Crypto and 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 CFDs on cryptocurrencies, you are effectively speculating on the price movement of the reference instrument. Cryptocurrencies are usually paired against other cryptocurrencies, or against fiat currencies like the US Dollar (USD), the British Pound (GBP), and the Euro (EUR) to make up a Forex-Crypto pair.
Cryptocurrencies are known to be highly volatile, sometimes experiencing massive price spike or plunge in just one day. You should always use a risk management strategy and avoid trading more than you can afford to lose.
How to Trade Cryptocurrencies
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 need to create a cryptocurrency wallet and pay high fees for the transaction. In addition, you would have to store your cryptocurrency without forgetting the passcode. You would also need to ensure that your device is protected from hacking threats.
Trading cryptocurrencies with a CFD issuer allows you to speculate on the price movements of the underlying asset without owning it. 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 instruments1.
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 Ripple (XRP) 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.
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.
Important Facts About Trading Cryptocurrencies
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 has been known to fluctuate 10% or more within a day.
Practically all prices of other cryptocurrencies are correlated to the price of BTC, so when BTC performs well, the entire crypto market tends to follow and vice versa. A number of cryptocurrency derivatives have also been introduced into the European and U.S. trading markets.
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.
Major Cryptocurrency Trading Pairs
When choosing a cryptocurrency pair to trade, it is important to evaluate the liquidity that is available in the market. Some cryptocurrency pairs have higher trading volume than others. The most popular cryptocurrency pairs include:
- 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.
- XRP/USD- Ripple (XRP) against the US Dollar is another very popular trading pair. Ripple is a coin designed for large settlements between financial institutions, as well as cross-border transactions in general.
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 and more.
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.
You can trade cryptocurrencies 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.
1A screen capture of the Plus500 platform, as of September 2019. Illustrative prices.