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ost people are of the opinion that trading in bitcoin is similar to trading stocks or foreign exchange (forex). But is there truth to this?

The following are the pluses and minuses of each venture taken from indonesia.bitcoin.co.id, which will hopefully be of use to you:

Stocks or bitcoin

The Indonesia Stock Exchange (IDX) defines stocks as securities traded on the stock market from which individuals or a party who purchase them and become shareholders get dividend or capital gain (profit from selling stocks at a higher price than the buying price). The capital gain is what usually makes people think that bitcoin trade is similar to trading stocks, as buyers get profit from the difference of buying and selling prices.

Stock-price movements are influenced, among others, by the company'€™s performance, such as capital gain or loss, dividend and public disclosure about the company'€™s conditions. In the world of bitcoin, the unit price is very much affected by the same things: demand fluctuation and published news. It was not so long ago that a fatal mistake made by the management of Mt. Gox caused the price of bitcoin to slump. Compared to the stock price of Bakrie'€™s PT Bumi Resources (BUMI), which recorded a 73 percent drop in 2014 as the company was not able to honor its outstanding payments.

Foreign exchange or bitcoin

Foreign exchange is the buying and selling between a particular country'€™s currency against that of another country. The goal is to gain profit from price differences. The similarity between stock trading and bitcoin trading can also be seen in foreign exchange as traders get the chance to buy foreign currency when the value is low and sell it when the price is high.

The price movement is influenced by supply and demand, and people can predict price movement using the technical analysis method (using chart price movement in the past) or the fundamental (looking at the intrinsic value or the company'€™s condition). Using any analysis method will not provide 100 percent accuracy as the price of stocks, foreign currency and bitcoin can change anytime following an unexpected development. For instance, in foreign exchange, during the 9/11 tragedy, the value of US dollar fell. The event influenced many to sell their US dollars, causing the currency to fall.

With average daily transactions amounting to US$2 trillion, the foreign exchange market is 46 times bigger than all the stock markets combined and that is why it is the most liquid market in the world. Compared to foreign exchange, the bitcoin market is still small so that bitcoin price tends to fluctuate easily (five to seven times more fluctuation than foreign exchange) if a trader sells or buys bitcoin in large volume.

Best means for trading

Foreign exchange, stocks and bitcoin have their advantages and weaknesses. Bitcoin trading is riskier due to the higher tendency of price fluctuation compared to the other two, but bitcoin trading has bigger potential than foreign exchange and stocks.

Unlike stocks or foreign exchange, bitcoin investors do not need to rely on a third party or a broker. There is no need to feel worried that someone will take off with your money. Aside from for investment, you can also use bitcoin for various purposes, such as faster money transfers with lower transaction fees, safer means to collect wealth, and more modern and efficient means of payment.

There are many trade exchanges where we can sell or buy bitcoin with the price we want. Traders usually buy bitcoin at a lower price market and sell it at a trade exchange in another country where the demand for bitcoin is higher than that in the country where they buy it.

Some bitcoin markets have their own price setting. For example, the price movement at bitcoin.co.id is influenced only by buying and selling in the Indonesian market using the rupiah. In other words, if the demand in Indonesia is higher than that in China (at BTC-China trade exchange, for instance), the price per bitcoin in Indonesia will be higher than that in the Chinese market. Traders can use the opportunity to gain profit in a short time by buying bitcoin in the Chinese market and selling it in the Indonesian market.

For instance, if you buy bitcoin at Europe'€™s bitstamp for $350 per bitcoin and you intend on selling with higher price, an hour after buying, the price at bitstamp may fall to $349 per bitcoin, but at the same time at bitcoin.co.id, the price is Rp 4,500,000 or $364 per bitcoin, for there is a big demand from bitcoin traders in Indonesia. You get the profit from selling at bitcoin.co.id as the price is higher than that at bitstamp.

What you need to remember is that originally, bitcoin was created not as a means of investment. It was created as a new method of payment in the financial world using decentralized technology. The aim is to minimize human error, which can lead to harm, such as inflation, corruption in financial institutions, or a third party or a broker running away with your money.

Bitcoin becomes a means of investment as the price fluctuates, and as it is limited, many people think the price in the future will increase drastically. But, this is a prediction. No one can guarantee that the price of bitcoin will jump to $1,000 per bitcoin or fall to $1 per bitcoin. What is assured is that bitcoin is the first technology that may be able to revolutionize the world of finance, same as what Internet did when it was available for the masses the first time. (Gandi Faisal)