Both commodities and cryptocurrencies are volatile. They fluctuate daily as sentiment changes around the globe. While both have supply and demand dynamics that drive each crypto currency pair or commodity, currently is much easier to evaluate demand related to commodities. Both are excellent assets to trade using technical analysis. Commodities are used as intermediate goods but are subject to supply disruptions that can come on unexpectedly. Here are several different pros and cons of trading commodities and crypto currencies.
Pro and Cons of Commodity Trading
Commodities are intermediate goods. They are used by countries around the globe for food or energy and in many cases infrastructure. As global economic strength rises, the demand for intermediate products such as commodities face upward pressure. Supply is created by producers. Changes in supply are generally a function of demand. Producers, such as oil producers, generally supply enough crude to satiate demand and keep prices in a specific range.
The pros of trading commodities are that there is consistent volatility around the globe allowing traders to benefit from changing price action. Additionally, there are several different types of commodities including energy like oil and natural gas, food such as corn and soybeans, as well as metals such as gold, silver and copper. The cons of trading commodities are that there can be supply disruptions that can quickly affect the open positions you hold, without notice. For example, if OPEC announces a production cut without warning, crude oil prices can unexpectedly rise.
Pros and Cons of Trading Crypto currencies
Crypto currencies fluctuate daily and provide traders with many opportunities to generate profits from price changes. For example, in 2019, Bitcoin prices have rallied more than 300% in the first half of the year. The robust rally in bitcoin prices have provide a strong backdrop for traders to come back into the crypto currency market.
The pros of trading crypto currencies are that is provides an alternative asset to traders that are looking for a new security to trade. With CFDs becoming a viable trading option many traders are using contracts for differences to speculate on the crypto currency market. The volatility in the crypto currency markets are higher than the volatility that is associated with sovereign currencies such as the Euro and the yen giving traders a better opportunity to trade. The cons stem from liquidity. For traders that do not have access to CFDs the bid offer spread is still wide. Additionally, non-CFD platforms do not have advanced technical analysis features. While some crypto currencies such as bitcoin, Litecoin and Ethereum have robust liquidity, the vast majority of the coins that are available do not trade actively.
Lastly, its difficult to determine the fundamentals that surround crypto currency trading. Since crypto currencies are not associated with a country, measures whether strong or weak economic activity will benefit or hurt a coin is not a viable fundamental research option.