Cryptocurrencies are rapidly gaining popularity among investors, and this demand has not remained unnoticed by brokers. More and more companies are trying to provide their clients with the opportunity to trade virtual currencies, thereby expanding the possibilities of trading. It would seem that CFD trading is an excellent option for cryptocurrencies – taking into account a huge speed of execution of transactions, the ability to use leverage, the reliability of trusted brokers, and the chance to benefit from orders and technical analysis.
When it comes to cryptocurrencies, a lot of people draw similarities with the Forex market. No wonder, because both of these tools are considered effective methods of trading. However, there is no direct correlation between them, given the fact that cryptos do not generally affect the Forex market. Below we will have a closer look at this subject, so stick with us.
What is Cryptocurrency in Simple Words?
Cryptocurrency is a digital coin that represents the result of computer calculations. It is built on a blockchain system – a chain of information blocks. Cryptocurrency can be called electronic money – they are used to transfer digital money from person to person without an intermediary. Even though they cannot be touched or held in hands, they can be exchanged for quite ordinary money and perform other operations as well.
In other words, this is a means of payment that exists only on the Internet. It has no paper expression, and its value does not depend on the state.
Usually, to transfer money from one person to another, you need an intermediary – a bank. But in the case of cryptocurrency, it’s different as the bank does not participate in the exchange. In 2009, the first digital coin appeared – Bitcoin, since then the number of cryptocurrencies has been growing.
Crypto Brokers vs Forex Brokers
If we were to compare Top Online Forex Brokers to top crypto brokers, we could certainly discover a lot of similarities as well as differences. When we talk about the impact of the cryptocurrency on the Forex market, brokers play an important role. Some Forex brokers are versatile, meaning that they can also offer trading with various cryptocurrencies. The same, however, is rare with crypto brokers. They mainly offer digital coins for trading. That being said, a majority of people choose Forex brokers to trade with cryptocurrencies at the same time.
Forex is a Way Bigger Market
One of the main reasons why cryptocurrencies cannot affect Forex is that the latter is a bigger market than its counterpart. FX trading engulfs a wide variety of currency pairs from USD to EUR, while in the case of cryptocurrencies we can only point out some of them, including Bitcoin, Litecoin, Ethereum. This field is still in the development stage, while the Forex market has already been active for numerous years. Keep in mind that Bitcoin only appeared in 2008, and a trading concept appeared way later.
Cryptocurrencies are Volatile
Cryptocurrencies and in particular Bitcoin are volatile, meaning that they are subject to rapid fluctuations. The price of Bitcoin can be $50,000 and drop sharply in a few days. The same however can not be said about Forex as it is more stable than its counterpart. The volatility is seen by many people as a risk, but at the same time, it could act as an advantage.
Safety and Regulation
In general, it can be said that cryptocurrencies are pretty safe. Blockchain which holds records for various transactions cannot be forged in any way. However, when we talk about regulations, cryptocurrencies are not regulated and thus they lack centralization. There is no central bank that would have power and legitimacy over the market.
Forex in contrast is firmly regulated. When you decide to choose brokers, you need to make sure that these brokers are regulated by prominent entities, such as CySEC, the FCA. Crypto brokers also require licenses.
The Bottom Line
We have touched on a lot of subjects in this comprehensive article and to sum up, it can be said that cryptocurrencies have almost no impact on the Forex market. These 2 are separate entities, functioning on their own, and if we were to talk about the influence, Forex can have more impact on cryptocurrencies than vice versa.