The Differences Between Forex and Crypto Trading - Bitcoin News

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| The Differences Between Forex and Crypto Trading Many would argue that comparing cryptocurrency trading with forex is like comparing apples and oranges, but that’s not entirely accurate. On closer inspection, there is a number of similarities between the two. For example, the underlying market dynamics of supply and demand will usually govern the prices of the respective assets. Here traders share their thoughts on the mechanics of each.
Also read: Faced With Cash And Forex Shortages, Zimbabweans Turn To Bitcoin – Even When It’s Banned Crypto vs Forex It takes a certain type of savvy trader to navigate unpredictable market conditions and emerge in profit. Let’s start with the pros and cons to be found from trading both crypto and forex. Alex Mashinsky, CEO of Celsius Network , notes that crypto and forex both represent a digital store of value and can be purchased and sold with ease. They both have high volatility which creates an opportunity for quick profits going long or short. “The pro of trading crypto and forex is that these are global markets dominated by large financial players who have algorithmic trading capabilities. Most individual players cannot compete or match the trading and speed of hedge funds and large banks which swim in these markets,” said Mashinsky. He explained that the biggest difference between forex and BTC markets is that unlike forex, bitcoin started and scaled via global retail trade and not via institutional players. This makes the BTC markets behave in a very different pattern than traditional forex markets. Kyle Cox, senior investment analyst at Invictus Capital , stresses that b itcoin has an ultimately finite supply of 21 million coins, with protocols that control new issuance meaning there is little room for manipulation. “Therefore, trading in bitcoin would be purely focused on demand, which in turn would be based on adoption and in turn the quality of the project,” Cox explains. “Higher adoption of bitcoin essentially increases the size of the network, which means more users, higher utility and an increasing price. The lack of outside or centralised influence is unique, and a benefit of the genesis crypto asset.” Fair Amount of Skill and Luck Is Involved Fiat currencies, on the other hand, have potentially unlimited supply, as each currency’s supply is determined by the monetary policy of the specific issuing country. “Each country’s central bank (typically) regulates the supply of that currency available through various policy mechanisms linked to its repurchase or interest rate, which can, essentially, be defined as the opportunity cost of holding cash in that economy. These policy decisions are conducted with an acute awareness of domestic and global macroeconomic conditions and imperatives, and thus result in fluctuations in both supply and demand,” said Cox. Currency traders looking to profit will, essentially, look to buy currencies that show signs of macroeconomic improvement through the selling of currencies that show the opposite. “There is a fair amount of skill, and it must be said, luck involved in this process, as any honest trader would attest to,” Cox noted. BTC Involves Little Cost Another factor to consider is t he nature of the bitcoin blockchain means that BTC is traded on a peer to peer basis, which in its raw form involves little cost. Cox pointed out that this is due to the fact there are no intermediaries in the classic sense, as is the case in the foreign exchange market where brokers and aggregators facilitate transactions between participants, which can often add a layer of fees. “Where intermediaries come into bitcoin, and other cryptocurrencies, is through cryptocurrency exchanges,” explained Cox. “These exchanges act as central repositories of assets, facilitating transactions and levying fees on this basis. So yes, this aspect can be seen as somewhat of a similarity [to forex] however with different mechanics. In truth, it is difficult to make a generalized comparison of actual fees as they vary widely depending on exchanges, currency pairs, volume and many other factors.” Forex Markets Have Deep Levels of Liquidity Another crucial fact to note is that forex markets have deep and entrenched liquidity as a result of a long history of activity. Cox explained: ”The phenomenon of globalization and technology have boosted activity in the trading of foreign currencies, as a result of ballooning cross-border transactions and wide availability of trading means and infrastructure. [Forex] is by far one the largest marketplaces on the planet, with daily trading volume in the trillions of U.S. dollars. Most of this volume is attributed to established, developed country currencies, such as the U.S. dollar, which serves as the reserve currency for the world.” There are some similarities here with bitcoin, which can be considered as the dominant reserve cryptocurrency, and which most trading volume can be attributed to. That is where the similarity end...