There is always a fad that is the one that leads the financial markets.
The fashion of recent years is undoubtedly cryptocurrencies, led, of course, by the almighty Bitcoin.
Not many years ago the binary options had their moment, but they did not convince everyone and they went out a few years later.
The great fashion that preceded cryptocurrencies in the world of trading was the Forex, which is still there, more alive than ever, despite the fact that cryptocurrencies threaten to dethrone the great power of the FIAT system.
If someday cryptocurrencies get it or not, it’s another story; because here what I am going to comment is the fact of how is the cryptocurrency trading with respect to Forex trading.
Centralized currencies versus decentralized currencies
The truth is that I do not know how the customer data and accounts will be open, but I suppose that cryptocurrency trading should not be too far from Forex trading.
However, the conditions between one and the other differ in a brutal way.
We have to notice that they are two completely different markets today.
Difference between cryptocurrencies and Forex
Before entering into the considerations of trading trading, I will comment on what is surely the main characteristic that people argue to defend cryptocurrencies is that they are immune to inflation because governments cannot devalue them at their discretion, as Do with dollars, euros, yen or francs.
The latter is true, and in theory it is something that gives all the strength that the crypto market has, but that does not mean that in the future there could not be more sophisticated hacks and much more bizarre stories.
What is certain is that today cryptocurrencies are still considered “safe” by this topic.
However, there is something that does not fit me too much, and that is that cryptocurrencies are not the only assets that cannot be devalued.
Other non-devaluable assets are oil, gold, platinum, silver, zinc, etc., and these have not increased by 10,000% in a few years for that reason. Quite the contrary, most of them are in bear markets from many years ago.
It’s almost as if all the hot money was in the crypto markets. But hey, that’s another story.
Let’s go back to trading.
The Forex market is huge and in most of the brokers we have trading conditions that are on a par with those of the futures markets, with spreads of 0.1 or 0.5 pips for the major pairs and with quite decent commissions of 5 or 6 USD per lot.
For a market that moves about 100 pipos daily, we are talking about more than decent conditions to trade.
The cryptocurrency market, on the other hand, has much higher spreads and commissions.
Sometimes we charge a commission of 0.20% per side, which in Forex would be equivalent to pay about 24 pips in the EURUSD at the price 1.20.
The spread is extremely variable in Bitcoin. In the rest of cryptocurrencies it is much more.
In the cryptocurrency exchange houses we can expect to find spreads of 1 dollar, but peaks of 6 and 10 in a very common way, which makes the real cost of trading, much higher. This, in terms of price would be equivalent to another 0.1% extra cost, at least, an equivalent to about 12 pips in the previous case of the EURUSD.
With this, we have to trade with Bitcoin in some of the best exchange houses, we will have to pay 0.3% of the price per transaction, which is equivalent to negotiating the EURUSD with about 36 pips of cost per side; and do not forget about the return.
Well, you will say that it does not matter because Bitcoin is extremely volatile and that makes it have those spreads; and it is true.
These spreads are due to the fact that Bitcoin has extreme volatility, which in daily terms can represent 6% of the average price.
In other words, the Forex moves much less and that is why we have more “cheap” trading conditions, while the cryptocurrencies move much more and the market puts the right price, in terms of a high spread.
But this is not all, because here I am talking about the cryptocurrency exchange houses, which do not usually have leverage in this service, which equates things with Forex, not to say that the latter has even more potential ” movement “since we can take advantage of the leverage that they give us from 50, 100 or 200 to 1; although the latter will no longer be possible for European traders once the new regulation of the ESMA is introduced, which will leave the Forex leverage at 30:1, still strong enough to try to take advantage of the movements of the same.
In addition to the exchange houses, we have the possibility of trading Bitcoin with the typical Forex brokers, most of which have included the possibility of trading with some cryptocurrencies, in some cases with leverage and in others not.
What we have here is that these brokers, as I mentioned on occasion, offer quite high spreads, which can range from 0.5 to even 2% of the price in Bitcoin, and much more in other cryptocurrencies.
Of course, a spread of 1% of the price, for example, would be equivalent to trading the Forex with the EURUSD with a spread of 120 pips.
There we can already see that it is not so simple to be able to make effective trading with these instruments.
So, with all this, what is better, trading with Forex or trading with cryptocurrencies?
The final choice, I anticipate, will depend on your trading style and your own personal opinion.
I can give you mine.
Although the cryptocurrencies have shown us some brutal tendencies in the past, which is essential to be able to develop good trend trading techniques, I still prefer Forex trading.
Although cryptocurrencies are fashionable, I find it difficult to try to trade with spreads that exceed 1% in many of their main assets, such as Ripple or Dash.
All this, together with the fact that cryptocurrency exchange brokers, such as Kraken, still do not offer the appropriate trading conditions that a futures or forex broker offers, makes the best option today is the last trading, and Better yet, if you have the money and the experience, the futures.
Not to mention that the level of regulation of cryptocurrency exchange houses is still far from the regulation that the main brokers of the FCA may have, for example.
Moreover, when I was doing some trading in crypts, particularly Bitcoin, in the middle of the rise of the end of last year, one of the brokers of CFDs jumped me with an excuse that they had to stop trading those assets because the market was asymmetrical. What a description, in a fine way to say that when the market moves and many customers make money, they do not allow to operate, of course.
But regardless of whether there are problems of that type or not – in the Forex there are also problems – for now if I have to choose I still prefer Forex trading. Although the eternal character “bullish” of the cryptocurrencies is something very in favor of them, something similar to what happens in the stock market with the shares, although in this last case we are talking about an bullish character that lasts for centuries.
Although not for that reason you think that the Forex market is easy. Rather the complete opposite. It is a very complicated market, of course much more than the stock markets.
And what about you?
Is it better to trade with Forex or with cryptocurrencies?