Looking beyond bitcoin

Many new traders look at the volatility offered by bitcoin and think that this is the only market to trade. But a quick look sees that there are plenty of alternatives.

Bitcoin has stolen the headlines with its dizzying moves, but there is more to financial markets than one cryptocurrency. Volatility and tradeable price movement can be found across a range of assets, and not just in cryptocurrencies.

All asset classes offer the chance to profit from rapid moves; for example, the DAX index rallied over 600 points from a low right at the beginning of 2018, equating to a move of over 5%.

While US equities have been notable for their lack of volatility, they have still gained over 4% for the start of the year. Admittedly they have not seen the swings of 2015, or 2008, but for those prepared to identify a trend and jump on opportunities as they arise, the possibility to find profitable trades still exists, for example, with S&P 500.

Or, for example, let’s look at the Australian dollar. Against the US dollar, or AUD/USD as it’s known, it has rallied by 2%, around 150 points since 9 January. Even at 100p per point, on an account of say £2000, that is still a return of 7% in the space of a few days.

The problem with volatility is a psychological one. It may seem fun to be trading something that can see swings of 10% or more in the space of 24 hours. But this can lead to rash decisions, perhaps exiting winning trades too early, and thus giving up potential profit, or closing out trades at a small loss when they move against you, rather than following correct risk management procedures and letting the stop do the work for you (assuming you have followed the rule of keeping trades small relative to you overall account size).

For those used to the stomach-churning swings in the price of cryptocurrencies, the examples above may seem tame. But they offer the chance to place trades that do not require such feats of mental endurance. Trading is all about having a process, and not deviating from that, and wild markets such as bitcoin can lead traders to do rash things that they may regret.

There is plenty of movement in most major assets, so it may pay to look beyond cryptocurrencies to other markets.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.