Crypto Currency Trading VS Forex Trading

So, if Bitcoin is just another type of currency, albeit only digital in form, can it be traded just like forex and if so, is it worth your while?

Looking at the market value, the last two triennial surveys, conducted by the Bank of International Settlements and published in 2013, pegged the value of the forex market at $5 trillion, with Reuters reporting trading volumes of $376 billion per day as of June 2017.

In comparison, the bitcoin market alone was valued at $42 billion as of June 2017, according to MarketWatch. However, given the skyrocketing bitcoin price, which crossed the record $4,000 mark in August 2017, as well as expectations of this surge to continue, the cryptocurrency market does seem promising at present. So, how is it different from forex trading?

With Brokers you can trade Bitcoin in the same way you trade forex on the user-friendly platform. This means you are trading Bitcoin as a CFD and speculating on price movements rather than taking ownership of the actual asset. And like all other assets you trade on the Brokers platform, you get all the risk management tools to support you including negative balance protection, guaranteed stop loss and fixed spreads to name a few.

There are however some inherent differences between trading forex and Crypto Currency:

Volatility: With forex, volatility is usually around 1% for the extreme FX pairs or 0.5% or less for the major and more common pairs. Bitcoin on the other hand has an average of around 10% volatility meaning that it has more trading opportunities, but then also more risk.

Inflation: As a decentralized currency, Bitcoin is not impacted by monetary inflation though it does experience price-level inflation. Government controlled fiat currencies can be manipulated as part of monetary policy to offset a nation’s public debt, control interest rates and overall economic health. As the number of Bitcoins is limited to 21 million, once all Bitcoins are distributed there are no new ones are to be mined making it mostly immune to monetary inflation or debasement.

Price Analysis: While technical analysis is similar for forex and Bitcoin, there are less fundamentals to watch for with Bitcoin. A forex trader needs to keep an eye on political, economic and general world event news, in fact even the weather! With Bitcoin, the only news a trader needs to really focus on is Bitcoin news itself.

Demand and Supply: Both Bitcoin and forex are subject to the laws of demand and supply but there are subtle differences. As mentioned above, a centralized fiat currency’s value is controlled by the government – if not directly like in instances like China, then indirectly through monetary policy settings. The demand for Bitcoin is determined by other factors including public acceptance and confidence, and marketplace emergence. As more companies like Amazon accept Bitcoin as a form of payment or the NASDAQ adopt blockchain, the more the demand for Bitcoin will increase.

Remember, the creator of Bitcoin allowed only a total of 21 million of the digital currency to be in circulation, ever. So, while demand will rise, the supply is slowly going to be unable to keep up. This is a key reason why some expect the value of the cryptocurrency to rise going forward.

The above market capitalization pie chart clearly shows that Bitcoin is still very much the largest Crypto Currency.  However you may be surprised to see that Ethereum and Ripple are quickly growing on a path to become just as important to the Crypto market.

See the image below for an example of Crypto Currency growing at such a rate that the market cap actually increased by $4 Billion in just 4 days.

These unprecedented rates of growth are an exciting prospect for traders.  Especially when it is possible to trade Crypto against more stable currencies like the USD.  We’ll never see this level of growth with any currency pegged to the USD, GPB or EUR so it’s easy to imagine how well a trading day could have been across the 4 days outlined above.