Forex is the world’s largest market, which features a broad array of currency pairs, including EUR/USD, EUR/GBP, and USD/JPY. On the other hand, Bitcoin is a single cryptocurrency that in an overwhelmingly crowded crypto-currency industry reflects just one coin. Only traders who recognize all of the inherent dangers should exchange forex or bitcoin with CFDs. That being said, we will look at five main discrepancies between forex and bitcoin trading that should be recognized by traders before opening a position.
Liquidity relates to how quickly, without altering the current market price, a commodity may be turned into currency. Liquidity in the forex market is based on which currency pair is being exchanged. Any of the most common currencies to exchange have regular trading rates that are incredibly high. For instance, the US dollar sells at about $2.2 trillion regularly, while the euro is trading at EUR 800 million.
On the other side, bitcoin is less liquid and is not a widely recognized type of cash. At the beginning of February 2019, the daily US dollar volume in bitcoin purchases was about $320 million.2 This is because, as opposed to the funds in their bank accounts or the banknotes in their wallet, people do not purchase items quickly with bitcoin.
It could be hard to locate another trading participant to take the other side of the exchange in markets with poor liquidity, such as bitcoin or any more exotic currency pairs. For Bitcoin, the fact that purchases are distributed through several exchanges exacerbates this problem.
Volatility applies to how sensitive the price of a commodity is to adjust. For example, it is extremely volatile if an asset encounters loads of peaks and lows in a limited period.
Generally speaking, bitcoin is more volatile than forex pairs, which appear to jump instead of seeing massive small bands changes. Forex pairs also travel a great deal inside these small ranges, though, owing to the large regular trades. In contrast, Bitcoin appears to jump more drastically, often in a single trading session, up to hundreds or thousands of dollars.
Bitcoin uncertainty is attributed to the reality that a tiny amount of persons own a huge percentage of Bitcoins. Therefore, it might flatten the price if one investor who owns a ton of bitcoin where to sell their part. Individual players are referred to as ‘whales’ due to the share of bitcoins they carry in the cryptocurrency community.
Know among peculiar terminologies for cryptocurrencies
Using CFDs, you may take advantage of minor or significant price movements, with the option of moving long or short. For CFDs, you purchase or sell a set of contracts, with the difference in price between where you buy and sell the contracts deciding your gains.
Bitcoin, particularly when opposed to forex trading, is a relatively new market activity, and so the infrastructure used, such as blockchain, is still in its infancy. Consequently, one of the critical dangers (apart from volatility) of bitcoin trading is that it is not easy to tell how the business will grow in the coming years.
Similarly, if an intruder can locate the private access key, a bitcoin ‘wallet’ where customers store their coins can be opened. Consequently, bitcoin has its range of threats that are consummated for all cryptocurrencies for their technical character.
In the forex industry, the primary danger arises from variables influencing a currency pair’s price, such as the disparity in interest rates between the two currencies in that pair. Usually, the higher the region’s interest rates, the larger the foreign demand appears to be in their currency. This is because higher interest rates also contribute to further international investment in a county’s economy, which stimulates demand for the currency of that nation and pushes up the price.
In comparison, the forex trading sector is close to other over-the-counter products (OTC). Although counterparty default might not be that significant of a possibility, it is still present in the forex sector, especially if a brokerage firm fails or collapses.
Although there are still trading hazards, you can use stops and limits to manage some of the risks by speculating on a CFD portfolio.
There is no one central body charged with controlling retail activities for Bitcoin and forex. Although the forex sector is an OTC market, it is highly regulated by banks carrying out a significant majority of regular FX trades. In the US, for example, the Federal Reserve (Fed) searches for some signs of bank and systemic manipulation; in the UK, along with the Bank of England, the Financial Conduct Authority (FCA) fulfills this function (BoE).
For bitcoin, on the blockchain network that bitcoin uses to process evidence, transactions are checked by other members. No central bank or inter-governmental agency is responsible for controlling bitcoin transfers. Consequently, whether they become victim to a hack or cheat in the scheme, there is no way for a bitcoin buyer to get their stolen coins back. This is distinct from forex dealing since, usually, a regulator will expect a bank to provide protections to guarantee funds in the case of fraud.
CFDs are licensed goods, and the FCA in the UK authorizes and regulates IG as a corporation. Our customers’ assets are stored at managed banks in separate consumer bank accounts, ensuring your money is safe should anything happen to IG.
Usually, since it can be exchanged directly by a trader and many market players take the other side of a deal, the forex market is perceived as more open than bitcoin. In comparison, bitcoin trading includes a wallet and exchange account and is less liquid. The latter can be costly to manage, although how much you can deposit always has limitations. However, you may bet on the market motions of forex pairs and cryptocurrencies by exchanging CFDs without ever taking possession of them. You can open an IG leveraged trading account in minutes, and as soon as you’ve applied for any money, you can open your first spot.