Similarities between crypto and currency trading strategies

Comparing cryptocurrency trading to currency trading on the foreign exchange market is like apples to oranges. However, what if we said that they have many more similarities to each other than one would think at first glance?

While it is true that there are many differences between the two so much so that we can freely state that the skills and experience do not transfer well from one to other, however, it doesn’t mean that an experienced trader is not going to have a headstart from the get-go while switching.

One of the main differences is the maturity of the market. While humanity has been trading currencies since the dawn of time it has recently become accessible to your average Joe and Janette. A couple of decades ago only huge financial institutions like banks and people having very cozy relationships with said companies would have access to such privilege. The development of Information Technology, or IT, has led to the development of a globalized network which can be accessed from any device anywhere around the world. This means that the internet itself made it possible for us, average people, to start investing and trading on Forex. It has also brought blockchain technology into existence. Cryptocurrency is a decade old subject. In the late 2000s and early 2010s, nobody would believe that Bitcoin would become such a big deal in the financial world. The digital revolutions have led to a lot of countries and their central governments trying to come up with their own centralized cryptocurrencies like United States Dollar Tether (USDT), or China’s digital yuan, or even Japanese digital yen. However, the big difference is in the centralization of said currencies and a lot of times there are some strings attached to government-controlled digital currencies. Like the fiasco that USDT is having right now. Although there are no formal accusations there is an investigation going on which is looking into the whole USDT market.

Due to all of the things mentioned above trading has become extremely popular with huge chunks of the world making (or losing) their extra money to the endeavor. The Bitcoin (BTC) price has surged a couple of years ago with its peaking in 2017. This has led to a lot of early investors becoming literally rich off of their measly amounts of BTC that they bought and literally forgot about. Due to this a lot of firms started popping up all over the world trying to help people develop their skills and give a platform for trading. A lot of top brokers for bitcoin trading started offering bonuses and other quality of life improvements to their users. For starters, the company started offering demo accounts, which means that the starting user has the ability to start trading in a set environment without actually investing to learn the strings of the market and how it works. After this, they transfer to the actual market and start investing.

There are some key differences between Forex and Crypto markets though. Let’s try to dissect these points below.

Investing in Cryptocurrency

Cryptocurrency is becoming a huge thing in today’s world. As of now, there are over 40 million digital wallets created with 1600 different cryptocurrencies. There has been a steady growth caused by Bitcoin’s price surging since 2016 and it is quite safe to state at this point that the market popularity is going to increase during upcoming years.

When a trader is investing in cryptocurrency the person or an institution is actually buying the asset, which they can keep for as long as they wish. It is estimated for as much as 64% of Bitcoin supply hasn’t moved hands since 2018. Although there has been a lot of incentive to sell the assets during the last couple of months due to the novel coronavirus hitting the world with global pandemic and lockdown of economies, which left a lot of people without jobs trying to survive on their savings.

Crypto traders buy and sell their assets to make profits. This means that a lot of people believe in the imminent increase in the price of their currency and stack their assets as much as they can. Bitcoin with its price sitting around a couple of thousands of dollars is turning into a long term investment. The market overall is much more volatile than that of Forex and not a lot of aspects are affecting the prices…although sometimes they do. For example, the cancellation of the NCAA basketball tournament in the United States has caused the Bitcoin price to fall. Cryptocurrency exchanges are also coming under a lot of cyberattacks. For example, in 2013 Mt. Gox which was the biggest exchange at the time has lost as much as $460 million when hackers cracked open its defenses and stole a whopping 850,000 bitcoins.

Investing in Forex

As we have already mentioned the foreign exchange market, or FX in short, in the current stage allows millions of people to pick up their already existing funds and start trading on currency pairs. Some of the most popular ones are USD-EUR, GBP-USD, GBP-EUR, etc.

All of the currencies traded on FX are centralized meaning that they are backed by national governments and financial institutions like banks. Due to this, there are loads of factors affecting the prices. For example, if talking about United States Dollar to Euro trading, it would mostly be affected by the inner politics of the US as well as events going around the European Union. Making money on Forex requires a lot of understanding and experience of the market’s inner workings. While the concept of buying and selling is easy – buy when the price is going up and sell when it starts falling – the market is not that predictable. There are a lot of safety nets like scripts set up to close the trade if the price falls beneath certain marks and so on. These are present in both crypto and currency pairs markets.

Similarities

In the end, it is obvious that there are a lot of similarities between the markets as well as differences. The idea is that both of the markets require the trader to understand how the strings are working to be able to predict the future of their currency of interest. In both cases, prices are determined by the supply and demand of the currency although different aspects may affect these. Accessibility-wise both are also incredibly easy to get into. All trader needs to connect and start trading on Forex and cryptocurrency exchanges is a device with internet access. Due to this, the transactions are also quite instantaneous meaning that the trades are done in a very short period of time.

Although it is worth noting that both can be volatile the cryptocurrency market is much more inclined to have huge jumps in prices. Apart from this, both are very risky to trade on meaning that the trader should be prepared to lose their investment at any time. This is why it is heavily not recommended to trade with what you need for your livelihood.