Advantages and risks associated with investing in cryptocurrency

What to choose – traditional forms of money or new opportunities provided by cryptocurrencies?
This is a question many investors ask themselves before entering the stock market or adding virtual
coins to their investment portfolio.

The cryptocurrency is an invention of the twenty-first century. When the first one, Bitcoin, has been
created in 2009, nobody expected it will enter into the investment environment for good, reaching
the value of a few thousand dollars. This entices more and more traders to invest in online
currencies, especially that there is a growing list of companies and shops, both stationary and on-
line, which allows paying for it.

Chek also: How to become a cryptocurrency broker

One of the advantages of investing in cryptocurrencies is that the trade in them is not regulated by
any banks or authorities, and it does not involve any bank margins or fees. What is more, such

investments are very profitable, they allow for returns as high as a few hundred percent. There is
also very little inflation associated with online currencies because, in opposition to other currencies,
they are not regulated by the governments of countries where they are primarily used. Another
benefit is that virtual coins, after they have been sold, cannot go back to the purchaser and nobody,
including government or bailiffs, cannot find the source of our funds.

Of course, as in the trading of all instruments, there is a certain amount of risk associated with the
investment. First of all, the market of virtual coins is highly volatile, and the prices fluctuate on the
daily basis, so the likelihood of gaining money is the same as losing it. You will also never get it in a
physical form and what is more, cryptocurrency can also be stolen from you by hackers.
Since the moment cryptocurrencies have entered the market, we have been experiencing their
massive growth and expansion, and we can assume their popularity as an investment tool will be still
growing. So if you are thinking of investing into cryptocurrencies, take all the risks and advantages
into consideration.

Another important thing to do after taking the decision to invest in cryptocurrency is the selection of
a broker to trade with, and ensure they offer enough crypto liquidity and reasonable margins. And
after a careful analysis and preparations, a newbie trader may start investing in cryptocurrencies,
having in mind that the profits may be huge, but there may be also losses involved.

Cryptocurrency trading

‘Last look’, a business solution to the problem of technological disparities, is already a thing of the past.

FX industry is still divided when it comes to the ‘last look’ topic. However, X Open Hub believes that ‘last look’ is a thing of the past, as the banks have made up for the technology gap that has not long ago existed between them and other market participants.

‘Last look’, a controversial practice that allowed bank dealers to review orders in ECN (Electronic Communication Network), even after accepting an order, has been criticized for a long time because it gave too much advantage to the selling party, i.e. liquidity providers. Operators are currently moving towards restricting this practice or totally rejecting it in order to optimize the quality of execution of orders.

However, the issue is topical current and hot. Some participants say that ‘last look’ has created unequal conditions for market participants because it favors the selling party, while others suggest that banks need this privilege as they face the biggest risk.

‘Last look’ was introduced due to the destructive practices of market participants-buyers, who practiced market share through multiple platforms with the intention of using a delay element, the so-called “latency arbitrage”.

Banks often provide much more liquidity than they can handle, so they use ‘last look’ to reduce the risk. In the case of regular customers, ‘last look’ is probably not necessary. The case is different for aggressive customers, who use HFT (High Frequency Trading), and here banks may wish to use the ‘last look’ privilege.

In addition to the risk mitigation function, which results from the provision of liquidity to multiple platforms simultaneously through ECN, some bank dealers argue that ‘last look’ also helps to provide the best possible liquidity to the market. In case of the same price issue through two different platforms, the main assumption is to avoid having to effect a double transaction, so ‘last look’ gives you the ability to check the transaction and make sure that the price is the best at the moment. On the other hand, from a risk management perspective, it is possible to verify whether an offer is not in a transaction on two platforms at the same time, which could expose the bank to too much risk. If this happens too often, the bank would probably reduce or withdraw liquidity. This does not work for anyone.

In the meantime, some platforms and liquidity aggregators say that ‘last look’ is a thing of the past, as it was intended to be a mechanism that was supposed to balance technological disparity between participants of the electronic FX market. With today’s technological advances, this kind of practice is no longer necessary.

‘Last look’ was a business solution to a technological problem. Owing to increased efficiency and speed of the systems, banks no longer need ‘last look’ at aggregation. Our liquidity providers are the largest investment banks in the world and as long as we provide them with sufficient connection speed and stable platform, ‘last look’ is not necessary and we have no problem with that.

Banks face increasing challenge while providing liquidity to the increasingly decentralized FX market, where the number of aggregators and platforms is growing day by day. The desire to deliver liquidity to as many platforms as possible is understandable, otherwise the banks would limit their market penetration. This is not a process that improves the quality of liquidity, and therefore the quality of execution of orders.

From the perspective of the customer, the biggest challenge is to identify an operator whose legal regulations require to function in a transparent structure, as it directly affects the quality of execution of orders.