In the early days of blockchain, cryptocurrency trading was seen by many as merely exchanging a few dollars for Bitcoins (BTC). The birth of other tokens and the high volatility in cryptocurrencies have led many traders to speculate by buying a few coins through exchanges in hoping the value will increase for the sake of profit.
The decision to switch to floating exchange rates was made in the second half of the last century, when it became clear to financial institutions that they could not provide the right amount of United States currency secured by a gold reserve. Thus, financial regulators abandoned the gold standard by adopting a system of floating exchange rates. This stage is perceived by many as the beginning of the emergence of the forex market.
Related: How to Trade Big Crypto Volumes, Explained
Comparison between forex trading and crypto trading market
Cryptocurrency trading is the exact opposite of forex and its options for owning an asset. On crypto exchanges, traders buy the desired token and place an order to sell it, exchanging for another coin or fiat. That is, cryptocurrency trading is a real exchange of one cryptocurrency for another.
At the same time, forex exchange rates reflect the state of the economy of countries. Being very stable assets — especially compared to cryptocurrencies — the value of fiat currencies mainly change within three to five decimal places. Cryptocurrencies change much more noticeably, and can gain as much as 100% against the U.S. dollars within 24 hours.
Cryptocurrency trading, due to its high margin, can generate good income even without leverage, which very often leads to a loss of deposit. Investing in coins at their early stages has proven to be a highly effective trading tool for increasing capital.
Why is the impact of the forex market still felt by cryptocurrency traders?
Due to the high volatility in the crypto market, many traders begin to seek or return to the traditional trading market. The price stability of many trading pairs puts the market in a state of hibernation, which is why many traders lose money.
Related: Why Is the Cryptocurrency Market So Volatile: Expert Take
In search of a solution, some part of the community pays attention to other types of trading: futures, options, stocks, or the most popular — forex. Forex turnover reaches nearly $6.6 trillion per day. At the same time, futures trading volumes are $440 billion and the U.S. stock market shows a value of $257 billion, while the cryptocurrency market volatility is only $4.8 billion a day.
Despite the advantages of trading on cryptocurrency exchanges, the long history of the forex market stands as one of its strong points. For a long time, traders have received several popular platforms, such as MetaTrader 4 and 5, thousands of indicators, and tools for forecasts and technical analysis. Recently, brokers have begun to add an imitation of a cryptocurrency trader to their platforms. But the essence of the market remains the same.
How crypto trading companies can reduce the impact of the forex market
The impact of the forex market can be removed if cryptocurrency companies can improve on their security levels. One of the main reasons why traders have a hard time trusting cryptocurrency exchanges is because user funds can often go missing. A recent example is Binance being hacked in 2019, wherein an estimated $40 million was withdrawn from the exchange’s hot wallets.
Related: Most Significant Hacks of 2019 — New Record of Twelve in One Year
One of the solutions for reducing the impact of the forex market in crypto is a project based on the Stellar blockchain. Bridge token enables its users to convert from forex to crypto with outstanding trading conditions and transparency.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Oluwatobi Joel is a U.S.-based freelance copywriter, community manager, blockchain expert and serial entrepreneur. He has worked with various blockchain startups as a marketing strategist.
Joseph Spezzano received a Masters Degree in computer science from The University of Massachusetts. Joseph has been working as a full-time blockchain programmer for the past 5 years. In his spare time, Joseph enjoys writing for CryptocurrencyInvestments.com and traveling.