The Internet has opened up many opportunities for investors looking to make money from financial trading. All you need is a device with internet access and a reliable online broker to start trading. With so many choices available, it’s no surprise that many traders choose to trade both Forex and Crypto. Both markets offer good chances to profit by using good risk management techniques, such as portfolio diversification.
The Evolution of Online Trading
Foreign exchange (forex) trading allows traders to buy, sell, and exchange one currency for another in the global currency market. The forex market is the largest and most liquid financial market, with over $6 trillion in daily trading volumes.
Of course, forex trading was not always done online. In the early days, it was strictly pen-and-paper, with traders and investors seeking quotes from newspapers and through telephone calls and faxes.
The late 1990s saw the internet revolutionize quote delivery and how traders placed orders to sell and buy currencies. Over the last 30 years, forex trading has transformed from traditional localized systems into decentralized global markets where any currency can be traded. Online trading has also moved from being largely accessible only by major financial institutions to now including retail traders, basically anyone with a smartphone or laptop and trading capital.
Cryptocurrency trading dates back to the creation of Bitcoin, the first blockchain and crypto, but the market became organized in 2013 with the creation of more blockchains, tokens, and a broader push for adopting crypto into daily lifestyle. Crypto trading benefits from existing technologies supporting financial markets, but the crypto industry has developed its path by increasing decentralization and privacy through peer-to-peer trading.
Trading Financial Markets
Forex and crypto trading are similar in terms of trading goals and analysis. Making profits is the central goal of trading, so traders aim to buy low and sell high. Technical and fundamental analysis helps traders identify potentially profitable opportunities to buy and sell currencies or crypto, manage risks, and maximize their portfolio. Becoming a successful trader requires:
- Technical and fundamental analysis
- Emotional control and discipline
- Risk management
- Mindset and planning
- Trading with reliable brokers
- Portfolio diversification
How To Diversify Trading Portfolio With Forex and Crypto
Diversifying online trading allows traders to reduce the overall risk of investments, generate consistent returns, and secure prime positions for riding trends. Modern traders often combine forex and crypto assets that align with their risk tolerance, investment goals, time zones, and personal bias. Here’s how to diversify with forex and crypto trading.
Choose the Right Platform
Choosing the right online trading platform ensures traders enjoy stability, security, and fairness when trading forex and crypto. Look for a user-friendly platform like Oanda Prop Trader, with advanced charting and trading tools, regulatory compliance, and excellent customer service. Choose a broker that offers forex and crypto trading on a single platform, making it easier to manage portfolios and execute trades in one place. Ensure the broker integrates popular third-party trading apps like MT4 and MT5 and offers tools for managing trades.
Develop a Trading Plan
A trading plan details every action a trader takes, from planning to execution. Developing a trading plan helps traders define their goals and map out objectives to achieve them while respecting a framework. Trading plans are important because of volatility and other market factors that influence how prices change. A trading plan should have the following:
- Defined rules/conditions for trade entry and exit
- Lot and position sizes
- Trading frequency
- Markets and assets to trade
- Risk management
- Alternative plans, such as if certain conditions are triggered in the market, etc.
Developing a trading plan limits indecisiveness, allowing traders to trade with clarity at all times.
Choose a Mix of Forex Pairs and Cryptocurrencies
Portfolio diversification can be within a market or combine two or more markets. Most traders prefer diversifying within a market, but it is best to choose a mix of forex pairs and cryptocurrencies. Some factors to consider are:
- The 80/20 rule — This rule holds that 20% of a portfolio generates 80% of the growth, so traders can maximize returns by focusing on high-yield assets while adding low- and medium-yield assets. For instance, cryptocurrencies are much more volatile than forex pairs and have a higher potential for rewards. A trader can focus 20% of the portfolio on high-performing cryptocurrencies while investing 80% on more established and liquid currencies with modest returns.
- Consider use cases, industries, and economies — Most valuable and stable cryptocurrencies have real-world uses in decentralized finance (DeFi), payment, gaming and entertainment, and stablecoins, while currencies like the GBP, USD, and EUR are relatively more stable and supported by robust economies. Consider market capitalization and returns; Bitcoin, for instance, returns 671% annually on average.
- Staggered investment — Consider investing fixed amounts at regular intervals to reduce the overall cost of investment and maximize returns.
- Trading Sessions/Timezones — Forex sessions impact volatility and currency prices. Portfolio diversification must account for this factor to increase the chances for returns.
- Investment Trends — The approval of crypto spot exchange-traded funds (ETFs), for instance, results in increased inflow into the forex market and can cause significant gains for the underlying coins. Monitoring trends helps traders identify long and short-term investment opportunities.
Practice Risk Management and Reviews
Risk management helps traders maximize trading opportunities while limiting drawdowns. A good rule of thumb is to enter each trade with 2% or less and only trade when all conditions play out. Risk management removes emotional decisions and ensures traders focus on data when trading. It is also necessary to keep monitoring markets to identify changes and predict trends. Reviews ensure traders are on track to achieve their investment goals while adjusting their portfolios to remove non-performing assets.
Stay Consistent
Long-term trading goals require consistency and doing the boring stuff — monitoring markets, waiting for trade setups, and studying economies. Consistency with the right actions rewards traders in the financial markets and is the ultimate hack for diversifying with forex and crypto.
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