In Business World Cryptocurrency trading and forex both involve buying and selling currency, but they differ in one very important way. In cryptocurrency trading, you’re trading the currency of a digital form of money against other digital currencies. In forex trading, you’re actually exchanging physical fiat currencies like the US dollar or euro. This difference is important for a few reasons, starting with the fact that cryptocurrency trading carries greater risk than forex trading. While it can be more rewarding, it also comes with a greater chance of losing money.
Then there are technical differences. While most platforms for cryptocurrency trading are pretty standard, forex trading can get a bit complicated. Still, the basics of currency trading aren’t that different from cryptocurrency trading. It’s still worthwhile to check out some of the features that are unique to forex trading systems before you get started. Finally, there are differences in the market itself. Forex traders buy and sell shares of a physical currency that was created by a government like the US dollar. Cryptocurrency traders can buy digital currencies that are produced by programmers who create them using a distributed ledger instead of a central bank like the US dollar.
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Where crypto trading differs from trading forex?
- Cryptocurrencies can be traded 24/7:
Although forex traders have the option to trade on holiday or when the markets are closed, cryptocurrency trading is available around the clock. Forex trading is usually reserved for day traders, who tend to focus primarily on what’s happening during business hours. This lack of trading during non-business hours can make it hard to find a consistent window in which to trade and makes it more difficult for forex traders to benefit from market trends that occur throughout the day. If you’re interested in cryptocurrency trading, then it’s easy to trade using this website.
- Forex liquidity is still much greater than the likes of Bitcoin:
While cryptocurrency exchanges can provide a total range of trading pairs, the number of Forex pairs is limited by the actual market itself. While the cryptocurrency exchanges have a few more trading pairs to choose from because of the lack of liquidity, these trading platforms are still able to handle greater volume than most forex trading platforms. On other exchanges like Bitfinex, you’ll regularly see traders complaining about low liquidity and high transaction fees. This has made it difficult for Forex traders to benefit from currency trends that occur throughout the day as well.
- Cryptos tend to be much more volatile than fiat currencies:
Deviations from the norm are inherent in Forex trading due to the sheer number of physical currencies and fiat money available. Yet, the overall market is still much more stable than cryptocurrencies like Bitcoin, which tend to swing wildly from one end of a range to another within a very short time period. On any given day, it’s not uncommon for cryptocurrencies to fluctuate by as much as five or ten percent. This makes it difficult for cryptocurrency traders who are attempting to predict where the price will be going next.
Similarities of crypto and forex trading:
- Both markets are driven by supply and demand:
The cryptocurrency and Forex markets are both driven by the same basic factors that impact the value of a currency. For example, if there’s an increase in demand for British pounds, then it will become more valuable in foreign exchange markets. The same can be said for digital currencies like Ethereum. The increased demand will make the price go up. In fact, this is essentially what happens to most cryptocurrencies when they’re first released on an exchange or platform like Coinbase or Kraken.
- Both types of trading can be automated:
Both cryptocurrency and Forex trading can be automated by software. Cryptocurrency trading is more common because it allows traders to automate their trades at all times using a high-frequency trading platform. This means they can go through multiple buys and sell cycles without having to manually change their orders. Forex traders can also automate their investments with high-frequency trading systems that don’t require them to constantly monitor the markets for new opportunities. They just sit back, relax, and let their software do the work for them on a regular basis.
- Risk management is vital to be profitable in both markets:
While cryptocurrencies are more volatile and risky than Forex trading, risk management is still extremely important. In fact, this is one of the biggest differences between professional and amateur traders. If you go into a cryptocurrency trade without any risk management in place, then you’re begging to lose your investment. Instead, you should learn how to use stop losses and other risk management tools on your trading platform. This is particularly important if you’re planning on automating your trades with cryptocurrency software or Forex trading software.
Conclusion:
Trading forex and cryptocurrency are enjoyable if you know what you’re doing. You can try out different strategies, learn from your mistakes and get back on the winning track soon. It may seem like a great idea to jump in at once, but it’s important to have a plan instead of just blindly jumping in something that could burn a hole in your pocket. This guide is designed for beginners who would like to start getting involved with cryptocurrency trading or Forex trading but feel that they need some more background information before moving forward.