What is Forex Trading?
Forex Trading is a type of trading process that allows investors to generate profits by exchanging different fiat currencies. Every nation has a Central bank and authorized legal tender. However, in the international forex markets, investors can make profits by buying and selling different types of fiat currencies based on varied evaluations.
Forex trading markets are open only on weekdays on major financial hubs such as New York, Sydney, London, and Tokyo.
How does Forex Trading Work?
Forex trading can be done with various types of fiat currencies. However, a forex trader must swap two different types of fiat currencies in a single transaction. The first currency in the forex trading pair is called base and the second one is known as quote or counter currency.
A forex currency trading pair is denoted with base and quote currencies mentioned before and after a slash symbol subsequently. Forex investors analyze factors such as GDP fluctuations, geopolitical events, and inflation to determine the projected price of a fiat currency.
At the same time, investors also make use of technical analytics tools such as historical price data, indicators, charts, and market sentiment to ascertain price changes for a given cryptocurrency.
Forex traders frequently utilize the standard lots, mini lots and micro lots. These are different currency units that represent total amount of fiat currency units in a given lot such as a standard lot consists of 100,000 units.
What is Cryptocurrency Trading?
Cryptocurrency trading accounts for investors trading different types of digital currencies that are issued from blockchains and decentralized protocols. Cryptocurrency investors can access different types of digital currencies from centralized exchanges, decentralized exchanges, and liquidity pools etc.
At the same time, cryptocurrency investors also implement technical and fundamental analytics tools to device a viable trading strategy.
Cryptocurrency investors can create different types of trading strategies such as arbitrage, algorithmic trading, long-term investing, swing trading, day trading, and algorithmic trading etc. The cryptocurrency market takes place in a digital manner therefore it stays active 24/7.
Differences Between Cryptocurrency and Forex Trading
Base Assets
Forex investors deal in legal tenders or fiat currencies such as USD, EUR, and JPY etc. However, cryptocurrency investors work with virtual currency variants such as Bitcoin, Litecoin, Ethereum, and Arbitrum etc.
Market Dynamics
The Forex trading market has been in place for around 500 years. Therefore, forex trading rules and practices have now become established and mature. On the other hand, the cryptocurrency sector is still emerging and considered a dynamic industry.
Regulations
Most governments have designated a dedicated regulatory agency to monitor forex trading platforms. At the same time, regulatory framework for forex trading is comprehensive and detailed. In contrast, cryptocurrency traders often deal with regulatory uncertainty and keep an eye on the developing regulatory infrastructure.
Active Hours
Forex trading platforms are usually active only on weekdays. Meanwhile, cryptocurrency trading continues 24/7.
Liquidity
The Forex market is highly liquid and has little chance of a liquidity crunch since states do not shut down on a regular basis. Liquidity in the cryptocurrency market varies from one project to another depending on various factors such as upgrades, road map, goodwill, technical strength, and trading volume etc.
Volatility
Forex traders usually deal with lower price volatility and stable prices. On the contrary, cryptocurrency prices are subjected to high price volatility.
Applicable Factors
Forex prices can depend on factors such as economic metrics, monetary policies, and political shifts etc. In contrast, cryptocurrency prices are influenced by aspects such as technical infrastructure, trader participation, sentiment readings, etc.
Trading Facilities
Forex traders use traditional brokerage firms while cryptocurrency investors use centralized and decentralized exchanges.
Analysis
Forex traders heavily rely on fundamental analysis but cryptocurrency investors put more emphasis on sentiment and technical metrics.
Associated Risks
Forex investors add exchange rate and economic fluctuations in their risk management strategy. Meanwhile, cryptocurrency investors add preventive measures for volatility, regulatory risks, and security issues.
Conclusion
When it comes to trading, investors can divide their investment budget in various markets such as forex and cryptocurrencies. In this manner, the investors can generate profits and minimize risks by distributing their trading positions in various types of assets that are affected by varied factors.
