How different is cryptocurrency trading from conventional trading?
For instance, if someone is coming from the world of forex trading and wants to make sure that they won’t feel out of place in the cryptocurrency space, they may have some specific questions to ask.
Let’s take a look at a few of the differences between Forex and cryptocurrency trading.
How Forex Trading Compares to Cryptocurrency Trading?
Let’s do a quick summary of what forex trading is, and how it compares to cryptocurrency trading.
In forex trading, you can buy through a wide breadth of conventional currencies that are available through different forex exchanges.
It has a few positives:
- Availability: You have a variety of options to trade from that are widely available through established exchanges.
- Liquidity: Ample liquidity at all times.
- Stability: Fiat currencies on the forex market may not experience significant swings on a regular basis.
- Always Open: The forex market is always open for business.
But it also comes with its negatives:
- Minimal Volatility: Since there’s minimal volatility, you do not have as much room to make profits especially if you are going with a smaller investment amount.
- Transaction Costs: Even on lower amounts, you may have to pay significant transaction costs and other relevant fees.
- Saturated Market: Involvement of various big businesses and institutional investors doing the same thing may result in massive competition.
On the other hand, cryptocurrency trading lets you trade in digital assets through their own dedicated exchanges. It comes with its own pros and cons.
The advantages of cryptocurrency trading are:
- Emerging Market: Since the space is in its formative years, it allows you to have minimal competition as compared to forex trading.
- Increased Volatility: It’s a two edged sword, but the volatility in cryptocurrency markets can actually be beneficial if you are investing a small amount (which in forex trading would provide you with minimal to no chances of making off with profits).
- Minimal Costs: Costs may vary based on the type of exchange used and the type of trading conducted.
And the negatives are:
- Not Enough Liquidity: If you invest in a lesser cryptocurrency, then you may not find a counterparty. This could hurt your trading and profit potential.
- Limited Stability: Volatility can play a negative role and decimate your initial value if you are not aware of what you are doing.
- Lack of Regulations: The forex market is established, the cryptocurrency market is still in the process of regulatory development.
Trade in New Markets Slowly and Comfortably
Remember, take your time and invest small amounts in the cryptocurrency sector before increasing your positions.