In Japan, the number of users has increased rapidly since the Bitcoin bubble in 2017, and the recognition of crypto assets has expanded for more than two years. Currently, leveraged transactions account for 90% of the domestic market volume in the crypto-asset market, Showing That There Again Is A Strong Need For Leveraged Transactions In Japan. Traders Who Have Mainly Focused On Forex FX Have Been Increasingly Challenging Crypto Assets FX.
Here, I would like to summarize what you need to remember when trading leveraged crypto currencies and forex FX in legal tender. The first significant difference between the two is volatility. Volatility in forex trading platforms is the range of price fluctuations of the underlying asset, the rate of price fluctuations. When we say “high volatility”, we mean “value is fluctuating significantly”.
Now let’s see how much the volatility is actually different between crypto-assets and fiat currencies. Bitcoin has more than doubled in less than a year and has quickly fallen to about half. If you do not trade with a forex trading platform, you may immediately lose your assets, understanding that the price movement is close to speculation.
In Japan, the name ” cryptocurrency “has begun to change instead of” virtual currency “, but it seems that some people still confuse it with the legal tender due to the magic of the virtual world currency. However, keep in mind that crypto assets are investment products that are entirely different from currencies.
By the way, volatility is expressed as a percentage. Volatility can now be checked due to the diversification of financial derivative products such as options, even for crypto assets. The figure below shows the “Historical Volatility (HV) of Bitcoin” distributed by a trader called debit (Netherlands), which provides options for trading for cryptocurrencies. Here so you can see what the check has become and how much of the volatility is, please visit If you are interested.
1-2. Differences in liquidity
Next, I would like to explain that “liquidity is completely different.” Liquidity is a significant indicator for institutional investors. Institutional investors may also determine the investment ratio based on liquidity. And liquidity is closely related to the volatility I mentioned earlier.
First of all, liquidity refers to “transaction volume”, in other words, “ease of cashing”. Analysts often use “high liquidity” or “low liquidity”. “High liquidity” means that it is easy to close (cash) When There Are Transactions of A Lot Of Orders, And There Are Many Buyers And Sellers in forex trading platforms.
On The Other Hand, “Low Liquidity” Means That There Are Few Sellers And Buyers, And A Small Sell Order Can Cause The Price To Drop Significantly. Now let’s see how liquidity differs between crypto-assets and fiat currencies. In other words, Bitcoin’s liquidity is only one-thirtieth that of the dollar-yen. Therefore, it can be understood that the degree of influence of one order on price fluctuations is considerably more significant for crypto assets.
1-3. The difference in maximum leverage
Next, I would like to explain the difference in leverage in forex trading platforms. Currently, the revised decree limits the maximum leverage of foreign exchange margin trading (FX) to 25 times. On the other hand, the maximum leverage of the Japanese crypto-asset market has been limited Four Times Since To The Spring Of 2020. This Restriction Has Triggered Japanese Crypto Asset Users To Flee To Overseas Exchanges.
Cryptocurrency exchanges overseas can set maximum leverage of about 100 times, and some offer 500 times. In other words, it is possible to trade 50 million yen with 100,000 yen of military funds. However, since the principal is 100,000 yen when taking the risk of 50 million yen, a 1% change in the opposite direction will result in an unrealized loss of 500,000 yen. Actually, if you move only 0.3%, the loss cut will be activated, and you will lose the margin.
On the contrary, forex trading platforms, if it works as expected, the principal will be doubled or tripled in a blink of an eye. Leverage trading of crypto assets has become popular in Japan because, hopefully, it can inflate assets. However, since the leverage trading was restricted to four times, crypto-asset users who used leverage trading in Japan are moving to use overseas highly leveraged exchanges.
It is essential to be especially aware of risk management in leveraged transactions of crypto assets. Lastly, I would like to introduce a risk management method that differs between crypto-assets and Forex FX. The difference between volatility and liquidity explained so far has an effect.
By leveraging products with large price movements, it is possible to generate significant returns (and losses). However, few investors are the ones who maximize their leverage every time and can continue to win.
If the price movement of cryptocurrency assets is about five times that of Forex FX, the economic profit and loss will be the same by making the leverage 1/5 of Forex FX. On the other hand, if you apply the same leverage, you will behave five times as much as the profit and loss of the leveraged transaction. If you are an investor trading Forex FX, you can easily imagine its size.
Many people want to trade crypto assets because of large price movements, but please keep in mind that there is such a high risk. “Risk and return are two sides of the same coin.”