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Crypto and Forex
Date Modified: 26/07/2023
Cryptocurrencies have been around for over 12 years, starting with Bitcoin in 2009, and have become increasingly popular ever since. But why would we mention Cryptocurrencies when we are discussing Forex? In this article, we will discuss the relationship between Cryptocurrencies and Forex trading and how to get trading access to both.
What are Cryptocurrencies and How Do They Relate to Forex?
Cryptocurrencies are a form of digital or virtual currency that can be used to purchase goods, exchange for other cryptocurrencies, or be traded in the form of Contracts for Difference on platforms such as Plus500. When trading cryptocurrency CFDs, you are effectively speculating on the price movement of the underlying instrument.
Moreover, Cryptocurrencies can be paired against other cryptocurrencies, they can also be paired against fiat currencies like the US Dollar (USD), the British Pound (GBP), and the Euro (EUR) hence making up a Forex-Crypto pair.
Furthermore, Cryptocurrencies are known to be highly volatile, sometimes experiencing massive price spikes or plunges in just one day. Therefore, you should always use risk management strategies and tools to avoid trading more than you can afford to lose. Plus500 offers free-of-charge risk management tools to help you attempt to minimize your losses in addition to free how-to trading videos and articles to help you make more informed trading decisions.
How to Trade Cryptocurrencies
There are many ways to trade Cryptocurrencies, two of which are purchasing them from a Crypto exchange and trading CFDs on Cryptocurrencies through a trusted CFDs provider like Plus500.
There is a difference between buying/selling cryptocurrencies and trading CFDs on cryptocurrencies. You can purchase a cryptocurrency directly from a relevant Crypto exchange, but you would also need to create a cryptocurrency wallet and pay high fees for the transaction. In addition, you would have to store your cryptocurrency in a Crypto Wallet and remember the passcode in order to open it, as well as ensure that your device is protected from hacking threats which can risk your Cryptocurrencies.
On the other hand, if traders want to trade without dealing with the aforementioned factors, they can do so by trading cryptocurrencies’ CFDs. Trading CFDs on Crypto allows you to speculate on the price movements of the underlying asset without owning it. This means that you make gains or incur losses as a result of price movements in the underlying asset. Plus500 offers Contracts for Difference (CFDs) on a range of cryptocurrency pairs and instruments like Axie Infinity, Uniswap, Filecoin, Chainlink, Bitcoin Cash ABC, Ethereum, Bitcoin, and more, all of which are traded against the US dollar.**
Illustrative prices.
Cryptocurrency Trading Can Be Similar to Forex Trading
When trading cryptocurrencies, there are a few things you should keep in mind. Firstly, there are major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Solana (SOL) in the same way that there are major fiat currencies, such as USD, JPY, GBP and EUR. These major cryptocurrencies have the highest trading volumes and are used as base currencies against both fiat currencies and other cryptocurrencies.
Secondly, CFD trading on cryptocurrencies and Forex is quite straightforward on the Plus500 CFD Platform, with the bid and ask prices clearly displayed. You can speculate on whether the price of the reference instrument will go up or down and place the relevant Buy or Sell order on Cryptocurrencies, Forex, and more.
Important Facts About Trading Cryptocurrencies
While there are similarities and links between Cryptocurrencies and Forex, there are obvious differences traders should be mindful of. For example, Cryptocurrencies are typically more volatile than fiat currencies such as the USD, GBP and the EUR. The price of cryptocurrencies can fluctuate wildly, even on a daily basis.
The price of BTC, for example, has been known to fluctuate 10% or more within a day. And, since practically all prices of other cryptocurrencies are correlated to the price of BTC, when BTC performs well, the entire crypto market tends to follow and vice versa. Traders should be mindful that while Cryptocurrencies can be popular and profitable, their high volatility can also mean that traders can experience sudden losses.
Moreover, it’s also worth mentioning that there is still significant regulatory uncertainty surrounding cryptocurrency trading and a large number of scams and fraudulent activities have been reported. Accordingly, traders should choose their Cryptocurrency providers wisely and carefully.
Major Cryptocurrency Trading Pairs
Now that we have discussed how Cryptocurrencies relate to Forex, we will mention the major and most-traded Cryptocurrency pairs available on Plus500’s platform. This is important for traders who may want to evaluate the liquidity that is available in the market before choosing their next trade.
Here are the most popular cryptocurrency pairs to trade due to their high liquidity and market capitalization:
- BTC/USD - Bitcoin (BTC) against the US Dollar is by far the most commonly traded pair. In this instance, BTC is the base, with one BTC expressed in dollars as the quote currency.
- ETH/USD - Ethereum (ETH) is the second biggest cryptocurrency after Bitcoin. Because of this, it also experiences a heavy trading volume against the US Dollar, with plenty of liquidity.
- LTC/USD - Litecoin (LTC) is traded against the US Dollar. Litecoin is a coin designed to be faster and more lightweight than Bitcoin.
- Cardano/USD - Cardano (ADA) also traded against the US dollar, Cardano is the 7th largest Cryptocoin by market capitalization, with over $37 bn in market cap.
- Solana/USD - Solana (SOL) similar to Ethereum, Solana is a Cryptocoin and a platform that allows the running of decentralized apps.
Plus500 offers CFDs on the above instruments, as well as a unique Crypto 10 Index which follows and measures the performance of the top ten cryptocurrencies in the market, including Bitcoin, Ethereum, Cardano, Polkadot, and more.
Illustrative prices.
Implications of Cryptocurrencies for Forex
Cryptocurrency trading is still not as common as Forex trading, but traders’ interest in trading cryptocurrencies is steadily increasing due to their high levels of volatility.
Accordingly, if you choose to trade Cryptocurrencies, then you can trade them on the Plus500 platform, which offers a range of CFDs on Cryptocurrencies without having to create a cryptocurrency wallet. On the Plus500 platform, Crypto CFD trading is available 24 hours a day, seven days a week (except for 1 hour on Sundays).
*This article contains general information which doesn't take into account your personal circumstances.
**Instrument availability varies by operator.
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Forex FAQ
Forex trading (also commonly known as Foreign Exchange, currency or FX trading) is a global market for trading one country’s currency in exchange for another country's currency. It serves as the backbone of international trade and investment: imports and exports of goods and services; financial transactions by governments, economic institutions or individuals; global tourism and travel – all these require the use of capital in the form of swapping one currency for a certain amount of another currency.
When trading Forex CFDs, you are essentially speculating on the price changes in their exchange rate. For example, in the EUR/USD pair the value of one Euro (EUR) is determined in comparison to the US dollar (USD), and in the GBP/JPY pair the value of one British pound sterling (GBP) is quoted against the Japanese yen (JPY).
If you think the exchange rate will rise you can open a ‘Buy’ position. Conversely, if you think the exchange rate will fall you can open a ‘Sell’ position.
To learn more about Forex trading, read our article on "What Is Forex" and to see a full list of currency pairs offered by Plus500, click here.
Forex rates are impacted by an array of political and economic factors relating to the difference in value of a currency or economic region in comparison to another country's currency, such as the US dollar (USD) versus the Offshore Chinese yuan (CNH) – these are the currencies of the two largest economies in the world.
Among the factors that might influence Forex rates are the terms of trade, political relations and overall economic performance between the two countries or economic regions. This also includes their economic stability (for example GDP growth rate), interest and inflation rates, production of goods and services, and balance of payments.
To learn more, check out our article on "What Events Impact Forex Trading" and use our Economic Calendar to find real-time data on a wide range of events and releases that affect the Forex market.
The 4 main differences between trading Forex and shares are:
- Trading volume – the Forex market has a larger trading volume than the stock market.
- Instrument diversity – there are thousands of stocks to choose from, as opposed to several dozen currency pairs.
- Market volatility – stock prices can fluctuate wildly from one day to the next, and their fluctuations are generally sharper than the ones found in Forex markets.
- Leverage ratios – the available leverage for Forex CFDs on the Plus500 platform is 1:30, while the leverage for shares CFDs is 1:5.
Please note that when trading Forex or shares CFDs you do not actually own the underlying instrument, but are rather trading on their anticipated price change.
Foreign Exchange trading has a number of risks that you should be aware of before opening a position. These include:
- Risks related to leverage – in volatile market conditions, leveraged trading can result in greater losses (as well as greater capital gains).
- Risks related to the issuing country – the political and economic stability of a country can affect its currency strength. In general, currencies from major economies have greater liquidity and generally lower volatility than those of developing countries.
- Risks related to interest rates – countries’ interest rate policy has a major effect on their exchange rates. When a country raises or lowers interest rates, its currency will usually rise or fall as a result.
We offer risk management tools that can help you minimise your trading risks.
If you're ready to start trading Forex with Plus500, click here.