A lot of people who are trying to get into trading are easily confused by all of the different terms. For example, currency trading and cryptocurrency trading sound the same and cause a lot of confusion among beginners. Before we get into the actual strategies we need to discuss the similarities and differences between the two.
The foreign exchange market (Forex, or FX in short) and cryptocurrency exchange market are absolutely separate from each other although similar in lots of ways. The main reason the difference occurs is due to the way these currencies operate. Forex trading happens between currency pairs like United States Dollars into Euros (USD-EUR) or Australian Dollar (AUD) into Japanese Yen (JPY), which have one very important thing in common – they are all backed by the centralized government. The Forex market is the most liquid market in the whole world. It is decentralized meaning that all of the currencies in the world can be traded there. FX is influenced by a huge number of different things like political processes, announcements, inflation numbers, job reports, and etc. To make a small estimate it is believed that around $5.3 trillion is traded in the FX each day. This is one of the most popular trading markets in the world with lots of companies offering FX trading for beginners’ guides for everyone interested all across the internet.
Cryptocurrencies, or sometimes referred to as digital currencies, are not the same as our average Joe currencies on the FX market. First and foremost the difference is that these digital currencies are not backed by any government and in most of the countries are not even considered as actual currencies. They are hosted online and backed by peer-to-peer trading and authentication processes restricting the usage of the same cryptocurrency more than once. Cryptocurrency examples are Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and etc. These currencies are brought into the market by people called miners. The way they “mine” the currency is by exchanging the processing power of computers to secure the network and check entries in exchange for the digital cash. The cryptocurrency market has been becoming more evolved and popular during the last decade with market cap hitting $700 billion with experts believing that the numbers will only become more as time goes on. Due to the transparent nature of this market may make it more trustworthy for some investors than others like stocks for example.
The idea behind trading is the same for both markets, this is why lots of strategies that were in place or are being developed for Forex trading can be easily transferred to cryptocurrency trading as well. They are similar due to the fact that both involve exchanging a currency for another currency, however, the difference is the most visible when we start looking at the factors influencing both markets. Due to this, the volatility of the markets are hugely different from each other. On…