Outside of forex trading, the idea of trading cryptocurrencies is quickly gaining traction as a common way to invest money in financial markets. Some people claim that crypto trading works in the same way that trading fiat currencies like the US dollar or the British pound does.
Although there are some undeniable areas of similarity, cryptocurrency trading varies from traditional foreign exchange trading in many ways. Let’s take a closer look at this.
Crypto vs. Forex
Cryptocurrencies may be exchanged 24 hours a day, seven days a week, unlike Forex. Unlike foreign exchange markets, which are only open 24 hours a day, five days a week, cryptocurrency markets are available 24 hours a day, seven days a week. Regardless of which cryptocurrency exchange you use, there is always the option to buy or sell a cryptocurrency. Consider cryptos to be a byproduct of today’s digital world. Cryptocurrency price movements, like the always-on, always-connected digital world, do not wait for anyone.
Forex liquidity is also much superior to that of cryptocurrencies such as Bitcoin. According to a study by the Daily Hodl on forex and crypto trading, forex liquidity is still much more significant than even the most major crypto assets, such as Bitcoin. The forex markets traded $5 trillion worth of US dollars every day in 2016. As compared to only $1 billion in the Bitcoin markets, it’s clear that cash flow still reigns supreme in the conventional forex markets – at least for the time being.
Cryptocurrencies are much more unpredictable
Since cryptocurrency markets are so much younger than traditional forex markets, they are much more unpredictable. With little precedent, the markets can swing dramatically in a single day based on economic or political news. In March, for example, the price of Bitcoin plummeted by 20% in under an hour.
Crypto and forex trading have a lot in common
All markets are dominated by supply and demand. One feature that both the crypto and forex markets have in common is that price action is primarily driven by supply and demand. When demand for Bitcoin or the US dollar is high, the price rises; conversely, when supply exceeds demand, the price falls.
Having a good Forex Broker
This is a must-do step whether you will trade cryptos solely or invest in index funds (as an example). A licensed and certified Forex broker can guide you the right way, and you can learn from them a lot. They are here for you and everything you want to know. A certificate and license are necessary to prevent scams and be sure you are investing via the right broker.
Risk management
With each trade you open, it’s difficult to predict how the cryptocurrency and forex markets would shift. As a result, all types of trading necessitate meticulous risk management to remain profitable. You may have a good understanding of fundamental and technical analysis, but if you don’t use stop losses to cover your positions, you may lose a lot more money if the markets don’t move the way you expect them to.
Simply put, there are advantages and disadvantages to trading any market. Since crypto trading is more volatile than Forex, you could be able to trade both at the same time, with the slower-paced forex markets providing lower-risk opportunities and cryptos providing the opportunity to earn higher returns.
High volatility
Both have a benefit and a drawback. Both the Forex and cryptocurrency markets have high levels of volatility. The higher the risk, however, the greater the reward. Though cryptocurrencies tend to fluctuate wildly, both the cryptocurrency and Forex markets can experience large price swings in a short period.
Conclusion
Trading cryptocurrencies or foreign currency necessitates a high degree of participation. Successful equity planning, proper risk management, perseverance, and a strong willingness to learn on the job are all needed. But there’s no denying that an educated investor will profit generously from trading any of these common markets.
