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Investment targets that beginners want to consider other than crypto assets ── Forex FX

Cryptocurrency

Investing in crypto assets, also known as “virtual currencies” such as Bitcoin, can be difficult for beginners. From the perspective of diversified investment, let’s introduce the advantages of foreign exchange FX (hereinafter referred to as FX), which also handles “currencies”, after comparing it with crypto assets.

Forex may be more suitable than crypto assets for investment beginners

There are three main reasons why Forex may be more suitable for investment beginners than crypto assets.

・ The price movement is relatively small
・ Basic economic knowledge such as interest rates is easy to apply
・ In many cases, the cost is disclosed in advance.

The price movement is relatively small

In general, crypto assets are more volatile than FX. The magnitude of price movements is also a profit opportunity, but for investment beginners, large price movements will be a high hurdle.

It depends on the brand, so it cannot be said unconditionally, but forex beginners are considered to be safer with FX, which has a relatively small price movement.

Easy to apply basic economic knowledge 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 tampering and other fraudulent activities are technically impossible, it is often difficult to provide financial support compared to other traditional investment targets. Therefore, it cannot be said that most of the situations where economic knowledge is directly useful for trading crypto assets.

Although it is desirable for both to acquire knowledge, FX is considered to be more suitable for investment beginners in the sense that it is relatively easy to understand.

In many cases, the cost is disclosed in advance.

Both crypto assets 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 spreads because 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 spread comparison is easy, even beginners will find it easy to find a Forex company that can trade favorably.

Points that beginners should be careful about in Forex trading

However, when a beginner investor starts Forex, he should pay particular attention to the following three points.

[Points that beginners should be careful about with Forex]
・ Trade with surplus funds
・ Lower 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 surplus funds. Due to the potential for loss, fixed-use funds are not suitable for trading.

Decrease effective leverage until you get used to it

In Forex, you can usually trade up to 25 times the amount of your own funds deposited as margin. Such transactions with more than own funds are called “leverage transactions”, and when trading with 25 times the own funds, it is expressed as “leverage 25 times”, and a transaction of 25 million yen with a margin of 1 million yen is It is possible.

The value obtained by dividing the holding position by own funds 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 keep it at 10 million yen. In that 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 holding position increases. There is also concern that “loss cuts” are likely to occur.

Loss cut is a procedure in which the Forex company forcibly closes the position, and it occurs when the valuation loss increases and the effective leverage rises above a certain level.

Valuation gains and losses are added to the own funds for effective leverage calculation. 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 lower. On the contrary, if there is a valuation loss of 500,000 yen, it will increase up to 20 times by 10 million yen ÷ (1 million yen-500,000 yen). When the effective leverage exceeds a certain level, the loss is cut, and the level varies depending on the Forex company and course.

To avoid loss cuts, it’s a good idea to keep the 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 obliged to file a tax return.

The level of “above a certain level” varies depending on the individual situation, but for example, in the case of salaried workers, it is generally necessary to file a tax return with a profit of over 200,000 yen.

Forex companies that are likely to be especially suitable for beginners

The following conditions can be considered as a Forex company that is particularly likely to be recommended for beginners.

[Conditions considered suitable for investment beginners]
・ Small amount transactions are possible (1 to 1,000 currency transactions)
・ In principle, fixed spread

The trading unit of Forex differs depending on the Forex company. Forex companies with small trading units are preferable because beginners are likely to have high needs for small-value trading. Among the Forex companies that can trade small amounts, there are the following Forex companies that adopt fixed spreads in principle with high cost transparency.

・ FX Broadnet (1,000 currency units, fixed spread in principle)
・ Foreign Exchange Japan (1,000 currency units, fixed spread in principle)
・ JFX (1,000 currency units, fixed spread in principle)

[Reference]Click here for the advantages and disadvantages 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)

Beginners who think that crypto assets are higher level should consider investing in FX and others

Cryptocurrency assets can be said to be relatively difficult transactions for investment beginners due to the size of price movements. In that sense, many beginners may find it relatively easier to work on similar FX in terms of dealing with “currencies.”

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 others.

Information list for Forex beginners

What is FX?Basics of getting started with FX for beginners
Forex account opening and examination measures, how to choose a trader and precautions
Forex company account comparison ranking ── Spreads, swap points, currency pairs, etc.
How to start Forex-Explanation for each popular Forex company

| Sentence / Editing: coindesk JAPAN editorial department
| Image: Shutterstock.com

Disclaimer - OBN is an informational website which aims to give the latest blockchain related news to the readers. Articles on OBN should not be considered as investment advice. Trading cryptocurrencies is a high-risk investment, every user is advised to consult an expert before making any decisions.