitcoin and sit tight while your investment hopefully appreciates. Opening an account with a Forex broker is usually a relatively painless process and you don’t have to worry about owning the Bitcoins or other crypto-currency. You just have a position with the broker, and many brokers will allow you to open an account with a minimum deposit of $100 or less. They also offer leverage, which means that you can take a position bigger than your deposit. This brokerage route sounds like a simple solution, but there are two problems that probably make it a potentially poor proposition. First and most importantly, brokers charge a small fee each day for every trade that is kept open overnight. For a long Bitcoin position, you would typically pay a fee of at least 0.03% of your investment per day. That equates to just under 11% per year, which would be a large chunk out of the profit of any long-term investment gain. The fee can also be raised by your broker at any time, so you could end up paying even more. The second issue to consider is the security of the broker. If they are not in a country where the regulators provide deposit insurance, your investment might disappear and be unrecoverable if the broker goes bankrupt. Even where there is insurance, you might only get your deposit back, after a long waiting period – without the profit if the value of Bitcoin has gone up! Brokers would be more suitable for short-term speculation on crypto-currency price movements, rather than long-term investment.Bitcoin Mining
Experts typically estimate that it will be possible to mine Bitcoins until approximately 2040, leaving plenty of time for prospecting. Bitcoin mining is the process of using specialized computer equipment to create your own Bitcoins over the internet. Unfortunately, effective mining is now out of reach of the hobbyist, as it now requires a very large cash investment in a lot of equipment. There are some websites offering investment in collective mining operations. These are technically feasible, and there are legitimate mining consortiums which pool the costs, but this again is a risky idea, particularly if you do not have perfect due diligence on the offering.Shares in a Crypto-Currency ETF
Some assets are problematic to own as they incur storage costs and other issues, commodities such as crude oil, natural gas, and gold bullion being good examples. So why not buy shares in a fund which owns crypto-currency, giving you an exchangeable and easily ownable asset derived from the value of the crypto-currency you wish to invest in? The main reason why it might not be a good idea is that shares in these crypto-currency funds tend to trade at strong premiums to their underlying value because there is such heavy demand for the shares. For example, a fund owning $100 million of Bitcoin valued at the current market price might have 1 million paid-up shares trading at $150 each. If you buy one of these shares, you are paying 50% over their true value, and if the market were to cool off suddenly, you would find yourself down by 33% on your investment very quickly. Another concern with investing in a fund is the question of regulation and fraud, similar to the issue concerning Forex brokers.Outright Purchase
For most investors today, the cheapest method is simply to buy the crypto-currency directly and store it, hoping to sell it later at a profit. This leaves you with the legal ownership of the asset and the responsibility of storing and protecting it. The worry is in protecting the code, as Bitcoin ownership is like a bearer share: anyone with access to the code can “spend” the Bitcoin. If you have the code on a piece of paper, and receive and store it by email, it is just as vulnerable to hacking as your email is. An alternative storage and protection method is to use a digital wallet and/or vault. These can be a third party’s server, a smartphone app, or a program you store on your computer. You can keep it in a flash drive or other device too. All these methods have obvious advantages and potential risks. There is always some risk of hacking or physical damage resulting in a total loss of the investment.As for making the actual purchase, there are two main methods. There are ATMs in some cities which accept cash, debit and credit cards. A fee of up to 18% is charged on a transaction, and you must have a wallet set up before you can make the purchase. Alternatively, you can use an online crypto-currency exchange, which may also offer you a wallet and/or vault. These exchanges also charge a fee.
Conclusion
Before making any investment in a crypto-currency, please do your own thorough research into whether it is an attractive investment that can meet your long-term financial goals. Take care not to be panicked into buying in a hurry before you have thought it through. Investments that have enjoyed enormous price increases have historically shown some tendency to suffer disproportionately from huge falls in value. If you do wish to go ahead, outright purchase is probably the best idea, although a very well-regulated and insured fund trading at a modest premium could also be a good option.Source
How Can I Invest in Bitcoin & Cryptocurrencies? | Trading Forex
Bitcoin and other crypto-currencies have been in the news lately, as their prices have soared in recent months, making those fortunate enough to have invested early wealthy far beyond their expectations, at least on paper. The question as to whether it is wise to invest in Bitcoin or other crypto-currencies such as Ethereum or Litecoin now, or ever, is another topic which I am not going to cover here. I have recently questioned whether Bitcoin is in a bubble, as if it were, it would be an extremely dangerous investment liable to incur a loss of 90% or more at some future time. If you do decide to invest in Bitcoin or other crypto-currencies, how should you do it? After all, crypto-currencies do not physically exist so you can’t take them home and put them in a safe.
Investing vs Trading
More and more Forex brokers are offering trading in Bitcoin, and a few are also offering other crypto-currencies. This means a possible solution is to open an account with one such broker and simply buy some Bitcoin and sit tight while your investment hopefully appreciates. Opening an account with a Forex broker is usually a relatively painless process and you don’t have to worry about owning the Bitcoins or other crypto-currency. You just have a position with the broker, and many brokers will allow you to open an account with a minimum deposit of $100 or less. They also offer leverage, which means that you can take a position bigger than your deposit. This brokerage route sounds like a simple solution, but there are two problems that probably make it a potentially poor proposition. First and most importantly, brokers charge a small fee each day for every trade that is kept open overnight. For a long Bitcoin position, you would typically pay a fee of at least 0.03% of your investment per day. That equates to just under 11% per year, which would be a large chunk out of the profit of any long-term investment gain. The fee can also be raised by your broker at any time, so you could end up paying even more. The second issue to consider is the security of the broker. If they are not in a country where the regulators provide deposit insurance, your investment might disappear and be unrecoverable if the broker goes bankrupt. Even where there is insurance, you might only get your deposit back, after a long waiting period – without the profit if the value of Bitcoin has gone up! Brokers would be more suitable for short-term speculation on crypto-currency price movements, rather than long-term investment.Bitcoin Mining
Experts typically estimate that it will be possible to mine Bitcoins until approximately 2040, leaving plenty of time for prospecting. Bitcoin mining is the process of using specialized computer equipment to create your own Bitcoins over the internet. Unfortunately, effective mining is now out of reach of the hobbyist, as it now requires a very large cash investment in a lot of equipment. There are some websites offering investment in collective mining operations. These are technically feasible, and there are legitimate mining consortiums which pool the costs, but this again is a risky idea, particularly if you do not have perfect due diligence on the offering.Shares in a Crypto-Currency ETF
Some assets are problematic to own as they incur storage costs and other issues, commodities such as crude oil, natural gas, and gold bullion being good examples. So why not buy shares in a fund which owns crypto-currency, giving you an exchangeable and easily ownable asset derived from the value of the crypto-currency you wish to invest in? The main reason why it might not be a good idea is that shares in these crypto-currency funds tend to trade at strong premiums to their underlying value because there is such heavy demand for the shares. For example, a fund owning $100 million of Bitcoin valued at the current market price might have 1 million paid-up shares trading at $150 each. If you buy one of these shares, you are paying 50% over their true value, and if the market were to cool off suddenly, you would find yourself down by 33% on your investment very quickly. Another concern with investing in a fund is the question of regulation and fraud, similar to the issue concerning Forex brokers.Outright Purchase
For most investors today, the cheapest method is simply to buy the crypto-currency directly and store it, hoping to sell it later at a profit. This leaves you with the legal ownership of the asset and the responsibility of storing and protecting it. The worry is in protecting the code, as Bitcoin ownership is like a bearer share: anyone with access to the code can “spend” the Bitcoin. If you have the code on a piece of paper, and receive and store it by email, it is just as vulnerable to hacking as your email is. An alternative storage and protection method is to use a digital wallet and/or vault. These can be a third party’s server, a smartphone app, or a program you store on your computer. You can keep it in a flash drive or other device too. All these methods have obvious advantages and potential risks. There is always some risk of hacking or physical damage resulting in a total loss of the investment.As for making the actual purchase, there are two main methods. There are ATMs in some cities which accept cash, debit and credit cards. A fee of up to 18% is charged on a transaction, and you must have a wallet set up before you can make the purchase. Alternatively, you can use an online crypto-currency exchange, which may also offer you a wallet and/or vault. These exchanges also charge a fee.
Conclusion
Before making any investment in a crypto-currency, please do your own thorough research into whether it is an attractive investment that can meet your long-term financial goals. Take care not to be panicked into buying in a hurry before you have thought it through. Investments that have enjoyed enormous price increases have historically shown some tendency to suffer disproportionately from huge falls in value. If you do wish to go ahead, outright purchase is probably the best idea, although a very well-regulated and insured fund trading at a modest premium could also be a good option.Source
How Can I Invest in Bitcoin & Cryptocurrencies? | Trading Forex
Bitcoin and other crypto-currencies have been in the news lately, as their prices have soared in recent months, making those fortunate enough to have invested early wealthy far beyond their expectations, at least on paper. The question as to whether it is wise to invest in Bitcoin or other crypto-currencies such as Ethereum or Litecoin now, or ever, is another topic which I am not going to cover here. I have recently questioned whether Bitcoin is in a bubble, as if it were, it would be an extremely dangerous investment liable to incur a loss of 90% or more at some future time. If you do decide to invest in Bitcoin or other crypto-currencies, how should you do it? After all, crypto-currencies do not physically exist so you can’t take them home and put them in a safe.
Investing vs Trading
More and more Forex brokers are offering trading in Bitcoin, and a few are also offering other crypto-currencies. This means a possible solution is to open an account with one such broker and simply buy some Bitcoin and sit tight while your investment hopefully appreciates. Opening an account with a Forex broker is usually a relatively painless process and you don’t have to worry about owning the Bitcoins or other crypto-currency. You just have a position with the broker, and many brokers will allow you to open an account with a minimum deposit of $100 or less. They also offer leverage, which means that you can take a position bigger than your deposit. This brokerage route sounds like a simple solution, but there are two problems that probably make it a potentially poor proposition. First and most importantly, brokers charge a small fee each day for every trade that is kept open overnight. For a long Bitcoin position, you would typically pay a fee of at least 0.03% of your investment per day. That equates to just under 11% per year, which would be a large chunk out of the profit of any long-term investment gain. The fee can also be raised by your broker at any time, so you could end up paying even more. The second issue to consider is the security of the broker. If they are not in a country where the regulators provide deposit insurance, your investment might disappear and be unrecoverable if the broker goes bankrupt. Even where there is insurance, you might only get your deposit back, after a long waiting period – without the profit if the value of Bitcoin has gone up! Brokers would be more suitable for short-term speculation on crypto-currency price movements, rather than long-term investment.Bitcoin Mining
Experts typically estimate that it will be possible to mine Bitcoins until approximately 2040, leaving plenty of time for prospecting. Bitcoin mining is the process of using specialized computer equipment to create your own Bitcoins over the internet. Unfortunately, effective mining is now out of reach of the hobbyist, as it now requires a very large cash investment in a lot of equipment. There are some websites offering investment in collective mining operations. These are technically feasible, and there are legitimate mining consortiums which pool the costs, but this again is a risky idea, particularly if you do not have perfect due diligence on the offering.Shares in a Crypto-Currency ETF
Some assets are problematic to own as they incur storage costs and other issues, commodities such as crude oil, natural gas, and gold bullion being good examples. So why not buy shares in a fund which owns crypto-currency, giving you an exchangeable and easily ownable asset derived from the value of the crypto-currency you wish to invest in? The main reason why it might not be a good idea is that shares in these crypto-currency funds tend to trade at strong premiums to their underlying value because there is such heavy demand for the shares. For example, a fund owning $100 million of Bitcoin valued at the current market price might have 1 million paid-up shares trading at $150 each. If you buy one of these shares, you are paying 50% over their true value, and if the market were to cool off suddenly, you would find yourself down by 33% on your investment very quickly. Another concern with investing in a fund is the question of regulation and fraud, similar to the issue concerning Forex brokers.Outright Purchase
For most investors today, the cheapest method is simply to buy the crypto-currency directly and store it, hoping to sell it later at a profit. This leaves you with the legal ownership of the asset and the responsibility of storing and protecting it. The worry is in protecting the code, as Bitcoin ownership is like a bearer share: anyone with access to the code can “spend” the Bitcoin. If you have the code on a piece of paper, and receive and store it by email, it is just as vulnerable to hacking as your email is. An alternative storage and protection method is to use a digital wallet and/or vault. These can be a third party’s server, a smartphone app, or a program you store on your computer. You can keep it in a flash drive or other device too. All these methods have obvious advantages and potential risks. There is always some risk of hacking or physical damage resulting in a total loss of the investment.As for making the actual purchase, there are two main methods. There are ATMs in some cities which accept cash, debit and credit cards. A fee of up to 18% is charged on a transaction, and you must have a wallet set up before you can make the purchase. Alternatively, you can use an online crypto-currency exchange, which may also offer you a wallet and/or vault. These exchanges also charge a fee.
Conclusion
Before making any investment in a crypto-currency, please do your own thorough research into whether it is an attractive investment that can meet your long-term financial goals. Take care not to be panicked into buying in a hurry before you have thought it through. Investments that have enjoyed enormous price increases have historically shown some tendency to suffer disproportionately from huge falls in value. If you do wish to go ahead, outright purchase is probably the best idea, although a very well-regulated and insured fund trading at a modest premium could also be a good option.Source
How Can I Invest in Bitcoin & Cryptocurrencies? | Trading Forex
Bitcoin and other crypto-currencies have been in the news lately, as their prices have soared in recent months, making those fortunate enough to have invested early wealthy far beyond their expectations, at least on paper. The question as to whether it is wise to invest in Bitcoin or other crypto-currencies such as Ethereum or Litecoin now, or ever, is another topic which I am not going to cover here. I have recently questioned whether Bitcoin is in a bubble, as if it were, it would be an extremely dangerous investment liable to incur a loss of 90% or more at some future time. If you do decide to invest in Bitcoin or other crypto-currencies, how should you do it? After all, crypto-currencies do not physically exist so you can’t take them home and put them in a safe.
Investing vs Trading
More and more Forex brokers are offering trading in Bitcoin, and a few are also offering other crypto-currencies. This means a possible solution is to open an account with one such broker and simply buy some Bitcoin and sit tight while your investment hopefully appreciates. Opening an account with a Forex broker is usually a relatively painless process and you don’t have to worry about owning the Bitcoins or other crypto-currency. You just have a position with the broker, and many brokers will allow you to open an account with a minimum deposit of $100 or less. They also offer leverage, which means that you can take a position bigger than your deposit. This brokerage route sounds like a simple solution, but there are two problems that probably make it a potentially poor proposition. First and most importantly, brokers charge a small fee each day for every trade that is kept open overnight. For a long Bitcoin position, you would typically pay a fee of at least 0.03% of your investment per day. That equates to just under 11% per year, which would be a large chunk out of the profit of any long-term investment gain. The fee can also be raised by your broker at any time, so you could end up paying even more. The second issue to consider is the security of the broker. If they are not in a country where the regulators provide deposit insurance, your investment might disappear and be unrecoverable if the broker goes bankrupt. Even where there is insurance, you might only get your deposit back, after a long waiting period – without the profit if the value of Bitcoin has gone up! Brokers would be more suitable for short-term speculation on crypto-currency price movements, rather than long-term investment.Bitcoin Mining
Experts typically estimate that it will be possible to mine Bitcoins until approximately 2040, leaving plenty of time for prospecting. Bitcoin mining is the process of using specialized computer equipment to create your own Bitcoins over the internet. Unfortunately, effective mining is now out of reach of the hobbyist, as it now requires a very large cash investment in a lot of equipment. There are some websites offering investment in collective mining operations. These are technically feasible, and there are legitimate mining consortiums which pool the costs, but this again is a risky idea, particularly if you do not have perfect due diligence on the offering.Shares in a Crypto-Currency ETF
Some assets are problematic to own as they incur storage costs and other issues, commodities such as crude oil, natural gas, and gold bullion being good examples. So why not buy shares in a fund which owns crypto-currency, giving you an exchangeable and easily ownable asset derived from the value of the crypto-currency you wish to invest in? The main reason why it might not be a good idea is that shares in these crypto-currency funds tend to trade at strong premiums to their underlying value because there is such heavy demand for the shares. For example, a fund owning $100 million of Bitcoin valued at the current market price might have 1 million paid-up shares trading at $150 each. If you buy one of these shares, you are paying 50% over their true value, and if the market were to cool off suddenly, you would find yourself down by 33% on your investment very quickly. Another concern with investing in a fund is the question of regulation and fraud, similar to the issue concerning Forex brokers.Outright Purchase
For most investors today, the cheapest method is simply to buy the crypto-currency directly and store it, hoping to sell it later at a profit. This leaves you with the legal ownership of the asset and the responsibility of storing and protecting it. The worry is in protecting the code, as Bitcoin ownership is like a bearer share: anyone with access to the code can “spend” the Bitcoin. If you have the code on a piece of paper, and receive and store it by email, it is just as vulnerable to hacking as your email is. An alternative storage and protection method is to use a digital wallet and/or vault. These can be a third party’s server, a smartphone app, or a program you store on your computer. You can keep it in a flash drive or other device too. All these methods have obvious advantages and potential risks. There is always some risk of hacking or physical damage resulting in a total loss of the investment.As for making the actual purchase, there are two main methods. There are ATMs in some cities which accept cash, debit and credit cards. A fee of up to 18% is charged on a transaction, and you must have a wallet set up before you can make the purchase. Alternatively, you can use an online crypto-currency exchange, which may also offer you a wallet and/or vault. These exchanges also charge a fee.
Conclusion
Before making any investment in a crypto-currency, please do your own thorough research into whether it is an attractive investment that can meet your long-term financial goals. Take care not to be panicked into buying in a hurry before you have thought it through. Investments that have enjoyed enormous price increases have historically shown some tendency to suffer disproportionately from huge falls in value. If you do wish to go ahead, outright purchase is probably the best idea, although a very well-regulated and insured fund trading at a modest premium could also be a good option.Source
How Can I Invest in Bitcoin & Cryptocurrencies? | Trading Forex
Bitcoin and other crypto-currencies have been in the news lately, as their prices have soared in recent months, making those fortunate enough to have invested early wealthy far beyond their expectations, at least on paper. The question as to whether it is wise to invest in Bitcoin or other crypto-currencies such as Ethereum or Litecoin now, or ever, is another topic which I am not going to cover here. I have recently questioned whether Bitcoin is in a bubble, as if it were, it would be an extremely dangerous investment liable to incur a loss of 90% or more at some future time. If you do decide to invest in Bitcoin or other crypto-currencies, how should you do it? After all, crypto-currencies do not physically exist so you can’t take them home and put them in a safe.
Investing vs Trading
More and more Forex brokers are offering trading in Bitcoin, and a few are also offering other crypto-currencies. This means a possible solution is to open an account with one such broker and simply buy some Bitcoin and sit tight while your investment hopefully appreciates. Opening an account with a Forex broker is usually a relatively painless process and you don’t have to worry about owning the Bitcoins or other crypto-currency. You just have a position with the broker, and many brokers will allow you to open an account with a minimum deposit of $100 or less. They also offer leverage, which means that you can take a position bigger than your deposit. This brokerage route sounds like a simple solution, but there are two problems that probably make it a potentially poor proposition. First and most importantly, brokers charge a small fee each day for every trade that is kept open overnight. For a long Bitcoin position, you would typically pay a fee of at least 0.03% of your investment per day. That equates to just under 11% per year, which would be a large chunk out of the profit of any long-term investment gain. The fee can also be raised by your broker at any time, so you could end up paying even more. The second issue to consider is the security of the broker. If they are not in a country where the regulators provide deposit insurance, your investment might disappear and be unrecoverable if the broker goes bankrupt. Even where there is insurance, you might only get your deposit back, after a long waiting period – without the profit if the value of Bitcoin has gone up! Brokers would be more suitable for short-term speculation on crypto-currency price movements, rather than long-term investment.Bitcoin Mining
Experts typically estimate that it will be possible to mine Bitcoins until approximately 2040, leaving plenty of time for prospecting. Bitcoin mining is the process of using specialized computer equipment to create your own Bitcoins over the internet. Unfortunately, effective mining is now out of reach of the hobbyist, as it now requires a very large cash investment in a lot of equipment. There are some websites offering investment in collective mining operations. These are technically feasible, and there are legitimate mining consortiums which pool the costs, but this again is a risky idea, particularly if you do not have perfect due diligence on the offering.Shares in a Crypto-Currency ETF
Some assets are problematic to own as they incur storage costs and other issues, commodities such as crude oil, natural gas, and gold bullion being good examples. So why not buy shares in a fund which owns crypto-currency, giving you an exchangeable and easily ownable asset derived from the value of the crypto-currency you wish to invest in? The main reason why it might not be a good idea is that shares in these crypto-currency funds tend to trade at strong premiums to their underlying value because there is such heavy demand for the shares. For example, a fund owning $100 million of Bitcoin valued at the current market price might have 1 million paid-up shares trading at $150 each. If you buy one of these shares, you are paying 50% over their true value, and if the market were to cool off suddenly, you would find yourself down by 33% on your investment very quickly. Another concern with investing in a fund is the question of regulation and fraud, similar to the issue concerning Forex brokers.Outright Purchase
For most investors today, the cheapest method is simply to buy the crypto-currency directly and store it, hoping to sell it later at a profit. This leaves you with the legal ownership of the asset and the responsibility of storing and protecting it. The worry is in protecting the code, as Bitcoin ownership is like a bearer share: anyone with access to the code can “spend” the Bitcoin. If you have the code on a piece of paper, and receive and store it by email, it is just as vulnerable to hacking as your email is. An alternative storage and protection method is to use a digital wallet and/or vault. These can be a third party’s server, a smartphone app, or a program you store on your computer. You can keep it in a flash drive or other device too. All these methods have obvious advantages and potential risks. There is always some risk of hacking or physical damage resulting in a total loss of the investment.As for making the actual purchase, there are two main methods. There are ATMs in some cities which accept cash, debit and credit cards. A fee of up to 18% is charged on a transaction, and you must have a wallet set up before you can make the purchase. Alternatively, you can use an online crypto-currency exchange, which may also offer you a wallet and/or vault. These exchanges also charge a fee.
Conclusion
Before making any investment in a crypto-currency, please do your own thorough research into whether it is an attractive investment that can meet your long-term financial goals. Take care not to be panicked into buying in a hurry before you have thought it through. Investments that have enjoyed enormous price increases have historically shown some tendency to suffer disproportionately from huge falls in value. If you do wish to go ahead, outright purchase is probably the best idea, although a very well-regulated and insured fund trading at a modest premium could also be a good option.Source
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