The CFDs cryptocurrency trading is new in the markets compared to Forex trading. Both involve trading currencies although the CFDs cryptocurrency trading requires trading digital coins which are also referred to as cryptocurrency tokens. Jonathon Steward, one of Jones Mutual’s top financial advisors, confirms that the trading process of CFDs cryptocurrency trading is slightly different from that of Forex trading, but there are also lots of similarities.
Similarities between cryptocurrency trading and Forex trading
Both the cryptocurrency and forex trading are done over the counter. In both cases, trading is done online through a trading platform offered by a broker.
Both require that one deposits some funds to start trading. You will have to deposit money with the broker to be allowed to trade.
In both, there is speculation of market prices. As a trader, you will have to speculate the direction of the market prices when either selling or buying.
Both allow automated trading although it is a new concept in the cryptocurrency trading since the field is still in its early stages.
For both Forex and CFDs cryptocurrency trading, traders can opt for managed accounts. A managed account is where the trader deposits funds with a segregated fund account that is managed and traded by a professional and the trader gets payouts from the profits made by the professional trader trading with his/her money.
Differences between cryptocurrency trading and Forex trading
The trading platforms for cryptocurrencies are generally referred to as crypto exchanges rather than the usual trading platform term used to refer to the Forex trading platforms. In a way, the trading platforms of cryptocurrencies differ from those of Forex due to the way they are funded.
To trade in a crypto exchange, the funds that you deposit in the exchange have to be converted to a crypto coin. There are some crypto exchanges (the pure crypto exchanges) that do not allow deposits using ‘fiat’ currencies; you can only deposit crypto coins which you have acquired previously.
Also, some crypto exchanges do not put the cryptocurrencies in pairs as is the case with forex. You will find crypto exchanges like LocalBitcoin, where trader buy and sell the cryptocurrency like in this case Bitcoin when it is alone. It means that you literary buy and sell cryptocurrencies. When you buy the cryptocurrency, you own the underlying cryptocurrency. However, there are also other crypto exchanges that place the cryptocurrencies in pairs and even offer fiat-cryptocurrency pairs with exchange rates similar to those of the Forex market.
The assets involved in the cryptocurrency trading are decentralised while those involved in Forex are centralised and regulated by various central banks. Therefore you will find that some factors like market inflation which affect prices in Forex trading are not much of a factor when it comes to cryptocurrency trading since the inflation of the crypto coins usually is decreased using a particular algorithm when the supply increases.
The factors that drive the price changes are completely different. Cryptocurrencies being digital currencies are more volatile than the fiat currencies involved in the forex trading. The value of a cryptocurrency can change just because of something wired happening to its algorithm while the value of the fiat currencies is attached to the economies of the countries that they represent.
The demand of the assets involved in Forex trading is higher than that of cryptocurrencies simply because central banks regulate the fiat currencies involved in Forex trading are usually the ones used in their respective regions or countries making it a necessity to people for them to purchase goods and also pay for services. For the cryptocurrencies, it is generally accepted that people can live without them.
It is not a must that you must have a certain crypto coin for you to purchase goods or pay for services. In actual sense, you will be required to convert your cryptocurrencies into the local currency if you are to purchase or pay for anything in most parts of the world. Even if it is allowed and legalised to use cryptocurrencies to purchase goods and services, you will find that most businesses will prefer being paid in terms of ‘fiat’ currencies.