Forex vs. Cryptocurrency Trading, Explained

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Despite many similarities, key differences between these markets remain. One of the largest is the nature of OTC trading versus using exchanges but also how these markets respond differently to global economic pressures.

You’ve likely already picked up on many of these differences, and a major one is the nature of exchanges versus OTC trading. OTC trading offers global liquidity, but trades often must be facilitated by a broker, as mentioned before. It is possible to get an account that gives direct access to the market, but this is highly regulated. Going through a broker, however, is more straightforward for many investors and traders, but the broker is going to take a cut. How much will depend on many variables, such as the actual institutions involved, the trading pair you choose and current market conditions. 

Cryptocurrency is most commonly bought on exchanges. An exchange, much like a broker, acts as a middleman and will take a cut. Unlike brokers, though, the exchange acts as the singular authority over buying and selling and usually has a fixed rate (or rate structure) that will always apply to trades. There is no negotiating; there is just the exchange’s terms. Therefore, this can simplify the process for users in some ways, but it does mean that user activity will be under the watchful eye of a central authority.

Global currencies are also not the same as cryptocurrencies — a fact that proponents on both sides are usually quick to point out. Traditional currencies (fiat) can be pegged to an asset, other currencies or nothing at all, but they are regulated by governments and central banks. The systems in the world that define their interactions are old and well established. The value of a global currency will always be dependent on things: what commodities they produce and how their nations are doing against other global players.

Cryptocurrencies, however, have very little of this. None of them existed before a little over a decade ago, and none of them are tied to a particular nation or bank. While they can be pegged to other assets, most of them are not, and they rely on a combination of their own utility and speculative faith to derive value. The intrinsic usefulness of a digital asset can vary wildly, and the market is fairly competitive, often with multiple projects vying to fulfill the same niche. Meanwhile, virtually none of them are well regulated, and the future of how legislation will play out is uncertain at best. Some may speculate that fiat currencies can potentially collapse; however, they are much more tried and true investment vehicles on average than the majority of cryptocurrencies available.