Cryptocurrency trading vs. forex: The similarities and differences
The concept of trading cryptocurrencies is coming up fast on the outside of forex trading as a popular way of investing funds in financial markets. Some people believe that the mechanics of crypto trading are similar to trading fiat currencies like the US dollar or the British pound.
But although there are some undeniable areas of overlap, there are plenty of areas where cryptocurrency trading differs from conventional foreign exchange trading too. Let us take a closer look.
Where crypto trading differs from trading forex
• Cryptocurrencies can be traded 24/7
Unlike the foreign exchange markets, which are only accessible 24 hours a day, five days a week, cryptocurrency markets are open 24/7. There is always an opportunity to buy or sell a cryptocurrency, regardless of which cryptocurrency exchange you use. Think of cryptos as a byproduct of today’s digital society. Just like the always-on, always-connected digital world, cryptocurrency price moves wait for no-one.
• Forex liquidity is still much greater than the likes of Bitcoin
The Daily Hodl’s report into forex and crypto trading found that forex liquidity is still far greater than even the biggest crypto assets like Bitcoin. In 2016, some $5 trillion of US dollars were traded daily in the forex markets. Compare that with just $1 billion in the Bitcoin markets and it’s easy to see that cashflow still reigns supreme in the traditional forex markets – for now.
• Cryptos tend to be much more volatile than flat currencies
As cryptocurrency markets are much, much newer than conventional forex markets, they tend to be considerably more volatile. With little history to go by, the markets can fluctuate enormously in the space of 24 hours based on economic or political news. For instance, the price of Bitcoin crashed by 20% in under an hour, back in March.
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