Cryptocurrencies have become very popular assets over the past few years. Although the market is still very young, there are millions of people who have decided to invest in crypto trading. The main reason for this is the fact that crypto trading offers investors to generate higher returns in a short time. Cryptocurrencies are known to be very volatile, which means that the prices of cryptos are changing very fast.
Although this is creating a lot of opportunities for traders, this can also lead to increased risks. There are two major ways you can trade cryptos, one buy directly buying and selling cryptocurrencies through exchanges, or you can use CFDs on crypto and speculate on the possible direction the market can take. Crypto trading is developing very fast and is becoming more and more popular every day. So, if you want to learn how crypto trading works and how exactly it is different from Forex trading, follow our comprehensive guide to crypto trading.
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What is crypto and How Does it Work?
Cryptocurrency is a very famous form of payment that can be used to exchange online for goods and services. There are many companies that have issued their own cryptocurrencies in the past few years and they can be traded by investors in several different ways. The most popular crypto is Bitcoin.
blockchain. This is a decentralized technology that is spread across many different computers and is able to manage as well as record transactions.
One of the biggest attractions of blockchain technology and the crypto market, in general, is the security and privacy that it offers to traders. These assets represent a great option for investment for a number of reasons.
First of all, cryptos are still new and they have huge room for growth. There are numerous brokers around the world who offer access to crypto trading and the number of them is increasing every day. Cryptos are also used as payment solutions by many brokers around the world. The best thing about crypto payments is that they mostly are associated with lower commissions and offer you a high level of privacy, which makes them very popular among traders.
Most traded cryptos in The World
Today, the crypto market is very diverse. There are hundreds of different cryptos available in the market and the majority of them can be traded. When talking about cryptocurrency trading, the two most popular cryptos in the market are:
- Bitcoin
- Ethereum
Over the past few years, many other cryptos have become very popular among traders as well, for example, Ripple. Bitcoin is considered to be the original cryptocurrency. Launched in 2009, this crypto has become one of the assets that you can trade very easily. Even today, Bitcoin is by far the most popular cryptocurrency in the market.
In fact, the price of this crypto has a huge impact on other cryptocurrencies as well. The price of Bitcoin changes very fast and hits new highs very frequently. One of the most significant increases happened in 2017 when the bitcoin price was around $20,000. After that, in 2021, the Bitcoin price surged again selling over $60,000.
Historically, the second most popular crypto has always been Ethereum. Although it is very different from Bitcoin, it still has many similarities. Unlike Bitcoin, Ethereum is actually the name of the blockchain platform and the actual name of the currency is Ether. Ethereum itself represents a platform for smart contracts.
Many other similar smart contract platforms have been created after Ethereum, but none of them had the same popularity. The main difference between Bitcoin and Ether is that Bitcoin was intended to act as an alternative to regular, fiat currencies, while Ether was used to pay for the use of the platform.
Ripple is very similar to Ethereum and is a platform to facilitate cross-border transfers. In addition to high-price cryptos, there also are others that might not cost as much, but still can be very useful for traders. Many of the so-called ‘meme cryptos’ have taken over the markets over the past few years. One of such is DogeCoin.
How is Cryptocurrency Traded?
There are many brokers as well as exchanges that offer traders the ability to trade cryptocurrencies. When it comes to trading cryptos, there are two major methods in the market:
- Crypto CFDs trading
- Using crypto exchanges
There are some distinct differences between these two methods of trading crypto. Both of them are very popular among traders but they can be totally different experiences. So, let’s discuss each of the methods one by one and see how they differ.
There are numerous Forex and CFDs brokers that offer traders access to crypto CFDs. CFDs are very popular assets in the market and offer traders the ability to generate profits without having to own the asset directly.
CFDs are a type of contract that is made between a trader and a broker, during which you are saying that the price of crypto is either going to increase or decrease. This way you do not have to store cryptos anywhere. Also, this gives you the ability to go short or long, which means that you can make profits during an uptrend as well as a downtrend.
Crypto CFD trading is accessible for everyone and is popular among traders because it can be done using the same platform that is used for Forex trading. This way, you are trading using a platform that you are comfortable with.
Regular crypto trading can be done using crypto exchanges. There are numerous exchanges created for cryptocurrencies. It works in a very simple way. While trading crypto directly, you are buying the cryptocurrency when the price is lower and then sell it once the price increases. In recent years, crypto exchanges have become very popular, and there are numerous of them available in the market. Modern crypto exchanges give you the ability to buy and store crypto at the same place.
There are some differences between these two methods of trading.
First of all, when you are trading CFDs on cryptos, the number of available cryptos tends to be much lower. You might be able to trade only the most popular cryptos using CFDs, while crypto exchanges offer you the ability to trade almost every cryptocurrency available in the market.
Cryptocurrency Compared to Forex
Crypto trading compared to Forex is very different. Although there are some similarities between the trading experience of these two markets, there also are some distinct differences. If you are trading crypto CFDs, the experience might be more like Forex trading, however, if you are trading the actual cryptos using crypto exchanges, the experience is completely different.
Among the biggest differences between Forex vs crypto trading are the risks, time needed for research, liquidity, as well as margin rates. However, the fact that any of the assets might be better in some of these fields than the other does not make it a better trading asset in general. Choosing which one of these two you want to trade depends on many things, but understanding the differences that we are going to discuss below can help you make a more informed decision.
Risk Factor – Forex
No matter what you are trading, the risks are always something that you will have to deal with. Both OFrex and crypto trading markets are very risky. However, there are some things that make Forex less risky when compared to crypto.
First of all, Forex trading is very heavily regulated in the majority of jurisdictions around the world.
This makes it a little less risky when compared to crypto. Another factor while discussing which market is riskier is the fact that crypto trading is still very new. As rewarding as it can be, people tend to be more knowledgeable about currency trading.
Another very important factor is the higher volatility of crypto trading. Crypto prices can change very drastically in a considerably shorter time. There are many things that affect crypto fluctuation, for example, Bitcoin. It can change very fast depending on the media coverage, speculation, and so on. For example, if there is negative news, some owners of BTC might panic and start selling them, which can decrease its price.
Research Time/Needed Knowledge – Crypto
After doing extensive research on crypto vs Forex research time, we came to the conclusion that crypto is a winner in this category. The main reason for this is that when you are trading Forex, you have to analyze the two different economies.
For example, you can’t say that the price of USD is going to increase in EUR/USD pairs only because something good is happening in the USA. There might be other factors supporting the Euro too.
In addition, there are many other factors that can impact the currency pair price. What many traders are doing is that in addition to following fundamental analysis, they are also using technical indicators to confirm their ideas about the direction the market could take.
As for crypto trading, although there are a lot of things that can influence the price movements, the time needed for research might be lower. The main reason for this is that you are analyzing one single crypto and the things that could influence the price to change.
Liquidity – Forex
When it comes to Forex vs Crypto liquidity, a clear winner is Forex. Forex trading is the biggest financial market in the world. Because of the high liquidity of the market, you can buy a lot of currency pairs without it having a huge influence on the price. On the other hand, crypto is less liquid and more volatile. Simply put, higher liquidity and lower volatility give Forex trading the ability to better survive economic shocks.
The prices in the currency pairs do not change more than 1 percent that frequently, while crypto prices can jump up and down drastically. In addition, there are a lot more people trading currency pairs every day than cryptos. It should not come as a surprise as there always is someone who needs a different currency.
Margin Rates – Forex
While working on this crypto trading vs Forex guide, we wanted to focus on many different factors. One such thing was the leverage offered to traders. In general, Forex trading offers people higher leverage than any other market.
Depending on your location and local regulations, you might be able to trade Forex with high leverage. However, in most cases, even CFD crypto traders are offered lower leverage. Usually, available leverage for crypto traders is around 1:2.
Final Words on Crypto trading
Cryptocurrency trading is very popular around the world and there are millions of people trading cryptocurrencies every day. Among the most popular cryptocurrencies in the market, you can find cryptos like Bitcoin, Ethereum, and many others.
There are two major ways you can trade cryptos. One is by simply buying and selling cryptocurrencies using a crypto exchange, and another is by trading CFDs on crypto.
Both of these are very popular among traders. While there are some basic similarities between Forex and crypto trading, there are some things that make these two markets very different from one another. Depending on your interests as well as skills, any of them can be a great choice for trading.
