What is Forex?
Let's start our dive into comparing traditional Forex trading with digital asset trading by defining what Forex trading is. Forex trading is trading in foreign currencies. Currencies are traded in pairs. That is, traders actually exchange one currency in a pair for another. There is a base currency and a quote currency in the pair.
The base currency is usually listed first. The exchange rate is the ratio of the value of one currency to another. Usually, it shows how much quote currency you need to spend to buy the base currency. Traders earn from exchange rate fluctuations. The trader's goal is to buy currency at the lowest price and sell it at the highest price. And the trader's profit is considered to be the difference between the purchase and sale prices.
What affects the Forex market?
Fluctuations in exchange rates are influenced by a combination of factors, which can be divided into the following categories:
- Interest rate. The interest rate directly affects the exchange rate of the national currency. The interest rate is determined by the central bank. By increasing it, the bank makes the country more attractive for foreign investments because it makes the return on capital higher. This strengthens the national currency and makes it more valuable compared to others.
- Prices and the situation in the resource market. Many countries have economies that depend to one degree or another on the export of resources. For example, Canada exports iron and ores on a large scale. So, if a new source of these resources is found somewhere in the world, the supply of vehicles will increase, which will affect the price of these resources and it will decrease. This means that countries exporting these resources will receive less income from their sale and, therefore, less income to the budget. Accordingly, a fall in the price of such resources will lead to a weakening of the currency.
- Export volumes. The higher the volume of exports, the higher the demand for products produced by a certain country and the greater the inflow of foreign currency. If exports exceed imports, it means that the demand for products is high, and this makes the currency stronger.
- Political situation. Exchange rates are influenced by both the internal and external policies of countries. After all, when conducting an aggressive foreign policy, the country loses many opportunities for cooperation and weakens the currency. At the same time, when the government changes in the country, it can greatly affect the economic sector because the level of control and influence of the state on the private sector can change, and the taxation system can change. All this can both develop the country's economy and, accordingly, strengthen the currency and negatively affect the economy and currency.
- Economic condition. The economic condition of the country as a whole is the basis of the value of the currency. Countries with strong economies, low levels of unemployment, and inflation have more stable and valuable currencies.
What are digital assets?
We can call digital assets anything that is created in a digital format and has its own value or provides value to other assets, including video, photo, data, and the like.
Digital assets can be assigned both tangible and intangible value. In 2009, when blockchain was implemented, the perception and concept of digital assets changed. Such a concept as tokenization appeared - the transformation of rights to an asset into a digital token. By connecting the company to the blockchain, you automate all processes and make activities more transparent and attractive to investors. Investors will buy company tokens accordingly.
What is BTC?
BTC is the world's most widespread decentralized digital currency. That is, there is no central bank that issues this currency. BTC operates on a blockchain system.
In fact, blockchain is a database with encrypted personal information. The system is designed in such a way that payments can be made without the involvement of a third person, organization, or institution.
What affects the BTC rate?
Digital assets are also operated according to market laws, that is, when the demand for digital assets falls, its value increases. If the supply increases, then the price falls accordingly. It is for sats that it is worth watching the volumes of demand, although the supply is strictly limited, with an emission in the amount of 21,000,000 BTC.
The main factors affecting the level of demand for BTC are the news:
- News about BTC regulation. News about the state ban on the use of satoshis in a certain country, or on the contrary, the permission to use this type of currency. News reporting attempts to control or tax income from BTC trading.
- News that includes infomercials with famous people in the financial and business sphere and their statements about BTC or digital assets in general.
The difference between Forex and digital assets
Digital assets trading is largely speculative. However, Forex trading and digital assets trading have big differences. That is, just as in Forex trading, there are currency pairs and the ratio of one currency to another, so in digital assets trading, there is, and the ratio between digital assets and real currencies is taken into account.
Trading on the Forex market is considered safer and less unpredictable. Digital assets trading is often more volatile, while Forex trading can offer you more liquidity.
In addition, the Forex market is older, and traders have many forecasting tools and clearer factors influencing currency rates.
Another advantage of BTC is the limitation of emission, in contrast to the emission of money by the central banks of countries. The advantage of trading and saving money in satoshis is that government bodies cannot block your access to your account and your money.
In conclusion, we can note that if you are looking for ways to reduce risks, then you should choose to trade on the Forex market instead of trading digital assets. At the same time, the greater volatility of digital assets can offer traders opportunities to obtain a higher level of income.