While forex trading and cryptocurrency trading have some similarities, there are differences to know so that you can conduct the trades for them correctly.
Once you have learned the basics of each one, you can trade in the markets accordingly to try to glean a profit from your investments.
Forex is short for “foreign exchange”. Forex trading involves the trading of currencies on a global, decentralised market, with trading volumes of trillions of dollars per day.
Individual investors that participate in forex trading use a tool called leverage to try to increase their returns. Leverage involves utilising your deposit with the broker to trade with a larger amount. This can increase potential gains, but also magnify losses, therefore requires strict risk management to implement effectively.
Investors will purchase currency using the homeland’s capital based on the current value of that other currency at the moment of the conversion transaction. Many currencies are quoted in alignment with the US Dollar (USD). However, no set way quoting conventions are done in forex trading. If a quote rises or falls depending on how the currencies are converted, you must watch these quoting conventions carefully so that you do not lose capital.
Cryptocurrency is defined as a digital asset in which transactions are recorded on a blockchain. Bitcoin was the first cryptocurrency to originate and is the most popular to trade.
Cryptocurrency trading is done on crypto exchanges such as Coinbase, Gemini, and eToro, which are a few of the notable platform names.
Since cryptocurrency trading is highly volatile, tread lightly when considering how much capital you are willing to invest in each type of digital currency you are interested in investing in.
Cryptocurrency value is usually not as connected to stocks and bonds as forex trading. Since bond values are not increasing along with inflation, the volatility of cryptocurrency can be an alternative to investors who are used to purchasing bonds.
What are CFDs?
CFDs stand for contracts for difference. This contract entails that the CFD broker and the investor involved must exchange the value of the financial product’s value difference based on how it changed from the beginning of the contract to the end.
The investor does not own an underlying asset, but if the price was to change, the investor would benefit from the additional revenue. Hence, investors are speculating as to whether the underlying asset’s prices will rise or fall during the time of their contract.
A contract for difference on crypto is when the investor speculates on a cryptocurrency CFD such as the ETH/USD pair. At the end of the contract, the investor will earn value if the pair increased in value in comparison to its value at the contract’s start date.
The start of the contract is when the individual investor purchases cryptocurrency from the CFD broker. Exchanging the differences means that the individual investor will take the loss if the crypto reduces in value at the time that is sold. The time of selling is when the contract also ends.
Cryptocurrency CFDs are typically priced against the US dollar, such as BTC/USD, ETH/USD or XRP/USD.
What’s the difference between forex trading and cryptocurrency trading?
Forex trading involves trading different foreign currencies that are available to spend throughout diverse countries worldwide. You can convert the US Dollar (USD) to the Euro (EUR) or EUR to USD when you are on a forex trading platform.
Cryptocurrency trading allows trading digital assets utilizing blockchain technology to purchase cryptocurrency including Bitcoin, Ethereum, and Dogecoin. As long as there are CFDs on crypto available on a forex trading platform, you can do crypto trading on foreign exchange, too.