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Is Trading Crypto Similar to Forex?

25 July 2022 14:03, UTC

Cryptocurrency and forex trading have been around for a while, but they remain popular with different groups of people. This leads to questions like ‘What is cryptocurrency trading? Is it similar to forex trading? What are some of the similarities and differences between these two types of trades?’

If you want to know more about these two types of trading and which might be better suited to you, read on for everything you need to know.

What is Cryptocurrency Trading?

Cryptocurrency trading is the buying and selling of cryptocurrencies. Trading crypto is similar to forex trading, where you buy and sell currencies at different times. However, some key differences make cryptocurrency trading different from forex, which we'll go into later.

Essentially, crypto traders choose when to buy or sell a particular currency based on how its price is changing compared to other cryptos or against the US dollar.

There are many exchange platforms available on which traders can buy and sell cryptocurrencies. Just like with trading fiat currency, these exchanges offer varying numbers of currencies to trade and have different fees and commission rates.

What is Forex Trading?

Forex is short for foreign exchange, and it's the abbreviation used to describe the global market for trading fiat currencies (like US dollars, euros, and yen). The forex market is a decentralized, 24-hour international market that allows traders to buy and sell currency pairs using leverage (borrowing money). The current size of this marketplace is over $6 trillion in daily volume — making it the largest financial market in the world.

Differences Between Forex and Cryptocurrency Trading

The most apparent difference between cryptocurrency trading and forex trading is the fact that one is a decentralized, virtual currency, and the other is a centralized, fiat currency.

Crypto markets tend to have less liquidity than forex, too. The market cap of many coins is still small because there are thousands of cryptocurrencies, and new ones are being created all the time.

There's also more learning to be done before starting to trade crypto. As well as understanding how trading works, you'll also need to understand the basics of the blockchain your chosen coin operates on. Cryptocurrencies can also be a lot more volatile than fiat currencies, so you'll have to keep that in mind and remember that trading could be risky if the price changes suddenly and not constantly in your favor.

Similarities Between Forex and Cryptocurrency Trading

When it comes to crypto trading and forex trading, the similarities are many. Both forms of investing and speculation can be described as industries that require a lot of research. While they are often considered different trades, both are forms of trading that can be used for speculation or investment purposes.

Another similarity between these markets is their volatility; it's essential to keep in mind how volatile each market is before deciding whether or not it's right for you. Both the crypto and forex markets rely on the differences between supply and demand to operate, meaning charts can be extremely handy for both when it comes to predicting how the price might move.

In terms of the process, there are many similarities. If you have experience with one form of trading, you're sure to pick up the other quickly. Exchange platforms have similar interfaces, and you'll need a PC with decent specs to make sure you don't miss an opportunity.

Does The Crypto Market Have A Future?

Cryptocurrencies are still in their infancy, and they're highly volatile. They also aren't regulated by any central authority, which means that you can make a lot of money quickly - or watch it dwindle just as fast. However, there are lots of reasons why you might want to consider trading cryptocurrency:

  • Cryptocurrencies have shown tremendous growth over the past few years (bitcoin was worth less than $0.40 in 2010 but peaked at around $65,000 in 2021).
  • They're global and decentralized, which means that anyone from anywhere can participate in the market.
  • It's exciting! The idea of owning coins or tokens instead of cash is novel for many people because it allows us to think outside our traditional banks and fiat currencies.

Final Thoughts

The main difference between forex trading and crypto trading is that crypto trading is still in its infancy. Although it has been around for a few years now, there are still many questions to be answered about how it will develop as time goes on. The market may look very different in five years from the way it does today due to factors like government regulation or technological advances that could affect how we purchase cryptocurrencies like Bitcoin or Ethereum.