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Crypto vs forex trading: what are the differences?

Crypto vs forex trading: what are the differences?

Many traders are wondering – what to choose Forex or crypto trading, which is more profitable in terms of profit-making? 

This issue worries especially new traders, but the advanced broker is often in doubt too. Cryptocurrencies are also a novelty for Forex professionals, as well as for ordinary people. In the article we will take both ways of earning into account, indicating the advantages and disadvantages.


Forex Trading

Forex market is an international market where you can trade various assets and currency pairs. Currently, the range has expanded significantly. You can trade both currencies and stocks, stock indexes and other instruments, including cryptocurrencies on Forex.


Forex markets or crypto trading?

Transactions of private traders are not brought to the real interbank market. They are made between two parties – traders and the management company that provided the trading platform. From a practical point of view, this fact does not matter since all trades are conducted according to real stock quotes.

Accordingly, a Forex trader and a trader on fiat currency and stock exchanges are actually on equal terms. The success of a trader depends on several factors.

Advantages of Forex trading:

  • low entry, you can start with small amounts;
  • a large selection of trading instruments;
  • favorable trading conditions, the possibility of using leverage;
  • availability of advanced tools for market analysis.


Cryptocurrencies and cryptocurrency markets: what is it?

The new payment is a virtual payment system. We can also say that cryptocurrencies use a unique technology that did not exist before. For the past few years, the capabilities of modern computer cryptography have allowed its users to create highly reliable systems. The level of security and stability of decentralized Blockchain networks is significantly higher than classical payment systems. This includes SWIFT and other technologies used by modern banks.

All the peculiarities of cryptocurrencies are not important for crypto and forex trading participants since they use them only for one purpose – as a trading asset. For effective trading in cryptocurrencies, it is enough to have skills in technical analysis of charts and risk management.


Cryptocurrency Exchanges

Forex is a universal trading platform with a comparatively stable trading volume. In modern conditions, forex trading dealing centers allow their clients to trade a wide range of assets, ranging from currencies to commodities – sugar, grain, etc. After the mass adoption of cryptocurrencies, specialized platforms for crypto trading appeared.


Forex VS Cryptocurrencies

Cryptocurrency exchanges are designed for smooth crypto trading. Platforms allow traders to use a variety of combinations. Both classic pairs with fiat currencies (for example, with dollar: BTC/USD, ETH/EUR, LTC/USD) and crypto to crypto where one cryptocurrency is traded against another (BTC/LTC or XMR/ETH).

Crypto trading platforms have a wide set of cryptocurrency assets. While Forex trading offers a limited set of assets for trading contracts – usually up to 50 or 100, of which only 3-10 are cryptocurrencies, the rest are currency pairs, stocks, etc. For ordinary traders, this factor does not play a role, but it becomes important for those who focus specifically on the crypto industry.

Unlike Forex, crypto trades are carried out on cryptocurrency exchanges. Real commodities are not traded on financial exchanges. All transactions are concluded with so-called contracts with deferred delivery of goods.

In fact, this is a paper where a certain volume of goods is indicated, but its delivery date is postponed for a certain period. This allows market participants to resell this contract. This approach is universal and suitable for both currencies and real commodities.

Forex VS Cryptocurrencies


Forex or Cryptocurrencies

Advantages of cryptocurrency exchanges:

  • round-the-clock trading;
  • high volatility of assets;
  • a large selection of cryptocurrencies for crypto market trading

Cryptocurrencies themselves are not secured by anything and are entirely virtual. In both cases, the crypto market and forex traders trade without a fixed price. However, this does not prevent traders around the world from gaining stable income.

If you have an interest in the topic of the crypto industry and awareness of this topic, then cryptocurrency exchanges are the preferred option. You can use different methods of market analysis, including the assessment of fundamental factors affecting quotes.


Forex brokers against cryptocurrency exchanges

Technological innovations have been rapidly changing the world over the last century. When the first PC appeared, it simplified calculations, documentation, and financial reporting. Then the Internet made the world more global and closer. The next step was the blockchain technology of the distributed registry, which gave rise to decentralized and anonymous digital money, called the crypt.

An alternative to fiat currencies controlled by Central banks, cryptocurrencies were designed. True, there are few crypto-money settlements yet, but as a speculation tool, bitcoin and other coins with high volatility have become a popular subject of trading in order to make money on exchange rate changes.

The popularity of the crypto markets is quite understandable: although the risks of speculating on the rates of digital money are high and the market sometimes resembles a roller coaster, it promises considerable profits. In 2017, the price of Bitcoin increased 19 times, Ethereum – 106 times, Ripple – 175 times, Litecoin – 79 times. Such tempting figures did not leave many indifferent. The trading platforms began to grow rapidly. Everyone offers the opportunity to trade: from brokers to huge specialized exchanges, Forex and New York securities markets with futures and derivatives on Bitcoin.

Expert in the field of trading and financial technology development, Denis Kiselyov, FinTech specialist, creator of the FXTM Invest service (Forextime.com ) and the former head of the Investment Technology department at Alpari, conducted an analysis and compared the solutions in the field of cryptocurrency trading offered by forex brokers with the solutions offered by crypto exchanges. Do these two sectors compete or interact, and who is better for the user?


Analysis of crypto exchanges

Development of Crypto Exchanges and Market Dynamics

The first crypto exchange Mt. Gox appeared 2 years after the invention of bitcoin in 2010. Now, less than 8 years later, according to Coinmarketcap statistics, there are 208 of them, and according to Bitcoin.com, more than 500. And this is without detailed consideration of local exchanges focused on one national market and available only in a specific region.

The number of users is constantly growing. In 2017, growth on the largest exchanges exceeded 20%, and the number of users grew by an average of 4.9%. Most of the users are from the USA, Canada and Western Europe. Global exchanges are not focused on attracting users in the local segment. They often lack localization, support and their advertising campaigns have no specification.

Status of Crypto Exchanges

Cryptocurrency exchanges appeared on the market along with the advent of cryptocurrencies. As the hype around digital money grew, there were more and more specialized exchanges. But in this case, youth is not an advantage. The software and legality of the status of exchanges are often questionable, and the Internet is periodically torn apart by loud scandals about the theft of funds, the loss of customer coins as a result of a system error, court proceedings and bans from government agencies. The industry leaders, crypto exchanges with big names like Binance, have such problems.

Exchanges also have problems with customer technical support. Customer verification is often limited due to technical errors, and registration of new users is suspended. This often happens when the exchange’s software does not withstand the influx of new users or technical support does not have time to cope with their flow in the wake of the next growth of the exchange rate, as well as after hacker attacks, hacks and system errors to which exchanges are susceptible, as they are one of the main goals of hackers. It is also not uncommon to have problems with the interface and localization.

The danger of hacking and customer protection

The hacking of cryptocurrency exchanges is a frequent occurrence. Several times a year, the largest crypto exchanges lose millions of dollars of client funds. The latest high-profile event was the hacking of a major player in the South Korean market Bithumb, as a result of which the company lost $ 31.5 million. Before that, no less noisy scandals around the hacking of Coinrail and Coincheck flashed in the news agendas. The cybersecurity company Carbon Black estimated that hackers stole about $1.1 billion of funds from exchanges in the first half of 2018 alone.

On crypto exchanges, crypto trading investors are often practically not protected and act at their own risk, without legal guarantees. The exception is the US stock exchanges, they have a stable situation from the point of view of regulation, and the investor is protected by law. When working with the exchange, it is important to understand that in the event of a hack or a system error, as a result of which your account will be reset, there is no guarantee that the money will be returned to you.

In the case of large exchanges, there were incidents when funds were returned to customers. This was possible due to the high liquidity and turnover of these exchanges, due to which they are able to cover such costs. But it is worth remembering at least the story of YotBit when after the second hacker attack in a year and the theft of 17% of funds, the exchange declared bankruptcy. 75% of the funds stored on their balance sheets were returned to customers. This story tells us that in the event of a major theft, even the global stock exchange can collapse. And even smaller ones. And because of the nuances with the status of such companies at the legislative level, in most cases, litigation will not give any result.

At the same time, the risks of hacking are not reduced. On the contrary, hackers appreciated that crypto exchanges are attractive since there are a lot of holes and money there and only intensified their attacks. According to Kaspersky Services, in 2017, the number of DDoS attacks on crypto exchanges increased by 36%. In the second quarter, fraudsters hacked platforms in 86 countries, and in the third increased up to 98 countries. Most of the attacks (51.56%) were carried out from China. Most often, cybercriminals attacked sites in China (63.3%), the USA (12.98%), South Korea (8.7%), and Russia (1.58%).

Major hacked exchanges will affect the rate of cryptocurrencies. Now, despite the abundance of crypto exchanges, 18% of the total trading volume falls on Binance, and most of the trades are on only three global exchanges (including Binance). Hacking one of them is able to bring down the rate of Bitcoin and other altcoins.

Analysis of crypto exchanges


Crypto and forex trading software

Forex trading has developed high market standards for broker software. Now many high-quality programs exist, both paid and free, for forex market trading and tracking the progress of trades. For example, MetaTrader and cTrader. Their security is ensured by encryption, SMS confirmations, transaction history, and a data backup system.


Interaction of crypto exchanges and forex brokers

Do forex brokers and crypto exchanges compete?

The intensity of the development of the crypto market has caused demand for investments in crypto. Forex brokers have entered the game. Having seen the emergence of new tools and the demand for them, they began to quickly adapt to new realities and try to get their place in the HYPE. Moreover, they already had a lot from a technical point of view, and it was not so difficult to add a few more trading instruments.

On traditional crypto exchanges (on the forex market and crypto market together), tokens are traded for other cryptocurrencies, mainly for dollars, but sometimes for other currencies – euros and rubles, then on Forex, it is CFD contracts trading. CFD is a contract for the difference in the price of a market asset. There is no actual purchase of the asset itself, but only the fact of its price change is used. If there is a goal of speculation, there is no fundamental difference for a trader – a forex broker’s CFD or a real exchange transaction with the purchase of an asset.

Do forex brokers and crypto exchanges have harsh competition? Definitely, there is a struggle for clients who want to trade crypto assets, and, in this case, forex brokers enter “not their territory”. Forex brokers are forced to cooperate with crypto exchanges to trade crypto. To provide cryptocurrency trading to their clients, brokers need quotes and the ability to hedge to minimize risks. It is more convenient and logical to use large cryptocurrency exchanges.

The crypto exchange receives clients in the form of forex brokers, thereby gaining additional profit. Also, a large pool of forex traders is a good primary base for crypto exchanges. In turn, the broker gets the opportunity to add new trading tools, which makes it possible to get new clients and expand the list of tools.


Forex traders on crypto markets

At the same time, of course, there is direct competition — the exchange, giving its liquidity to a forex broker, helps an indirect competitor and does not receive part of the clients who will trade through the broker. And the broker loses some of its clients who leave to trade on exchanges (if the broker did not have time to add cryptocurrencies, or the client wants to be closer to real assets and be able to withdraw them). 

How does the cooperation of brokers and exchanges affect customers and the crypto trading market?

If we talk about the impact of such interaction, then although exchanges and brokers receive both pros and cons, cooperation remains profitable. Trading volumes, the number of clients and liquidity are growing both for brokers and exchanges. 

At the same time, the cryptocurrency market is also growing, the number of investors and traders, injections into the sphere, which has a positive effect on the industry as a whole.

Users get a choice of how and where to trade: they can go to the stock exchange, or they can contact a broker and trade there. In the first case, a wider set of tools and the ability to withdraw crypto assets. In the second case, there is an opportunity to get a higher service, while the choice of coins is smaller.

The number of speculative instruments is growing. There is an opportunity to enjoy leverage. Brokers are increasing the number of cryptocurrencies traded.

Forex traders on crypto markets


Forex and crypto trading

Now we see another financial revolution, which was marked by blockchain and cryptocurrencies. We also see the way forex brokers are joining the race for new crypto clients. Crypto exchanges and the Forex market start to interact with each other,

The chances are high that the industries will continue to exist separately, intersecting only in the issue of liquidity. But it is also likely that in the near future, a “financial mixture” will appear on the market, making it possible to trade cryptocurrencies with a real purchase of assets and to provide trading in currency pairs.

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