In this publication, we’ll discuss the key differences and similarities between Bitcoin/cryptocurrency trading and Forex. We’d also take a look at the bitcoin trading advantage. First, let’s define both.
Forex trading: refers to Foreign Exchange (Forex) trading. It is the over-the-counter market in which foreign fiat currencies of the world are traded. It is considered the largest and most liquid market in the world.
Cryptocurrency trading: involves exchanging one cryptocurrency for another, buying and selling coins for profit.
At a first glance, both sectors seem similar but there are several fundamental differences between these two markets which will be discussed in this article.
First, the lucrative benefits of the bitcoin and cryptocurrency industry attracts interests from a lot of new entrants; with benefits which include its independence from undue government and economic influence, zero inflation rates, immunity to geopolitical tensions and monetary policies of central banks.
There is also the benefit of making big profits from cryptocurrency trading and a diversified market which allows you trade over 5000 coin pairs at this time; in direct contrast to Forex which avails fewer currency options.
Additionally, there is the narrative that Bitcoin (crypto) serves as digital gold, a safe haven asset and substitute against any country-specific economic crisis or Forex (foreign fiat currency) limitations.
That said, let’s dive into the similarities and differences between both markets.
High Volatility of Crypto Markets
The bitcoin and cryptocurrency market has a very high volatility ratio, when compared to Forex which is about 0.5% to 1% for extreme currency pairs.
For the crypto trading, Bitcoin and altcoin prices are subject to huge fluctuations around 5% to 15% as seen on the charts; and could in many cases result to huge price dips or rocket pumps in a single day.
This assertion does not in any way suggest that the crypto market is solely for high-risk traders as these daily price highs and lows provide the opportunities to enter or exit profiting trades and losses respectively.
With the right trading guide and portfolio management, day traders, scalpers and position traders benefit greatly from cryptocurrency volatility, and fortunately tools for making informed decisions with minimal risk are also readily available.
Large Number of Trading Pairs
Bitcoin trading is available in a large number of trading pairs, that is – trade currency A against currency B – BTC/XLM, BTC/ADA and many more.
At this time, there are about 5000 cryptocurrencies and tokens which are all available for trading, conversion and utility on various crypto trading platforms.
This is in contrast to Forex trading which offers a lesser number of currency pairs – 8 major currency pairs, 180 legal currency pairs; meaning fewer options to trade from and a restricted profit scope.
Round-the-Clock Trading Hours
Forex markets are open 5 days a week (Monday-Friday) and are closed during the weekends. The cryptocurrency market on the other hand is open all through the week, 24 hours/365 days a year – no closing hours. However time zones affect trade volumes, with fluctuations during the day as different countries enter the market at varying hours.
Crypto Price Deterministic Factors
Monetary inflation and huge government influences do not wield power against crypto prices especially as cryptocurrencies have a definite or fixed volume; hence they cannot be printed or added to at any time.
In the case of Forex or fiat currency, governments can print more money at any time which portends inflation.
For cryptocurrencies there are a number of coin price determinants; which include:
Community news or Rumour – these are cases where positive news or negative FUD about a particular crypto or the market, leads to a pump in price or triggers panic sell-off or drop in coin prices.
Demand and Supply factors – Crypto coins are essentially limited in supply hence; the rate, at which they are mined, circulated in supply and subsequently demanded takes effect on their prices.
Mainstream Adoption – increase in public utility, interest and adoption of cryptocurrencies is sure to drive coin prices up and stands as its most important target at this time.
Forex trading is completely regulated by financial institutions hence its traders are subject to very minimal risk of being swindled or losing capital and profits.
Cryptocurrency trading on the other hand is not subject to any specified regulator at this time even as a few institutions looking to implement regulatory measures. Hence, there is potential risk of losing capital and profits as seen in cases of hacks and fraud due to cryptocurrency transactions being private and irreversible.
Market Capitalization: Forex has a larger market cap than crypto, it ranks as the largest marketplace in the world.
Supply: Cryptocurrencies have fixed supply. For example there can only ever be 21 million Bitcoins. Forex (fiat) currencies have unlimited supply.
There are lots of profits to be made in both spheres, and each industry carries its own pros and cons.
While forex trading is more stable, the crypto market offers the most versatile options and instant gains in multiple cases. This means bitcoin trading is well suited for the skilled trader with a large appetite for risk.
In all, the two markets involve trading electronic forms of currency and provide good earnings. However, do kindly note the following:
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