The Forex market is still the most significant financial market on earth, where virtually all types of currencies are traded against each other by professional traders and financial institutions. Bitcoin, as well as other altcoins with reasonable market capitalization, has caught the interest of the business world and investors due to the sporadic growth they have witnessed in recent years.
Cryptocurrency trading has been around for a while ever since the emergence of cryptocurrency exchanges like coinbase where bitcoin and other currencies can be purchased directly with cash. There are other cryptocurrency exchanges that have a variety of altcoins that can be traded against each other, such exchange include Bitfinex, Binance, Bittrex, etc. These exchanges provide trading opportunities for cryptocurrencies for speculative purposes.
Trading Through Forex Brokers
Forex brokers have realized the rapid growth of the cryptocurrency market and have decided to take advantage of it by making cryptocurrency pairs available alongside regular currency pairs. Forex brokers offering cryptocurrency trading in the form of Contracts for Difference (CFDs). In other words, the trader concludes a contract with the contract provider on an underlying asset (such as Bitcoin). These derivatives rely on movements in the price of their underlying assets but do not involve any exchange or ownership of the cryptocurrency itself.
This means that there are actually no cryptocurrencies exchanged, or portfolios or addresses that should be of concern to you. It goes a long way in reducing the risks of privacy that pose a real threat even to the best and most reliable cryptocurrency exchanges. Traders focus on how to seize opportunities as the market moves. Profit from cryptocurrency trading on Forex / CFD platforms is made when you have a buy position, and the selling price of the cryptocurrency is higher then the opening purchase price; Conversely: long positions lose if the selling price falls below the opening purchase price and also short positions when the buying price is higher than the opening selling price.
Theoretically, CFDs offer brokers the ability to provide high levels of leverage while reducing commissions paid, but due to limited competition in this sector, most of these factors are similar to those available on cryptocurrency exchanges.
Cryptocurrency trading includes a CFD trading platform such as Plus500 on technical analysis (based on market statistics) and fundamental analysis (trading based on live economic news), as well as balanced trading psychology and a good set of risk management tools.
Possessing the right risk management strategies are of immense importance here, because, cryptocurrency pairs are one of the most volatile assets on any CFD trading platform. Their prices move in tens and hundreds of currency units in a day, unlike forex assets that have very simple movements in decimal percentage points, or some other volatile commodity assets such as crude oil that move by only one currency number per day. Being able to control risk while implementing key technical strategies make a big difference to your potential profits or losses.
In fundamental analysis, news coverage is essential for the movement of underlying cryptocurrency CFDs. Remaining updated about the latest happening in the market Is very important
Two major problems seem to stand out when trading cryptocurrency based on fundamental analysis, first, there is no economic calendar that can be used for forecasting. Therefore, you can’t predict when important news will be released. Second, cryptocurrency news that can significantly drive the market revolves around a few points, which may include: their adoption, positive statements from regulators like SEC, and their listing on a major cryptocurrency exchange.
Despite the similarities between them, there are some notable differences between trading cryptocurrencies on the Forex / CFD trading platform, and trading on the exchange:
- There are no cryptocurrencies being exchanged in any of the trading transactions, but rather, it is merely a bet against price action.
- Traders are not required to own any cryptocurrency wallet unlike on any conventional cryptocurrency exchange where wallets are assigned for deposits and withdrawal of assets.
- Cryptocurrencies are traded in accordance with the terms and conditions agreed with the Forex / CFD platform provider.
- Leverage trading option is available on the CFD trading of cryptocurrencies like it is on other forex assets.
- You can trade cryptocurrency pairs against other paper currencies such as Bitcoin / US Dollar, or Litecoin / US Dollar, unlike most cryptocurrency exchanges, in which cryptocurrency pairs are traded against another cryptocurrency.
- Withdrawals and deposits can only be made by paper currencies unlike on cryptocurrency exchanges where only cryptocurrency assets can be deposited and withdrawn.
- When trading CFDs on cryptocurrencies, the trader incurs costs that are similar to those paid when dealing with a regular cryptocurrency exchange. There isn’t any great difference in this regard.
- In case you have an account with a Forex broker, you do not have to open a new account with a stockbroker to trade cryptocurrencies. You simply proceed to trade cryptocurrency CFDs.
- Forex brokers usually offer more sophisticated trading platforms (for example, the MetaTrader platform ) than those available on digital exchanges; therefore, experienced forex traders will also be more accustomed to the broker’s trading tools.
- , Unlike the cryptocurrency market where a significant deposit or withdrawal made by an institution or person will grossly affect the price and the volume of an asset, It doesn’t occur in the forex CFDs. This is because no cryptocurrency is actually being exchanged, their prices are only being speculated in CFDs.
Conclusively, the pros and cons of trading cryptocurrencies using a forex broker have been examined and hopefully, this will serve as your guide in case you have been considering a migration of your daily cryptocurrency trading activity from the regular cryptocurrency exchange to a forex broker. Happy trading!