Trading Cryptocurrency Versus Forex: What's the Difference?
On the perspective of price, both trading cryptocurrencies and Forex are quite similar, but while they have this in common, there are a great many things the separate the two in terms of differences. Each of these markets has its own personality and series of risks, so if you are contemplating crossing the gap between the two, you need to make sure there is caution in the research that you conduct in order to find out the best possible step.
The cryptocurrency market is very new in comparison with the more established market that stands behind forex, it has a profound and rich history. The Crypto market, as a result, is increasingly vulnerable . to pump and dump schemes which isn't an issue for the likes of fiat currencies, where central banks can manipulate their currencies to a certain degree by changing their monetary policies.
Along with this, there are a wider number of differences between trading cryptocurrencies and doing the same with forex currencies, however, the focus therefore should be on the differences which contribute towards profits and losses.
Crypto's Zero Middleman vs. Forex Middleman
In contrast with forex trading, cryptocurrency trading has no call for middlemen standing between the broker and can be done directly through a coin exchange instead. The difference that comes with the cryptocurrency realm is that there are no middlemen acting on the investors behalf and committing to the trade. With an exchange, participants place the order themselves into the bid and ask ladder.
Cryptocurrency vs. Forex Liquidity
Technically speaking, the matter of liquidity is the ability to buy and sell an asset at the desired price without causing any serious changes in the asset's price. It's well known within the field of forex is the single most liquid market in the investing world.
The cryptocurrency market, on the other hand, is quite different to this. In particular, as you move away from Bitcoin and some of the other major coins, there is a profound gap in terms of liquidity between the different altcoins. As a result, the bid and ask spread can be quite significant.
When it comes to trading cryptocurrency, an investor needs to have a good trading strategy, otherwise you end up overpaying because of the wider spread. As an example, the lowest offer for buying TRX (Tron) is at roughly $0.0210, with the highest bid being at $0.0250.
Should you, as an investor, decides to get involved . in the market at this point, you're faced with a quandry: you can either rush your way int and hit at the lowest asking price, paying a bigger spread, or you jump to the highest bidder and hope it gets filled, but if the market keeps moving up all the way, you get left out which can lead to miss out on a trade.
When it comes to the forex market, however, a trader can almost always guarantee that they will get an instant fill. If you're moving a significant chunk of the crypto market, you will see very different levels that need filling. In the crypto market as well, you can find yourself inadvertently shifting the market against you if there is a lower level of liquidity, resulting in a subsequent panic and dumping 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.
The Matter of Security – Crypto Exchange Haking vs. FX Brokers
In contrast with Forex currencies, cryptocurrencies provide literally no safety net in terms of financial regulations and protections. Contrast this with Forex, which has a number of regulatory bodies which 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.
In contrast, Cryptocurrencies have yet to be considered legal securities, this means that you can't have any governmental or private regulatory protection in case something goes wrong. What's more, cryptocurrency exchanges and wallets have been prone to issues of hacking. This means that your funds have the very real risk of being stolen, with no legal protections at all to save investors.
When comparing the two, Forex trading is highly regulated and carries a uniform layer of regulations all around the world, while cryptocurrency trading remains a widely unregulated and very opaque field. This can have some severe consequences when it comes to how these markets move and can have an impact on the way you, as an investor, conducts trade, as was previously illustrated.
So two of the most important things that have a larger impact on your ability to properly trade any market of that matter are liquidity and volatility. In that regard, the Forex market is more stable, however, if you're a skilled risk taker, you'll be able to trade on the cryptocurrency market with a reasonable level of success, raking in far higher profits than you would otherwise manage to get from the Forex trading business.