Trading any asset, commodity or form of currency with the intention of turning a profit will always carry certain risks. As summarised by the experts at Bitvavo - one of the web’s most popular cryptocurrency trading platforms - successful trading is all about assessing your own risk appetite and choosing appropriate assets accordingly.
Cryptocurrency Trading Talk
“There are basically two approaches to trading - those that involve safe havens and those that are all about taking bigger risks in pursuit of bigger rewards,” commented a representative at Bitvavo.
“The more volatile the commodity, the bigger the risk - and hence the bigger the potential payoff if you get it right.”
As the popularity of crypto trading grows on a global basis, more new and established traders alike are considering getting in on the game. But what are the major similarities and differences between Forex and crypto trading?
On a fundamental level, is there really any difference between them to speak of?
The Similarities Between Forex And Cryptocurrency Trading
In many respects, these two types of trading are borderline identical. For one thing, they both focus exclusively on trading different types of currencies, based on their value at the time. Both markets are volatile and fast-paced, operating on a 24/7 basis all over the world.
They are also both 100% reliant on the latest communications technology to function, meaning the entire market grinds to a halt in the case of major IT or communications outages.
But what is perhaps most similar about these two markets is the way in which they focus on the trading of non-tangible assets. Whether you are trading conventional currency or cryptocurrency, you never technically take ownership of a ‘physical’ asset or commodity of any kind.
Instead, you purchase what is technically a virtual asset for one price, hold onto for as long as you see fit and subsequently sell or exchange it for a different virtual asset when the time is right. Both the Forex and the crypto trading landscapes comprise everything from small-time home hustlers to major international conglomerates - all looking to buy low and sell high to turn a profit.
The Differences Between Forex And Cryptocurrency Trading
While there are many similarities between the two types of trading, there are also major differences to take into account.
Perhaps the most important difference of all is the way in which every conventional currency in the world is regulated by a central bank or government. Irrespective of whether the currency is pegged to a tangible asset or nothing at all, it is still a formally regulated asset under the watch of authorities, central banks and governments. By contrast, crypto is 100% decentralized and under the direct control of none other than those buying and selling it.
The decentralized nature of cryptocurrency has a major impact on the way it behaves in response to what is happening worldwide on a broader basis. With conventional fiat currency, the value of any nation’s currency will always be dependent on a variety of things - primarily the commodities they produce and how their country is performing compared to other countries.
With cryptocurrency, none of this matters. The value of cryptocurrency has nothing to do with the same kinds of political and economic pressures and events that can influence the value of conventional currency. This does not mean that cryptocurrency is not prone to the same shifts in value as any other currency - quite the opposite, in fact. It is just that in terms of the factors that influence the value of any given currency, crypto is completely different than conventional money.
Which Is Better: FX Or Crypto?
Establishing which of the two is better is a case of considering your priorities and risk appetite.
With conventional forms of currency (for Forex trading), the primary benefit lies in a certain degree of predictability. Given that most forms of conventional currency have been around for quite some time, it is possible to note trends and patterns in their performance. You can also somewhat accurately predict the future performance of many global currencies on the basis of the country’s economic performance, political situation and general and economic outlook.
None of which is possible with a decentralized currency like crypto.
Forex vs Cryptocurrency Risks And Benefits
On the flipside of the coin, there has never been a conventional form of currency with anything close to the same volatility as crypto. When you look at the way Bitcoin has rallied over the past 10 years, you get some kind of indication as to the potential profits that can be made by making the right moves at the right times with crypto.
Risks and unpredictability may be higher with cryptocurrencies, but so too is the potential for extraordinary rewards for those who get it right. Mainstream investors and financial institutions are jumping on board the cryptocurrency wagon due to FOMO (fear of missing out) and powerful potential profits that are as real as they come. Just look at the record high prices for Bitcoin and other cryptocurrencies in 2022 so far.
