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Bitcoin vs Forex Trading: What's the Difference?

10 min read

Bitcoin investors will probably know the name of Satoshi Nakamoto, the God whose invented cryptocurrency is so famous and controversial that many look to make it a permanent part of their (online) wallets and rich ever-afters. Although the identity of this mysterious inventor is still unknown to the public, his invention lives and thrives, occasionally oscillates, and is being one of the main, if not the main topic of traders’ interest and investment. Along with Forex, of course.

Bitcoin Essentials to Know

Bitcoin has been around for almost a decade (first heard of in 2009), and unlike the conventional currencies, it does not have a central bank, regulatory authority or a nation state. Despite its coin-suggestive name, Bitcoin does not operate with actual coins but a sum of complex mathematical problems produced by computers solving assigned algorithms. Bitcoins are not spent in a regular way, either: there are specific types of transactions designed for this type of trading, exchanges such as San Francisco-based Coinbase.

All transactions are recorded on the blockchain, a public ledger independent of any type of central authority. These (Bitcoin) digital keys do not exist in the physical world but are stored in a digital wallet, the starting “bucket” of all Bitcoin transactions. According to TechSpective.net, “Bitcoin itself is almost impossible to hack as the blockchain technology that forms the basis of the currency is constantly under review by other Bitcoin users” but that “does not mean it is completely safe to use”. Nevertheless, it is speculated that Bitcoin is a far safer option than any others, especially for those looking to save up without facing the potential of being robbed of their money.

The Good and the Bad of Bitcoin

Bitcoin is extremely secure and it is believed that hacking a cryptocurrency is virtually impossible. With Bitcoin, one trusts in the mutually-beneficial incentives, the code and protocol. No bank or any other external body can prevent people from making a Bitcoin transaction. Buying Bitcoin is pretty much a guarantee of a rich future, as its value keeps increasing. Unfortunately, just as all good things have a negative side to them, so does Bitcoin.

Due to its deflationary nature, Bitcoin can be one’s worst enemy. The more people get onboard, the more deflationary Bitcoin will be, and given the current situation on the market, everything points at an increased Bitcoin interest and it is not impossible for the currency to erode to zero. Just as its value tends to skyrocket and drop in a week, one can witness a bubble popping and everyone losing their entire life savings in a day. Given this insecurity and the current state of the market, trading Bitcoin is a much better option to get rich than it is investing in it.

Forex Key Facts

After being introduced as a derivative to trade, Forex – just like Bitcoin – was met with a lot of conflict and concern. Experts were the first ones to speak against Forex, calling it “rigged”, “over-leveraged” and a “scam”. However, over two decades later, the world is talking about Forex and successfully investing in it.

Known as foreign exchange, Forex is a decentralised global market supporting the trade of all world’s currencies. Forex daily trading volume surpasses $5trn, making Forex not only the largest but the most liquid market in the world. But what exactly is a Forex transaction?

As explained by Fxcm.com, once this type of transaction is made, “the forex exchange rate between the two currencies – based on supply and demand – determines how many euros one gets for their pounds. And the exchange rate fluctuates continuously”. One of the greatest things about Forex trading is that one can trade it based on its fluctuations, i.e. what one thinks its value is headed towards. Usually, people buy when the currency is increasing and sell when it is dropping.

Forex trading allows both individual users and trusted and trained Forex brokers to monitor the market for (in)favorable changes. Essentially, one’s fx broker will monitor the market and currency fluctuations, and advise the currency holder when to invest and how much. This saves the investor a lot of time and money and helps them make safer transactions.

The Good and the Bad of Forex

Forex trading is favoured for its low costs in terms of commissions and brokerage, it suits varying trading styles and offers very high liquidity. Being an over-the-counter market, Forex does not have a central exchange which helps avoid any sudden surprises and it keeps costs low. Volatility in Forex trading is the perfect way to make a profit if trades are placed wisely; with 28 major currency pairs to trade, what’s there not to like?

Also, the capital requirements are pretty low opening the possibility of making good money even if one starts small. However, Forex’s lack of transparency, high risk and leverage, as well as CPDP (Complex Price Determination Process) make it less attractive. High volatility is also a factor, as huge losses are in play given that there is no control over macroeconomic and geopolitical developments.

The Bottom Line

Although Bitcoin is currently the popular kid in the schoolyard, rushing into a popular type of monetary trading comes with a lot of risk and benefits, so thinking twice before making a final call is the wisest thing to do.

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