Given the 24/7 opportunities that the crypto market offers, many forex traders are thinking about the possibility of either adding crypto trading to their list of activities or switching to crypto trading completely. While, at first glance, both sectors may look similar, there are quite a few fundamental differences between them.
What drives traders towards cryptocurrencies in the first place is its independence from governmental and economic influence, as well as other benefits, such as bigger profits and diversified options on trading pairs. But what are the main things that should be taken into consideration when switching from Forex trading to Crypto?
Crypto Markets Have High Volatility
Unlike forex volatility, which does not typically exceed 1% for extreme currency pairs, the crypto market is highly volatile and prices tend to have high fluctuations that can occur even during a single day. While this may lead to the conclusion that the crypto market is only suited for high-risk trades, forex crypto brokers reveal that it can actually be used to the trader’s advantage, by providing opportunities to enter or exit markets multiple times a day. This has also led to the apparition of various tools and guides that help traders make informed decisions with minimal risks.
A Large Number of Trading Pairs
Similar to the forex market, crypto markets also provide a large number of trading pairs. Currently there are around 2,000 cryptocurrencies in the market, with the most popular being Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH) and EOS. But, while on the forex market there are only a few pairs that can bring substantial profit to the trader, the crypto market offers a large verity of currencies that have are available for trade. They have all been built in a different way and for different purposes, offering informed traders a way to make their profit quite substantial.
Different Price Determinants
While forex markets are influenced by monetary inflation rates and other government influences, this is not the case when it comes to the crypto market. However, this does not mean they are not subject to their own price determinants, which differ from the traditional macroeconomic tendencies:
- Community rumors: news and rumors related to certain currencies can affect the community’s opinion about them. While positive news about a currency can raise interest and price rates, other news such as thefts and hacks can trigger panic sell-offs and price drops.
- Demand and supply ratio: most of the coin supply is limited, making the rate at which they are mined have a big impact on their price. For example, the total supply number for bitcoins has been limited to 21 million, out of which 17 million have already been mined. This is what sets crypto aside from the global financial system.
- Monetary inflation immunity: once the maximum number for one currency has been reached, no more coins can be mined or found, making them immune to monetary inflation and debasement
- Mainstream adoption: increased interest and adoption of cryptocurrencies leads to a more positive public opinion, which can drive up prices
The forex market is completely regulated by financial institutions, minimizing the risk for traders to lose capital. Crypto trading, on the other hand, is not subject to any particular regulator at the moment, despite the fact that a few institutions are looking to implement regulatory measures. This makes the potential risk of losing profits much higher than in the case of forex trading. But, despite the risk factors, the lack of regulation seems to be what drives people towards the crypto market.
While both markets may seem similar, in the sense that they are both electronic trading currency forms, the volatility of crypto, compared to the liquidity of forex means that trades will have to apply completely different strategies, in order to gain profits from both markets.