From a price perspective, trading crypto and Forex are the same, but there is a major fundamental difference that sits at the core of how each of these markets work individually. Each market has its own personality and sets of risks, so if you are considering crossing over between the two, take additional caution in your research and when adding your stops.
The crypto market is newer in comparison with the more established Forex market, which has a rich history. This makes a lot of these coins more prone to the pump and dump schemes which isn’t the case for Fiat currencies as Central Banks can manipulate their currencies to a certain extent by changing monetary policy.
There is a multitude of differences between trading cryptocurrencies and trading Forex currencies, however, focus should be on the differences that can drive profits and loss.
Crypto NO Middleman vs. Forex Middleman
Unlike Forex trading, cryptocurrency trading doesn’t require market participants to trade through a broker and can be done directly through an exchange instead. The difference in the crypto realm is that you don’t have a middleman who is acting on your behalf and then engaging with the trade. With an exchange, participants place the order themselves into the bid and ask ladder.
Cryptocurrency vs. Forex Liquidity
In technical terms, liquidity is the ability to buy and sell an asset at the desired price without causing extreme changes in the asset’s price. It’s well-known that the Forex market is the world’s most liquid market.
The cryptocurrency market is different in this regard. Particularly when you move away from Bitcoin and some of the other major coins, there is quite a big gap in the liquidity between the different altcoins. As a result, the bid and ask spread can be quite significant.
When trading cryptocurrency you need a good trading strategy otherwise you end up overpaying because of the wide spread. For example, when the lowest offer for buying Tron is at $0.0210 and the highest bid is at $0.0250.
If you decide to get into the market at that point, you have a dilemma. You can either rush your way in and hit the lowest ask, paying a big spread, or you jump ahead of the highest bidder and hope to get filled, but if the market keeps moving up all the way, you get left out which can lead to miss out on a trade.
On the Forex market, a trader can get instant fill. If you’re moving a big size in the crypto market, you’ll get different levels of fill. In the crypto market, you can also move the market against you if there is a low level of liquidity and you panic and dump your bag.
This means that a trader will need to fine-tune the order process with cryptocurrencies a lot more then is needed when trading Forex.
Security Concerns – Crypto Exchange Haking vs. FX Brokers
Unlike Forex currencies, cryptocurrencies have virtually no safety net in place to protect you. In Forex, the regulatory bodies have put in place deposit protections against the risk of your FX broker becoming insolvent. In Europe, deposits are guaranteed up to €100,000 per account. In the crypto market, you can’t enjoy the same level of protection.
On the other hand, cryptocurrencies are yet to be considered legal securities, which mean you can’t have government protection in case something goes wrong. Moreover, cryptocurrency exchanges and wallets have been prone to hacking, which means that your funds will be stolen, and while this is not common with all wallets, it does raise security concerns in the investment space.
Forex trading is well regulated across the globe, while cryptocurrency trading still remains completely unregulated and very opaque. This can have severe ramifications into how these markets move and can affect your way of trading as we pointed in the above paragraphs.
The two most important things that have a big impact on your ability to properly trade any market of that matter are liquidity and volatility. On that front, the Forex market is more stable, but if you’re a skilled risk taker you will trade cryptocurrencies successfully for larger profits that you normally see in the Forex trading business.
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Global Coin Report and/or its affiliates, employees, writers, and subcontractors are cryptocurrency investors and from time to time may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency and read our full disclaimer.
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