Crypto Vs Forex Trading: Which One Is Better For You?
Nowadays, there are so many different options that traders can choose from regarding viable trading strategies as well as what type of assets to invest in. However, with so much variety can also come the difficulty of knowing which asset types might be more suitable for the traders regarding individual preferences, needs and desires. In this article, we will therefore be looking at two immensely popular asset types and compare the two in order to know which one may be better for you. The two asset types in question are that of forex as well as for cryptocurrencies.
We will therefore look at all the advantages and disadvantages of both forex trading as well as cryptocurrency trading, in addition to understanding the processes associated with each type of trading, as well as which one may be more suitable for different types of traders. This article will thus also serve as a guide to understanding what forex, as well as cryptocurrency trading, is, and so it would be a good idea to read on till the very end of this article in order to ascertain whether forex trading or cryptocurrency trading may be better suited for you.
Forex trading
Firstly, let’s start with forex trading. It goes without saying that different trading currencies can often be complicated and risky. The interbank market does have varying degrees of regulation, and it is also important to know that many forex instruments are, in fact, not standardised. In fact, in various parts of the world, forex trading might, in fact, be completely unregulated. The interbank market would therefore be made up of different banks trading with one another all over the globe. The banks themselves will often have to determine as well as accept independent risk along with credit risk, and they have hence established different kinds of internal processes in order to keep themselves as secure and safe as possible.
Rules such as this are often industry imposed for the purposes of protection and safety regarding each participating bank. Furthermore, as the market is comprised of each of the participating banks which provide all kinds of offers and bids regarding any particularly given currency, the market pricing mechanism would hence be reliant on both supplies as well as demand. Usually, there are very big trade flows that occur within the system, and so, it can often be quite hard for rogue traders to effectively influence the price of any given currency.
This system hence helps contribute to increased transparency regarding the market for traders and investors who have access to interbank dealing. Moreover, a majority of small retail traders tend to trade with relatively small forex dealers and brokers. These sometimes make record prices as well as even trade against the brokerage’s clients themselves.
Getting started with forex trading
Regarding the actual process of forex trading, you may understand it to be quite similar to that of equity trading. As such, we will now dive headfirst into some of the main steps that you can utilise in order to get yourself started with forex trading. Firstly, you need to learn all you can learn about forex. Although it is not all that complicated, forex trading is indeed a world of its own, and it would therefore require specialised knowledge. For instance, the leverage ratio regarding forex trades would actually be much higher as compared to equities.
Furthermore, the drivers for the different currency price movements would also be quite different from those that exist within the equity markets. To understand more about all of this, you can take advantage of many different types of online courses and educational materials which are readily available for beginners, and these usually teach the basic fundamentals as well as the ins and outs related to forex trading.
Next, you can set up a brokerage account. More often than not, you will require a forex trading account at any given online brokerage in order to successfully begin your forex trading journey. It is important to remember that most forex brokers do not usually charge commissions, as instead, they choose to generate funds through spreads, which is also known as ‘pips’. These occur between the different buying and selling prices. As such, for beginner traders, it may hence be a wise strategy to establish a micro forex trading account with relatively low capital requirements.
You see, these accounts will usually have variable trading limits as well as enable the brokers to successfully limit the trades to certain amounts, which could be as low as 1,000 units of any given currency. Moreover, a micro forex account will additionally assist you in becoming much more comfortable and at ease regarding forex trading, and it will also determine your individual trading style. There are also other types of accounts available which you can take a look at when you consider signing up with a broker.
Forex trading strategies
Next, you should develop a trading strategy. Of course, it is not always possible to accurately predict the different markets as well as effective time market movement. But, to that end, having a viable trading strategy put in place will greatly assist you in terms of setting broad guidelines, as well as a roadmap that can be readily utilised for your trading purposes. A great trading strategy would therefore rely on the reality of your own finances as well as individual situation as no two traders are going to be exactly the same in terms of overall needs, preferences and trading styles.
This strategy will hence consider your budget as well as your overall risk appetite for trading, and it will correspondingly tell you how much you should invest in forex as well as how much you can afford to lose. It is important to remember that forex trading is largely a high leverage environment. However, it also provides additional rewards to those traders and investors who are willing to take the risk.
Next, you should always try to be on top of your numbers. You see, once you officially start trading, it is often a good idea to routinely check your individual positions when the day ends. A majority of different types of trading software have already offered a daily account of these trades, but it is still important to ensure that you do not have any kind of open positions left which must be filled. Also, you must have enough cash in your accounts for the future.
Lastly, you should cultivate emotional equity. You might have often heard that online trading is often involved with emotionally based decisions. More often than not, in fact, both FOMO as well as FUD play a huge role in forex trading (as well as cryptocurrency trading, for that matter), and it should be avoided at all costs. This is why it is of the utmost significance to know exactly what you want out of forex trading so that you do not get carried away.
You should therefore avoid cultivating any kind of an emotional equilibrium across your entire trading journey. In other words, you should be thoroughly disciplined about successfully closing your positions when required.
Forex terminology
Apart from the aforementioned ‘Micro Forex’ account type, it is also important to understand the different types of terminologies that are often prevalent within forex trading. You should therefore know what the different kinds of forex accounts are, as well as what see CFDs are too. Additionally, you should know what the other common terms mean, such as ‘bear market’, ‘bull market’ and leverage all mean. Moreover, you should also be familiar with such terms like ‘lot size’, ‘pip’, ‘spreads’, ‘sniping and hunting’.
Also, some of the most basic forms related to forex trading would normally involve a short trade as well as a long trade. A short trade may comprise a bet regarding the currency pair’s individual price and whether it will decrease in the foreseeable future. In a long trade, however, traders would instead bet that the currency price will increase.
Moreover, you should be familiar with what ‘scalping’, ‘day trading’, and ‘swing trading’ are. Lastly, you should also become familiar with the different types of charts that are often utilised in forex trading, such as line charts, bar charts and candlestick charts.
Should you get involved in forex trading?
The bottom line is that for those traders who specifically have limited funds, swing trading and day trading (in relatively small amounts) would be much easier within the forex markets as compared to various other types of markets.
Keep in mind, though, that forex trading, like any other type of trading, does carry a certain amount of risk, so it is always a good idea to know what your budget and overall risk appetite are beforehand, as well as to do your own research prior to making an investment.
Cryptocurrency trading
Now that we have understood what forex trading entails let us now start talking about cryptocurrency trading. Like forex trading, cryptocurrency trading also involves the exchanging of various different types of currencies. However, cryptocurrencies are unique in the sense that they involve different types of digital assets that are often exchanged with one another.
For instance, you may have already heard about the immensely popular Bitcoin (BTC), which was, in fact, the original cryptocurrency that started it all. To this day, it remains the flagship cryptocurrency, and it has been able to usher in a new era of digital technology innovation and, of course, trading through the intuitive use of blockchain technology.
Different types of cryptocurrency do exist apart from Bitcoin, as there are all sorts of alternative coins (altcoins) that have since emerged over the course of the last decade. The most successful of these would have to be Ethereum (ETH), which to this day remains the second-largest cryptocurrency asset by market capitalization. You see, even though Bitcoin is the first cryptocurrency to ever exist, this does not mean that it is the perfect cryptocurrency, and in fact, many have argued that it has since been outclassed by its competitors, namely Ethereum.
Apart from Ethereum, there are all sorts of other kinds of cryptocurrencies such as Cardano (ADA), Solana (SOL), Polkadot (DOT), Ripple (XRP), Chainlink (LINK), and more. Usually, when it comes to cryptocurrency trading, it is a good idea to stick to the top ten cryptocurrencies, as these are often considered to be the most popular as well as safe investments.
However, this does not mean that you shouldn’t take a look at other cryptocurrency assets, which might not be all that popular but would still be able to help you earn a sizable profit nonetheless. These can include meme coins such as Dogecoin (DOGE) and Shiba Inu (SHIBA), which continue to dominate the headlines even today. Just remember that a more diversified portfolio would, in all likelihood, lead to more substantial profits while also simultaneously reducing the chances of incurring a loss.
How to trade with cryptocurrencies?
There are a few ways through which you can trade with cryptocurrency assets. Much like forex trading, you can rely on a broker through which you can trade with all of the different kinds of cryptocurrencies that have been listed by the brokerage. This method is often utilised by those traders who do not wish to burden themselves with understanding the different technical and fundamental aspects pertaining to cryptocurrencies.
Another way that you can get involved with cryptocurrency trading is through the use of different exchanges. There are two types of exchange that you need to be made aware of, namely centralised as well as decentralised exchanges (DEX and CEX). Centralised exchanges are those that involve intermediaries, and some of the more notable CEXs include that of Binance. Decentralised exchanges, on the other hand, do not involve any kind of third parties or intermediaries, and these include the likes of PancakeSwap, for instance.
Moreover, as cryptocurrencies are still a relatively new type of digital asset, many would argue that centralised exchanges are better because these tend to be safer and less prone to disingenuous activities. However, others would state that decentralised exchanges are better simply because the lack of intermediaries means the absence of any type of intervention and hence the traders are free to do whatever they want with little to no constraints.
Additionally, in order to get involved with cryptocurrency trading, you will also need access to a cryptocurrency wallet. There are different types of wallets, such as hot and cold wallets, as well as paper wallets and hard wallets. Usually, exchanges will provide you with their own wallets in case you don’t have one. However, it is recommended to keep your cryptocurrency assets off of an exchange and to instead keep them somewhere safe and away from access to the Internet.
With that being said, many cryptocurrency traders actively choose to rely on paper wallets as these cannot be accessed by anyone. Hot wallets, on the other hand, are useful when you need to make quick trades as these are connected to the Internet and can hence be used easily and quickly. There are also hard wallets such as the ‘Ledger Nano’ series, which numerous cryptocurrency traders routinely use to store their assets for the long run. However, these need to be kept safe and maybe unusable if damaged,
Should you get involved with cryptocurrency trading?
Cryptocurrency trading definitely has its own advantages, such as being able to earn sizable profits in a short amount of time. However, one of the biggest disadvantages is that cryptocurrencies are also prone to much more volatility as well as unpredictability as compared to other types of tradable assets and markets. It is for this reason that many have since claimed that cryptocurrency trading, although quite profitable, is also much riskier.
With that being said, it is nonetheless possible to get involved with cryptocurrency trading. However, it would also be a good idea to find out everything there is to know about this industry and market beforehand, and you can do this by conducting your own research as well as accessing many educational resources online, which are also usually available via both brokers as well as exchanges.
Forex or cryptocurrencies?
In conclusion, both types have several pros and cons, which this article has thoroughly discussed. However, once again, it all boils down to you as an individual trader and what you want to get out of online trading. If you hence desire to get involved in trading with certain assets that promise astronomical returns over a relatively short amount of time, then perhaps you should consider cryptocurrency trading. However, if the heightened risk and volatility is not something that you are accustomed to, then you can consider forex trading instead.
Whatever the case may be, it is of the utmost importance that you know exactly what forex trading as well as cryptocurrency trading are before getting involved, which would require you to conduct your own research and access different types of resources online, most of which are free. Lastly, you must know what your budget and overall risk appetite are before getting involved with any kind of investments so that you do not end up investing more than you can afford and, more importantly, you do not invest in anything that you do not fully understand.
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