As the financial world revolves around us, new ways of transacting, managing, and investing money continue to emerge. The rise of cryptocurrencies in the last decade has enabled frictionless transactions and democratized financial systems. Bitcoin and Ethereum are some of the most popular cryptocurrencies among traders- but many other digital currencies are also on the rise. Despite their high volatility, more investors are increasingly speculating on cryptocurrency for profits.
Make sure you understand what mistakes most cryptocurrency traders make, and avoid them.
Before we delve deeper into cryptocurrency investing, is trading cryptocurrency forex? How do they compare? Read on.
Crypto Vs. Forex
Like in the forex market, the cryptocurrency market is driven by forces of demand and supply- with both markets offering high-risk-high-reward options. The basic principle here, however, is that trading cryptocurrencies entail speculating on the movement of prices through a CFD account, or trading (buying and selling) underlying currencies through an exchange.
Cryptocurrencies have been around for a few years now, with hundreds of different coins emerging. Bitcoin was the first cryptocurrency, and it remains the most popular after all these years.
Institutional investors are embracing cryptocurrencies as an asset class to invest in. They believe that cryptocurrencies can offer them greater returns (and lower risks) than traditional financial products such as stocks and bonds. This is because cryptocurrencies are not correlated with the stock market.
The difference between Crypto and Forex:
The crypto market is much less liquid than the forex market and has lower volumes and volatility. This means you need to do more research before entering a trade because you will have less liquidity for your transactions when there are fewer buyers and sellers.
You can’t short cryptocurrencies because there’s no way to borrow them from other traders like you can with stocks or bonds on an exchange platform. This means that if the price goes up too high, then it could fall hard before you get out of your position.
Cryptocurrency exchanges offer different order types, such as limit orders and market orders, which allow traders to place entry or exit points in their trades according to their risk tolerance levels.
Important Considerations before investing in cryptocurrency
If you’re thinking about investing in cryptocurrency, there are several things you need to know.
Rules and regulations when trading in cryptocurrency
One of the first things you need to consider is whether or not it is legal to trade cryptocurrencies in your country. Some countries have banned cryptocurrencies entirely. While others have just taken a cautious approach and require them to be registered as securities.
The next thing to consider is how much money you can afford to lose. The crypto market has been notoriously volatile, so don’t invest more than you can afford to lose.
Make sure that you understand how trading works before opening an account with a broker. If you don’t know how blockchain works or what a wallet is, then take some time to research these topics before investing any money.
Finally, make sure that you know what exactly the broker offers before signing up with them. Some brokers offer more features than others, so make sure that they provide everything you need before signing up with them.
Cryptocurrency Trading Basics
The world of cryptocurrency is still a mystery to most people. It’s a new idea that can be difficult to understand, and it’s so different from traditional currency that it’s hard to relate. But the concept is catching on – especially among millennials, who are more likely to invest in Bitcoin and other cryptocurrencies than their parents or grandparents.
If you’re new to trading cryptocurrencies, it might be intimidating at first. You don’t have any background in this type of investment, so it can be hard to know where to start. But there’s no need to fear taking riskier investment choices.
A wallet and an exchange
To trade cryptocurrency, you need two things: a wallet and an exchange where you can buy and sell coins like Bitcoin or Ethereum. Then you’ll want to find out how much each coin costs per unit and how much they’re worth in dollars. Once you know all that information, it becomes easy to decide when and where you want to buy or sell your coins.
You can use cryptocurrency prices live feeds to keep you informed about the latest cryptocurrency rates.
How to buy Crypto
There are 3 ways to profit from crypto. Cryptocurrency investment comes in two main forms:
1. Holding the token or coin. This means you own a certain amount of a cryptocurrency and will be able to make money if the value goes up.
2. Trading the token or coin. You buy a token or coin with one currency (like USD or EUR) and then sell it for another currency (like BTC).
3. Buy the token and hold it in a cold wallet. These are wallets that are not connected to the internet.
How to trade Cryptocurrency in an exchange
To trade cryptocurrencies, you need to use an exchange. Cryptocurrency exchanges are platforms that allow crypto owners to buy, sell or exchange cryptocurrencies for other assets. These include conventional fiat money or other digital currencies.
There are different types of exchanges, but the most popular ones are fiat-to-crypto and crypto-to-crypto exchanges. The former allows you to trade fiat currency for cryptocurrency and vice versa. The latter will enable you to change one cryptocurrency for another (e.g., bitcoin for Ether). The most popular crypto exchanges include Coinbase/GDAX, Kraken, Binance, and Bitfinex.
You can buy cryptocurrency with traditional money, like dollars or euros, or you can mine it. Mining involves using computational power to solve mathematical problems that generate coins. Think of it as running an algorithm on your computer to earn Bitcoin or Ethereum.
You can purchase cryptocurrencies through exchanges that act as middlemen between buyers and sellers. These exchanges keep track of all transactions and store them in an online ledger of transactions called a blockchain.
What drives the popularity of cryptocurrencies?
As cryptocurrency becomes more popular, more traders are looking to incorporate it into their forex trading strategies. But how exactly can you trade cryptocurrency?
Trading in cryptocurrencies is not like trading currencies or stocks. With currency pairs, there are two currencies to trade (for example, USD/JPY). With stocks, there’s only one stock but many shares that you can buy. Cryptocurrency trading is different because it takes place on the blockchain. Blockchain technology is a decentralised ledger that keeps track of all transactions made through cryptocurrencies. To trade cryptocurrency, you must first open an account with one or more exchange platforms that support your desired asset pair and then deposit crypto funds into your account. Once your account is funded, you can start buying and selling cryptocurrencies and hopefully make a profit!
The most popular cryptocurrency exchanges are Bittrex, Bitfinex, and Kraken. These three exchanges offer the highest liquidity in the market and should be your first choice when looking for a suitable platform on which to trade.
All transactions made with cryptocurrencies are recorded in an online ledger known as blockchain technology. Blockchain technology was originally developed to enable secure transactions between users. They can also transact without having to rely on a go-between like banks or credit card companies for authentication purposes. This technology allows users to send money directly from one account holder’s address to another without going through a financial institution first (similar to sending an email).
Trading Cryptocurrencies and CFDs
Cryptocurrencies are traded on forex and CFDs (contracts for difference) in the same way as other assets.
If you’re interested in trading cryptocurrencies, the first step is to find a broker that offers this service. Many conventional brokers offer Forex trading as one of their products alongside other types of financial products and services such as stocks, commodities, options, etc. While cryptocurrency exchanges only offer cryptocurrencies for sale against other cryptocurrencies or fiat currencies such as USD, EURO, etc.
There are two main types of cryptocurrency brokers:
1. Trading platforms that allow you to buy and sell cryptocurrencies directly through their platform. This is similar to trading stocks.
2. Forex brokers that allow you to trade cryptocurrencies by opening a CFD position against the price movement of Bitcoin or other cryptos.
Trading Cryptocurrency With a Forex Broker
You might be wondering how you can trade cryptocurrency with forex brokers that offer CFD trading on crypto pairs such as BTC/USD and ETH/EUR.
The best way to trade cryptocurrency is through CFD (contract for difference) contracts offered by brokers. You’ll notice that some of these companies offer CFDs on Bitcoin, Ethereum, Litecoin, and several other cryptocurrencies.
Forex brokers have been offering CFDs on cryptocurrencies for a while now, but not all of them allow you to trade crypto CFDs. You need to find a forex traditional broker that offers cryptocurrency CFDs and then open an account with them. Once your account is activated, you can start trading cryptocurrencies with your broker.
To find out whether or not your desired forex broker offers cryptocurrency CFDs, simply search for their website online and visit it. Then look for “cryptocurrencies” or “CFD trading” in the search bar at the top of the page and press enter (or click). If you see something like “Bitcoin (BTC) – USD” listed under “Cryptocurrency” or “CFD Trading, that should be your cue.
Want to practise trading without losing money? Set up a demo trading account with Mugan Markets.
CFD trading on crypto pairs
Cryptocurrencies are traded on exchanges around the world in a variety of currencies. Many exchanges offer CFDs (contracts for difference) on major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC).
A CFD is an agreement between you and your broker that allows you to take short-term positions or buy/sell shares without actually owning the underlying asset. The price of each contract is determined by what traders are willing to pay for it depending on the underlying asset’s value at any given moment.
For example, if ETH/USD is $200, then this means that someone who wants to sell ETH would be willing to accept $200 per ETH, while someone who wants to buy ETH would be willing to pay $200 per ETH.
Cryptocurrency Trading Platforms
The easiest way to get into cryptocurrency is by buying and selling actual coins. However, that requires a bit of technical know-how and some investment capital. Still, investing in an exchange-traded fund (ETF) that tracks the price of Bitcoin or other cryptocurrencies is also an option. These funds are relatively new but are gaining popularity as they offer less risk than buying actual coins.
Several different platforms offer Bitcoin ETFs and other cryptocurrencies. One of them is Grayscale Investments, which offers six different cryptocurrency ETFs. The Grayscale Bitcoin Trust is an exchange-traded fund that enables investors interested in gaining exposure to bitcoin. It enables people to buy shares in the fund, which, like those of a mutual fund, represent ownership in the trust and the assets it holds. The price of those shares moves up or down as the value of the assets changes.
Important factors to consider before investing in crypto
Bitcoin’s popularity has spread like wildfire, and it is now an accepted payment method at thousands of online stores and businesses around the world. It’s also used by millions of people every day for their online purchases, so the potential for using it as an investment option is vast!
And with internet access, it’s possible to send or receive crypto coins anywhere in the world within minutes. And the transaction fees are much lower than those charged by banks or credit card companies. This makes them especially attractive for small transactions and micropayments.
Crypto and Forex trading are very different investment vehicles. The first one is more speculative than the second one. Here are a few things you must understand if you are thinking about trading crypto:
Volatility when trading in cryptocurrency
The volatility of crypto is much higher than that of forex. This is because there is no central bank controlling the value of any currency. Therefore, it can be difficult to predict when you should buy or sell your digital tokens and crypto-assets.
Manipulation in the crypto world
Someone can manipulate the price of a crypto asset. They can do this by creating a lot of fake orders. Or by spreading false information about certain coins or tokens on social media platforms. This is known as the ‘pump and dump’ strategy. It’s not illegal in most cases as long as there are no laws against it in your country.
Scams in Crypto
Be careful with ICOs (Initial Coin Offerings) because many scams are out there. These scammers are trying to get people’s money by promising unrealistic returns. And also promising things which will never happen (like changing the world). Always do your research before investing!
There’s no guarantee of success when trading in cryptocurrency
When investing in crypto there’s no guarantee of success or even profit. Even if you follow the habits of successful traders, there’s no way to guarantee or even predict how much your investment will grow or shrink.
Investing in Crypto is a risky business
Crypto investments are high-risk ventures by nature, but they’re also extremely speculative. You’re taking a gamble on something that doesn’t have any intrinsic value. Instead, its value depends entirely on how much people will pay for it at any given time. And if you think about it that way, it seems like a bad idea!
The technology is still very new
Remember that the technology behind cryptocurrencies is still relatively new. It’s been around for less than a decade and only really took off in 2013 with bitcoin.
There is no regulation or protection for investors
Even though there is no regulation on these currencies, neither is there when trading FX. There isn’t anything protecting investors from losing their money if something goes wrong. That means there’s no one to turn to if an online exchange goes bust. Or if there’s a security breach that allows hackers access to all your coins.
Why Invest in Cryptocurrency?
More people have become familiar with them and have started purchasing them for investment purposes.
Some of the reasons why investors choose to invest in crypto-currencies include:
- They offer a way to diversify your portfolio and reduce risk by investing across different currencies instead of just one asset class like stocks or bonds.
- Crypto brokers provide exposure to emerging markets that may not be available through traditional investments.
- They can be traded 24/7, so investors don’t need to wait until market hours to make investment decisions.
Factors to Consider When Choosing an Online Trader
Your broker needs to be a reputable, reliable, and safe choice. Here are some tips on how to choose a forex broker in cryptocurrency trading.
Fees and commissions when Investing in Crypto
Fees vary by broker. Some charge a flat-rate fee, while others charge a percentage of your total trade value. Before making a choice, you should compare the cost of trading cryptocurrencies with each broker.
Are there regulations for Crypto assets?
Before you consider opening an account with a broker, you should ensure they are regulated by a recognized financial authority such as the Securities and Exchange Commission (SEC) or Financial Conduct Authority (FCA). To ensure your money is safe, brokers are audited every year. When looking for one, ensure that he is a legit broker.
Customer Support is extremely important
If you have questions about using the platform or making trades, customer service is essential. Some brokers offer around-the-clock support, while others may only provide support during normal business hours. You can read reviews of existing customers before choosing one that will be able to help you when you need it most. However, if you are not happy with your choice, you can change the forex broker. Word of caution, you may lose money if you decide to change your broker.
Leverage Offered in different crypto platforms
The leverage ratio determines how much risk you can take on at any one time and how much money can be made from each trade. Some traditional brokers provide leverage of up to 1:1000 while others don’t offer it at all. When you buy $100 worth of bitcoin on a 1:100 leverage platform, you own $100,000 worth of bitcoin. In other words, your profits and losses would be 10 times higher than the amount invested.
Charges for crypto Deposits and Withdrawals
Depending on the platform you choose, you may have to pay fees for both deposits and withdrawals. But, this is not always the case, as some platforms don’t charge any fees for deposits or withdrawals. Others charge minimum fees or even no fees at all.
Security Features in your crypto broker
Look out for security features offered by your broker, such as two-factor authentication (2FA) and a cold wallet storage option where your funds are never connected online. Instead, they are stored offline in cold storage wallets stored in safety deposit boxes or vaults protected by armed guards.
The Minimum Deposit Required By The Broker
The minimum deposit is usually expressed as a percentage of your account balance. For instance, if you have $1 million in your account, then it will be less than if you only have $10,000.
The idea of investing in Bitcoin or digital money no longer seems ridiculous, it has some real advantages over other investments. Cryptocurrency is likely here to stay, even if it doesn’t always feel like it. For investors, Bitcoin and other cryptocurrencies can be good diversification options as well. By adding a little digital cash to your portfolio, you might reduce risk.
As with forex trading, we encourage you to do your research thoroughly before starting to trade. At the end of the day, only invest what you can afford to lose, and always make sure to double-check all of your trades. Your best chances for success are to take things slow and learn from your mistakes. Stick to a strategy that lets you sleep well at night while still allowing you to profit.
If you wish to trade regulated fiat currency instead of crypto, open a live account with the people’s broker