Bitcoin is a digital currency that people can use to buy things online. It’s similar to regular currency, but it’s made up of computer code instead of paper bills. People can use Bitcoin to buy things from websites that accept it, or they can hold onto it and hope its value goes up.
Some people think Bitcoin is a good investment because its value has gone up a lot in recent years, but there’s no guarantee that will continue.
Is Bitcoin A Currency?
The debate over bitcoin’s legal status was brought into the spotlight when Japanese Mt. Gox closed down after a high-profile and a large number of major retailers started to use bitcoin for payment processing.
Bitcoin is not universally recognized as a currency by every participant in the global market.
This is what makes it different from the Chinese yuan, the dollar, or the euro. This lack of universal recognition can create problems for businesses that want to use bitcoin as a payment method.
Bitcoin is not seen as a currency by regulators, but rather as an asset with value. This was demonstrated by a US regulation that stated that it can be classified as a depreciable asset. However, this is very different from how foreign currency is viewed in trading markets.
Bitcoin trading is becoming a popular way to invest, and many brokers offer it as part of their forex services. However, there are a few things investors should understand about how bitcoin trading works before they start investing.
- First, bitcoin prices can be very volatile, so investors should be prepared for fluctuations in the value of their investment.
- Second, trading bitcoins is not the same as trading regular currencies; investors need to be aware of the differences between the two types of investments.
- Finally, like all investments, there is always some risk involved in bitcoin trading, so investors should be cautious and do their research before investing.
This article explores the similarities and differences between traditional bitcoin exchanges and forex platforms. And why the added option of trading the cryptocurrency to forex platforms, providing that they have the same regulation, higher security, various digital wallets for storage, etc. which also gives traders an opportunity to trade cryptocurrency in a lot of other currencies is a better alternative to forex platforms.
Similarities And Differences Between Bitcoin And Forex Trading
Bitcoin is a digital asset and a payment system. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.
Forex, or foreign exchange, trading is the buying and selling of currencies on the foreign exchange market. It is considered to be the largest and most liquid market in the world, with an average daily turnover of $5 trillion.
Let’s talk about similarities first.
Similarities
Like forex trading, you also need to open a trading account to start Bitcoin trading. A modern electronic device with an internet connection is also needed in bitcoin trading. People who have experience in forex trading can easily learn the basics of bitcoin trading and vice versa. Charts are widely available and execution is fast, so that you can concentrate on your trading.
Crypto traders can use familiar indicators and chart patterns when trading in the crypto markets. The price moves higher when there are more buyers than sellers, which is why you’ll want to follow some basic forex strategies while watching that number on your screen.
Demand metrics and global supply determine the prices of paper as well as digital currencies. When demand for bitcoin goes up, the price will also go northward. When demand goes down, its price also goes down.
Differences
Crypto trading is a lot like forex, but it does have some differences that you should know about.
Number Of Available Instruments
In forex, traders can also concentrate on trading with either main currency pairs or exotic currency pairs. Main currency pairs include USD/CHF, AUD/USD, NZD/USD, or GBP/AUD. Exotic currency pairs include a major currency and an emerging economy’s currency.
The decision to trade in crypto or forex is a personal one that requires careful consideration. Traders should first check their financial goals, available capital and trading style before deciding which market will best suit them financially.
It is best to try out both crypto trading and forex trading with small accounts to see which market is better for you. After a few months, you’ll be able to make an informed decision.
Supply Uncertainty
Unlike currencies, Bitcoins don’t have to worry about the uncertainty related to supply, as it is not determined by international central banks. This means that the rate at which bitcoins are mined is relatively predictable, while all of a sudden shift in monetary policy can create lots of chaos in currency markets. The case in point is the Swiss National Bank’s decision to unpeg its currency from the euro in 2015.
Bitcoin’s value is determined by the fundamentals of the cryptocurrency ecosystem, while forex rates are linked to various factors including prevailing economic conditions and monetary decisions taken by an individual nation to regulate its currency.
How Individuals Are Allowed To Trade
There are a few things to consider when trading currencies. For starters, currency traders can either trade currencies one-on-one, or through leverage using derivatives and other paper contracts. This can help boost the trader’s profits. The use of derivatives and other paper contracts is still in its early stages for bitcoin trading. They are not widely used for bitcoin trading.
Liquidity
The greatest difference between Bitcoin and Forex is liquidity. The Forex market is a liquid market, and the trading volume has exceeded $6.6 trillion in 2019. No matter the position size, you’ll be able to easily buy or sell your instrument. This is a huge advantage as you’ll always be able to exit the trade at a price that is equal or very close to the price you see on the screen.
Bitcoin is a digital currency that exists in a smaller market and has a greater chance to go through an uncertain trading atmosphere. This may result in significant price swings even over minor macroeconomic events.
Security
The currency spot market is unregulated. This means that there is no governing body that oversees the market or its activities. For example, the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) are two regulatory organizations that oversee options and futures markets that are based on currency trading. However, the CFTC has not issued a ruling on how it defines bitcoin, which is currently treated as an asset.
Risks that are associated with bitcoin investing include a lack of steadiness in the value, a high risk of hacking and theft, a high degree of volatility in price, and no legal protections for investors. The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Consumer Financial Protection Bureau (CFPB), and many other agencies have already issued warnings on these risks.
Differences Between Coins
There is a big difference between various cryptocurrencies. Anyone who wants to trade lesser-known coins will have to do a lot of research into their fundamentals. It is almost impossible to track the price movements of all coins in the crypto market. In this market, traders focus on coins that they understand well, which creates a trading watchlist similar to a typical trader’s watchlist for Forex markets.
Profit Potential
Crypto markets gained popularity because they offer lots of opportunities for traders to make huge profits. In trading, risk increases together with profit potential, so traders should be prepared to take bigger risks when trading cryptocurrencies.
However, the value of many coins can hit the bottom, losing all their values. This happens when some coin projects fail to perform as expected or investors decide to favor more established coins. This is quite common in the advanced stages of developing markets.
Market Hours
Cryptocurrency traders should always be aware of the price movements as markets are open 24/7. This is in contrast to forex traders who can enjoy their weekends as the markets are closed. Cryptocurrency traders have to be constantly in touch with the markets, as coins often make big gains or losses on weekends.
Crypto markets and Forex markets are different because crypto trading is driven by individual traders or small crypto investing firms. Crypto prices are not influenced by big institutions as they have only just started to increase their activity in crypto trading. The situation is different in Forex market as trading activity follows a regular pattern as it is driven by big institutions.
Security
When trading cryptocurrency, there are several risks traders need to be aware of. One such risk is counterparty risk- when dealing with a scam or fraudulent company, you may not get your investment back. Another risk is hacking- if your digital assets are hacked, you may lose everything. Recently, hackers stole $600 million from Poly Network.
The forex market is heavily regulated, meaning that traders face fewer risks. Regulations in the country where the broker is registered are also checked to ensure that the broker is legitimate. Unlike cryptocurrency trading, the forex trading industry is well-developed, so scams have been mostly eliminated. This makes forex trading a safer investment choice than crypto trading.
“Trading” Bitcoin On Forex
Many forex brokers have gone on record saying that it is alright for individuals to deposit, withdraw, and trade on a bitcoin-based account. However, If forex brokers invest in bitcoin, they may be violating contracts for difference (CFDs), which are not allowed in the United States. The Financial Conduct Authority (FCA), the United Kingdom’s financial regulator, has also warned investors about these types of platforms.
Many forex brokers are saying that they will add bitcoin trading to their platforms, but it is unclear if they are doing anything more than allowing users to buy and sell bitcoin through existing exchanges.
Investors should prefer bitcoin-based exchanges because these firms have a better understanding of the trading market. They also have higher security requirements and likely will have fewer trading costs associated with each purchase. However, in the future, forex platforms are likely to become more sophisticated in their bitcoin offerings.
Bitcoin exchanges are saying that they have improved their models since the collapse of Mt. Gox. For example, Coinbase, a San Francisco-based Bitcoin exchange, has already announced plans to expand its network to over 100 countries.
Coinbase is a popular way for investors and traders alike to invest in Bitcoin. It offers storage, spending, buying options with instant payments processed by the company’s network through its cryptocurrency exchange services that include Expedia Incorporated (EXPE), Overstock Co Ltd.(OSTK) among others.
The process of purchasing bitcoin can be difficult, time-consuming, and not very user-friendly.
Coinbase requires users to create an account before they are able to purchase any cryptocurrency with their dollars; all purchases must go through this tedious transfer process every single time you want some bitcoins! Purchases may also take three days or more which makes it inconvenient as well. It is obvious that Coinbase functions differently from traditional currency exchange.
However, it doesn’t mean you can’t purchase bitcoins at an agreed price. Coinbase only locks in each transaction before it starts delivering bitcoins to the individual account. There is a fee for each transfer from dollars to bitcoin or vice-versa, charged at a base of 4%.
Bottom Line
Bitcoin, an alternative investment that has been growing in popularity, has drawn the attention of forex brokers who are looking to expand their offerings. Definitions of bitcoin vary, with some classifying it as a traditional currency since the macroeconomics of a nation doesn’t determine its trading. It is determined by various factors including the platform where it is traded and changes in the prevailing macroeconomic conditions.
Trading bitcoin shares many similarities with forex trading, trading bitcoin through a forex broker is not required. A forex broker may charge higher fees than function-as-a-platform exchanges like Coinbase, making the choice of an investor more difficult. Regardless of your decision to use a forex broker or a bitcoin platform, investors should be aware of the risks that are associated with bitcoin trading.
