Cryptocurrencies have very quickly become a popular asset to trade with, even considering their volatility. Forex, on the other hand, has been around for a long time and is a much more established market. On paper, both seem like they might be similar but how does Cryptocurrency Trading differ from Forex trading?
Cryptocurrency or Forex?
Cryptocurrencies are a digital asset that uses cryptography to ensure their safe transaction. They are known as digital currencies but are more like commodities, such as gold, than normal fiat money. They are exchanged peer to peer without the use of banks or governments and are decentralized in their nature. They also use something called blockchain to store their transactions. Bitcoin is the most famous example of a cryptocurrency but there are many more.
Forex trading refers to the foreign exchange market, or the trading of different currencies from around the world. The internet has opened up the Forex market to more people than ever before and it isn’t connected with a specific location, being a global market. Forex trading comes in three main versions – spot market, forwards and futures. Here, the currencies we all use every day are traded including the GB pound, the US dollar, the Euro and more.
What they have in common
Because they are both currencies of different types, there are some similarities. For example, they don’t have a central system of government and are part of the free market. Trades take place online and there are strategies that can be used, to predict and analyze both, such as price fluctuations in real time compared to past price fluctuations. Both should be traded through a secure and safe platform that offers either Forex or Cryptocurrency trading to protect you and your capital.
What the differences are
Currently, there are more differences than similarities which is why teaching one doesn’t always mean you have knowledge of the other.
For example, cryptocurrencies are traded 24 hours a day, 7 days a week. Forex closes on weekends so you can only make trades Monday through to Friday. During those weekends, you could have made or lost a fortune on cryptocurrencies.
Volatility
Volatility is another massive issue. With Forex trading, the currency pair price is measured in pennies and the difference between them is often small. Large sums of money are needed to make a profit at Forex because the difference is so small. Leverage is used at a high level with ratios such as 50:1 and 200:1.
With cryptocurrencies, the market is highly volatile, and the cryptocurrencies are very unstable. The price is constantly changing and can change by large amounts. It means you will need as much luck as anything to make money trading them but there is always the chance to make big profits suddenly (or a big loss).
Factors affecting price
The other big difference is the factors affecting the price. Cryptocurrencies are very unpredictable with no clear path as to how they will react to world events. Forex, however, has a long record to show how markets react to different events. Geopolitical events, for example, can impact the currency of the country as can things like natural weather events or disasters. Understanding how these factors work is the key to success in Forex trading but less so with cryptocurrencies.
Choosing your asset
It is true that any trading comes with risk and there are no guarantees that even the most stable asset will behave as you expect. Also, the speed and 24-7 nature of cryptocurrencies appeal to people who want to trade around other jobs and want to see quick results as opposed to the slower, more cautious ones with Forex. Whatever your preference, choose your asset and get to know it as well as possible then you are ready to start making those trades.
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