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Easy Ways To Differentiate Between Crypto And Forex Trading

The boom of cryptocurrencies has caused a massive influx of new investors from around the world. Many of these investors are new to trading and are not fully aware of the differences between trading with cryptocurrencies and trading with forex.

If you have been trading for any length of time, you will notice that there are many similarities between cryptocurrency trading and forex trading.

Though they both deal with currencies, there are several differences that make trading between them a unique experience.

Forex is the largest currency market in the world. It has been around far longer and is a lot bigger than the cryptocurrency market. Traders make a profit from forex trading by checking the differences between pairs of currencies and comparing the exchange rates. The more valuable a currency becomes, the larger the profit margin, along with the risk.

Cryptocurrency is a very new currency but follows the same principle. The difference is instead of comparing fiat currencies; pairs of cryptocurrencies like Ethereum and Bitcoin are compared.

The main difference between the two is that forex market is regulated by the central bank of each national currency. The central bank also supports these currencies via their policies and oversee the market.

However, cryptocurrencies have no central bank to support them nor are there regulations in place to oversee them. Cryptocurrencies are completely decentralized and hence there is no regulation from any bank or authority to govern them.

Pros And Cons

Since cryptocurrencies are decentralized, this means that inflation for cryptocurrencies is only managed by their natural algorithms and the properties of the coin. For example, Bitcoin is designed to be eventually immune to inflation. This is because it is capped at 21 million coins. When it reaches this limit, no more bitcoins will be made.

Government currencies have no cap and this means that they will be influenced by inflation. This means that forex trading is affected by a lot of factors that do not affect cryptocurrencies. Some of these factors include world events, current events, and political stability.

Finally, forex and crypto volatility are very different in terms of risk. For forex, people can expect around a 1 percent difference in volatility. At worst, it is around 0.5 percent. Bitcoin volatility, on the other hand, can reach 10%. That’s a big jump and introduces a lot of risk in the equation. Before crypto trading, traders should be aware of the risk and market forces before spending their money.

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