August 11, 2022

Digi Squad

Tech & Business

The differences between crypto and FX trading in Dubai

3 min read

So you want to start trading? Maybe you already have, and things are going well, but what is the difference between Crypto and Forex trading in Dubai, and why should you use one over the other?

Let’s start with a definition.

What is FX Trading?

Forex trading is the buying and selling of currencies between traders. Currencies are always traded in pairs, for example, Euro/US dollar (EUR/USD) or British Pound/Japanese Yen (GBP/JPY).

Now that we know the basics of FX let’s compare this to crypto.

Crypto (or digital currency) is based on blockchain technology. Blockchain technology is decentralised, meaning it does not run on a central server.

Transactions rely on secure cryptography algorithms for security and trustlessness. Blockchains record all transactions in a public ledger which cannot be altered in any way.

Unlike traditional currencies like the US dollar or Euro, cryptocurrencies are not issued by a central authority or government.

They are produced through the process of mining. There is no difference between crypto and FX trading, as they both involve buying/selling combinations of currencies.

What you need to know

A misconception with cryptocurrency is that anyone can create coins if they have enough computing power.

Mining requires finding prime numbers so big that they cannot be resolved by factoring algorithms.

It is why it’s called ‘mining’ because you’re looking for gold that does not exist. If it were possible to guess the correct number every time, then cryptocurrency would not work. Finding these primes takes time, energy, money, and resources, but it is easy to verify once they are discovered.

Like forex trading, cryptocurrency market movements are driven by supply and demand. With traditional currencies like the US dollar or Euro (traded as Mno currency pairs), their prices fluctuate against the value of other currencies – whereas, with crypto, each one is valued according to how much people are willing to pay for them at any given time.

If more people want Bitcoin than Nano, Bitcoin will be worth more than Nano. If more people wish to use Nano than Bitcoin, Bitcoin will be worth less than Nano.

Advantages of trading Forex over Crypto

When you buy/sell currencies in the foreign exchange, you borrow one currency to buy another. It’s known as a forex pair. For example, buying Euros using US dollars will create the EUR/USD currency pair.

When people say that they will ‘trade’ or ‘go long’ on a particular couple, they intend to purchase more base currency than the counter currency. It increases demand for that base currency pair which causes its price to rise.

The opposite is true—if someone goes short on a forex pair, selling more of the counter currency than base, then this causes prices for that pair to drop.

The advantage of FX over cryptocurrency is that due to its ease of access and high liquidity, prices are constantly fluctuating, which means there may be many opportunities for traders to make a profit.

A trader can buy or sell a currency pair at any time before the settlement date. If the price moves in their favour, they will realise it again.

It is much harder for cryptocurrency traders to take advantage of market movements as it takes at least 1 hour (24 hours for some coins) until transactions are confirmed on the blockchain network.

FX traders don’t have to worry about this as currency prices are never expected to drop below the value of 0. You can trade currencies for all countries in pairs, which means that while a trader may have BDT as part of their trading portfolio, they always have a counter currency.

For example, if people want Bangladeshi Taka (BDT), but no one wants US dollars (USD), traders can easily switch out USD for another currency such as the Japanese Yen or Euro and profit from the price difference.

In conclusion

Both FX and cryptomarkets are complex forms of trading with high levels of risk attached. Both markets fluctuate due to supply and demand.

However, cryptocurrency investors need to wait at least 1 hour before knowing how market conditions have changed compared to forex traders who make decisions immediately.

It’s an excellent opportunity for Forex brokers to expand their services and target new markets, such as the growing population of cryptocurrency investors looking for an alternative form of trading. For more information, read more here.