Cryptocurrency Trading vs. Forex Trading – Is It Any Different

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Cryptocurrency Trading vs. Forex Trading – Is It Any Different?

Cryptocurrencies are often referred to as being revolutionary, different and unique. These strong words put off many traders since they fear that their current trading strategies may no longer work. Is it really the case? We’ve examined it in practice.

In theory, cryptocurrency is a currency as any other currency. So, one may expect that the rules should be identical with those used for other currencies with some specific features. Anyway, each currency has its specific features. So, how this is in reality?

Technical analysis

Technical analysis is the most popular type of all analyses and strategies among retail traders. Can we apply it in the same style we know from cryptocurrencies? Of course, we can. On the chart showing a day timeframe, I spotted a point that caught my attention – like from a school book. Take a look at it!

3 strong signals clearly showing the trend

Divergence itself on RSI is seen as a strong trading signal. Someone may argue that this divergence is too weak and he would be right. Anyway, it is still correct divergence. More, it’s been confirmed on MACD and the trading signal would also be visible to a trader using a clean price chart because what we can see here is a pivot point. It’s really unusual to have three such strong technical indicators in a single place.

And what about the next development of the chart? A downward trend, no surprise.

On a chart showing a 4-hour timeframe, I was suddenly attracted by a 1-2-3 gap strategy, which speculates on filling out the gap between the high and the low of the first and the third candles (of an upward formation) or the low and the high of the downward formation.

1-2-3 formation on a chart

It’s evident that technical analysis is universal, which applies to cryptocurrencies, too (in our case to the above bitcoin). If your forex strategy relies on technical analysis you don’t have to worry. Or, you can find inspiration from the above examples. However, always do a back-test first.

Fundamental analysis

Those who guess that the fundamental analysis will be successful or offers the same potential as the fundamental analysis for euro, USD or CZK are right. Cryptocurrencies have some specific features but what you are interested in is not the nationality and the central bank but the availability of using the crypto for payments, its security, and technical background, the developer team, origin, distribution etc.

Most cryptocurrencies are controlled by the users themselves which does not rule out the existence of a system suffering inflation and other such things. In general, what you focus on when using fundamental analysis is the same type of formations. In several cases, you have to find an alternative, which is still possible (instead of watching central bank regulations you concentrate on the regulation of mining etc.). It is not as easy as with the technical analysis.

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To give you a hint – the willingness to use particular crypto, the willingness to mine it (create, enable transactions…) are indicators you should watch in the first place. Concentrate on the very mechanics and safety (security) of the cryptocurrency. The robustness of the cryptocurrency and its security system are equally important.

Technical and fundamental analyses can be used for cryptocurrency trading. There is no big difference between them. If you are a forex trader, hey why not! If you are a novice in this field try out strategies you normally use for commodities or shares. The logic should work, what you will have to do is to adjust take profit, stop loss etc. Beginners in trading should test their techniques on a forex demo account and some of the technical strategies referred to in the article/s.

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

How is trading cryptocurrency different from stocks and forex trading?

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Many newcomers to cryptocurrencies believe that investing in cryptocurrencies/tokens through a cryptocurrency exchange is like buying stocks at Fidelity or ETrade. The truth couldn’t be any more different. There are many, many more differences, but these a few..

#1 Unmitigated exposure to insider trading and pump and dump schemes

In any asset, there is significant informational asymmetry between insiders and outsiders. In stocks, insiders are people like executives and mutual funds who have material, unfair advantage over outsiders who don’t have access to the latest financials, board room me.

Cryptocurrency Vs Forex Trading: Exchanges, Liquidity And Security Differences

On the perspective of price, both trading cryptocurrencies and Forex are quite similar, but while they have this in common, there are a great many things the separate the two in terms of differences. Each of these markets has its own personality and series of risks, so if you are contemplating crossing the gap between the two, you need to make sure there is caution in the research that you conduct in order to find out the best possible step.

The cryptocurrency market is very new in comparison with the more established market that stands behind forex, it has a profound and rich history. The Crypto market, as a result, is increasingly vulnerable . to pump and dump schemes which isn’t an issue for the likes of fiat currencies, where central banks can manipulate their currencies to a certain degree by changing their monetary policies.

Along with this, there are a wider number of differences between trading cryptocurrencies and doing the same with forex currencies, however, the focus therefore should be on the differences which contribute towards profits and losses.

Crypto’s Zero Middleman vs. Forex Middleman

In contrast with forex trading, cryptocurrency trading has no call for middlemen standing between the broker and can be done directly through a coin exchange instead. The difference that comes with the cryptocurrency realm is that there are no middlemen acting on the investors behalf and committing to the trade. With an exchange, participants place the order themselves into the bid and ask ladder.

Cryptocurrency vs. Forex Liquidity

Technically speaking, the matter of liquidity is the ability to buy and sell an asset at the desired price without causing any serious changes in the asset’s price. It’s well known within the field of forex is the single most liquid market in the investing world.

The cryptocurrency market, on the other hand, is quite different to this. In particular, as you move away from Bitcoin and some of the other major coins, there is a profound gap in terms of liquidity between the different altcoins. As a result, the bid and ask spread can be quite significant.

When it comes to trading cryptocurrency, an investor needs to have a good trading strategy, otherwise you end up overpaying because of the wider spread. As an example, the lowest offer for buying TRX (Tron) is at roughly $0.0210, with the highest bid being at $0.0250.

Should you, as an investor, decides to get involved . in the market at this point, you’re faced with a quandry: you can either rush your way int and hit at the lowest asking price, paying a bigger spread, or you jump to the highest bidder and hope it gets filled, but if the market keeps moving up all the way, you get left out which can lead to miss out on a trade.

When it comes to the forex market, however, a trader can almost always guarantee that they will get an instant fill. If you’re moving a significant chunk of the crypto market, you will see very different levels that need filling. In the crypto market as well, you can find yourself inadvertently shifting the market against you if there is a lower level of liquidity, resulting in a subsequent panic and dumping your bag.

This means that a trader will need to fine-tune the order process with cryptocurrencies a lot more then is needed when trading Forex.

The Matter of Security – Crypto Exchange Haking vs. FX Brokers

In contrast with Forex currencies, cryptocurrencies provide literally no safety net in terms of financial regulations and protections. Contrast this with Forex, which has a number of regulatory bodies which have put in place deposit protections against the risk of your FX broker becoming insolvent. In Europe, deposits are guaranteed up to €100,000 per account. In the crypto market, you can’t enjoy the same level of protection.

In contrast, Cryptocurrencies have yet to be considered legal securities, this means that you can’t have any governmental or private regulatory protection in case something goes wrong. What’s more, cryptocurrency exchanges and wallets have been prone to issues of hacking. This means that your funds have the very real risk of being stolen, with no legal protections at all to save investors.

In Conclusion

When comparing the two, Forex trading is highly regulated and carries a uniform layer of regulations all around the world, while cryptocurrency trading remains a widely unregulated and very opaque field. This can have some severe consequences when it comes to how these markets move and can have an impact on the way you, as an investor, conducts trade, as was previously illustrated.

So two of the most important things that have a larger impact on your ability to properly trade any market of that matter are liquidity and volatility. In that regard, the Forex market is more stable, however, if you’re a skilled risk taker, you’ll be able to trade on the cryptocurrency market with a reasonable level of success, raking in far higher profits than you would otherwise manage to get from the Forex trading business.

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