What are the key differences between cryptocurrency trading and forex trading?
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Financial markets trading has come a long way from times when it was done via phone, telegram, or in person. Today, everyone has the ability to access different kinds of trading including stock, foreign exchange, commodities, and of course, cryptocurrency. Two of the most popular kinds of trading, particularly with casual traders are cryptocurrency trading and forex trading. Let's take a look at some of the key differences between them, including pros and cons.
What is crypto trading?
Cryptocurrency trading is where traders buy a cryptocurrency coin such as bitcoin, litecoin, or ripple, and then trade it for either another crypto coin or fiat currency. The aim is to capitalize on fluctuations in value in order to make a profit. The cryptocurrency market capitalization at the time of writing is equivalent to $199.62 billion.
What is forex trading?
Forex trading is where traders buy a foreign currency and then exchange it or trade it at a certain time in the hopes of capitalizing from changes in value. The forex market is the largest and most liquid in the world with a daily trading volume of around $6.6 trillion.
Forex trading usually takes place on a dedicated foreign exchange trading platform. These can include websites and applications that you can download to mobile and computer. Cryptocurrency trading can take place on a forex trading site that has a crypto trading section, or via a standalone site. These sites typically have applications that you can download, giving you the same functionality as on the website. To find the best brokers for crypto trading in 2020, you should take some time to evaluate some comparison sites that detail features like rating, trading bonuses, UX experience, minimum deposit and whether they offer mobile trading. You can also see which ones are forex brokers and which are stand-alone cryptocurrency trading sites.
Forex trading means paying and withdrawing in fiat currency, via a payment processor or bank transfer. Giving a third-party your bank information can leave you open to potential issues, for example, data breaches or hacks, so it's important to choose platforms carefully with this in mind and ensure you have proper protection set up. Cryptocurrency transactions are anonymous in the sense that they don’t require personal data to execute, and they do not involve your bank account. Furthermore, cryptocurrency transactions are immutable and cannot be edited, reversed, or changed in any way once they have been performed.
When paying with a card or enacting a bank transfer, often there are fees payable to the bank and/or the third-party payment processor. Sometimes, these can be costly especially if you are depositing or withdrawing a large amount. There are still fees associated with cryptocurrency transactions for forex trading, but these tend to be significantly less than with fiat transactions. If you want to trade cryptocurrency and use it as your currency of choice, you can generally expect lower fees.
Making deposits or withdrawals from a forex trading site in cryptocurrency can take minutes, hours, or days, depending on the method you use. Transacting in cryptocurrency is pretty much instantaneous and doesn’t require waiting for a bank or third-party to clear the funds. In the fast-paced world of currency markets, be they fiat or crypto, speed is most definitely of the essence.
Both the cryptocurrency and forex markets experience high levels of volatility. Firstly the foreign exchange market is volatile due to current global issues and situations. As a result, there is a higher level of risk, but also benefits, should trading be executed in the right way. The cryptocurrency market is volatile due to it being younger and less established when compared to forex. This means that there are also great opportunities to profit off fast-paced peaks and troughs in value, making it an enticing investment option for many.