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Before You Start Trading Fiat or Cryptocurrencies, here are Key Differences to Note

By SiliconIndia   |   Thursday, June 21, 2018
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Cryptocurrencies have generated a great deal of interest, excitement, and buzz on Wall Street and in the general socioeconomic landscapes. The fact that Bitcoin delivered 1400% gains in 2017 while Ethereum delivered 12,000% gains in the same period has fueled an unprecedent demand for cryptocurrencies. Interestingly, the traditional trading and investment markets are deeply polarized on whether professional traders should get involved with cryptocurrencies or not.

Some people believe that day trading cryptocurrencies, buying and selling of assets within a single trading session is not much different from day trading stocks. Others however believe that the high volatility of cryptocurrencies relative to stocks makes them too risky to be traded. Nonetheless, the volatility in cryptocurrency is one of the chief reasons to become a cryptocurrency trader.

If you decide to become a cryptocurrency trader, you’ll need to make a choice between trading BTC for fiat currencies such as USD or EUR, or trading BTC against other altcoins such as Cardano, NEO, or Qtum. This piece provides object insight into cryptocurrency trading VS fiat trading.

Before You Start Trading Fiat or Cryptocurrencies, here are Key Differences to Note

Differences between crypto trading and fiat trading

1. Volatility

One of the key differentiating factors between crypto trading and fiat trading is the degree of volatility that traders can expect to see in both markets. Cryptocurrencies are inherently more volatile than fiat currencies because they are speculative in nature. News, market events, and FUD (fear, uncertainty, and doubt) tend to cause prices to move significantly in either direction during a single trading session. It is not uncommon to see up to 30% gains or declines in the price of cryptocurrencies within a single trading session. In contrast, fiat currencies seldom record such massive price swings consistently. The only times fiat currencies are likely to record huge price swings are often during historical moments such as Brexit, a declaration of war, or massive natural disaster.

2. Barriers to entry

Traders interested in making their marks will find it much easier to access the cryptocurrencies trading market than fiat trading markets. To start trading cryptocurrencies, all you need to do is to find a way to buy/acquire some Bitcoin or Ether; and then you can trade on a large number of the 1620 coins in the market inasmuch as you can find their trading pair on an exchange. Coinbase currently provides support for BTC, LTC, ETH, and BCH, and Binance provides an opportunity to trade about 300 cryptocurrency pairs.

In contrast, forex trading requires you to undergo some serious KYC and AML scrutiny; even after that, your options are still limited on the number of currency pairs available. You’ll most likely find USD, EUR, CAD, AUD, JPY, and GBP pairs but exotic pairs such as an NGN and Thailand Baht (THB) are practically nonexistent.

3.Straightforward free structure

Trading fees on most cryptocurrency exchanges are straightforward, you can easily know how much you’ll potentially pay in fees on a trade before you place such trades. Some exchanges such as Coinbase charge a 3.75% but Binanceis cheaper with a 0.1% free and an additional 50% discount if you have the BNB native coin. Bittrex has a flat 0.25% commission on all trades and deposits are usually free on many cryptocurrency exchanges.

In contrast, trading fees on forex transactions are mired with so much ambiguity and hidden charges. Forex trading platforms usually have different fees for tradesunder $1K, $100K, $1000K as well as different commissions for pips in spreads.

4. Difference in demand and supply dynamics

All cryptocurrencies have asset supply caps at which their “mining” would stop. BTC has a 21 million cap, Litecoin is capped at 84 million coins, and Buterin has hinted that the total Ether supply is capped at 120 million. The fact that there’s a cap on the supply of cryptocurrencies suggests that the demand for cryptocurrencies will eventually outpace the supply once cryptos gather enough momentum for mass-market adoption. In contrast, the centralized nature of fiat currencies means that governments can continue their indiscriminate printing/minting of money to fund their activities without thinking about how it alters the dynamics of demand and supply.

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