Cryptocurrency adoption continues to grow, especially more as of late, as the recent banking crisis has highlighted the challenges of the traditional financial system. Despite all the doom and gloom that came in the first quarter from the Fed’s inflation-fighting rate hike campaign, banking turmoil and growing concerns that the economy is headed for a recession, Bitcoin (BTC) has risen significantly, up to 80% year to date. Many traders seem to believe that the dollar will gradually lose some of its preferred reserve currency status, with crypto being one of the beneficiaries.
Newcomers may join the crypto market for various activities, such as staking, yield farming, play-to-earn gaming and more, but trading still plays a central role.
Despite the fact that digital assets are a relatively new asset class for private investors to trade and invest in, the crypto market is very similar to traditional trading in some key aspects.
Those who have previously traded other instruments, especially forex pairs, can easily transfer their skills and experience to crypto trading while taking into account the unique characteristics of this market.
In particular, because both markets are highly technical, liquid and volatile, strategies used to day trade forex can frequently be applied to crypto.
There are several aspects of forex trading that can be similarly applied to crypto trading:
• Technical analysis — analyzing historical price data to identify patterns and trends is an important skill that can be used in crypto trading. Forex traders read charts and use this information to understand market trends. From candlestick charts to technical analysis indicators such as moving averages, Bollinger Bands, the relative strength index (RSI) and a stochastic oscillator, this experience is easily transferable to crypto trading. The price action of cryptocurrencies fluctuates according to the same supply-and-demand principles as forex pairs, although digital assets are often more volatile.
• Risk management — forex traders are well-versed in risk management strategies, which are especially relevant to cryptocurrency trading. The crypto market is volatile and unpredictable, requiring traders to effectively manage their risk in order to avoid significant losses. Forex traders are familiar with concepts such as stop-loss orders and position-sizing, which can be applied to crypto trading to minimize risk.
• Continuous markets — forex traders are often attracted to the OTC forex markets because they offer a wider range of trading times than many listed markets, and the continuous active trading hours can make it easier to get into and out of positions. While forex is attractive because it trades 24 hours a day excluding weekends, crypto trades nonstop, 24 hours a day, 365 days a year.
• Navigating trading platforms — forex traders are acquainted with navigating various platforms and using different trading tools. This experience can be useful in cryptocurrency trading, where traders have to switch between different exchanges, trading platforms and tools. Those with prior experience in traditional trading would have familiar experience while exploring crypto trading tools, including the interface, charts and indicators.
Previous trading experience helps crypto traders
Crypto traders can indeed learn a lot from traditional trading. A survey commissioned by regulated forex broker OANDA in November last year found that 64% of American crypto traders believe that previous trading experience in other assets gives them an advantage when trading crypto. When asked about specific assets, 37% of respondents said they had previously traded forex, and 42% later revealed that they had used traditional trading methods, including in-app or trading platform charts and technical analysis to help them navigate the crypto market.
Interestingly, 47% of respondents with previous forex trading experience said that they used the day trading approach to crypto trading, 42% implemented positional trading strategies, while 40% relied on their experience with event trading, a strategy that seeks to take advantages of price fluctuations that may occur before or after a market-moving event.
In general, the higher the volatility of an asset, the greater the potential for higher returns or higher losses over a short period of time.
Digital assets tend to have even higher volatility than traditional fiat currencies, which makes the application of day-trading and scalping strategies developed in forex trading useful for crypto traders, especially considering that the crypto market is available 24/7.
Jessica Beckstead, managing director of North America and United States CEO of OANDA, commented:
“Digital assets can help traders diversify from traditional financial assets such as fiat currencies or equities. Unlike fiat money, most cryptocurrencies don’t see their value diluted by inflation, but they remain highly speculative and unpredictable. There’s no doubt that crypto can be volatile, but for some traders, this volatility provides a thrill — it can mean significant gains, but also higher risks. Given this volatility, traders may want to consider using features such as stop losses to protect their profits and manage their risk.”
Crypto trading has particularities
While crypto trading has similarities to trading traditional assets, digital assets are in a league of their own. Many distinctive aspects set crypto assets apart, such as higher volatility, regulatory vagueness, a wide variety of new tokens and token types, and more sophisticated concepts related to decentralized finance and smart contracts. Nevertheless, the experience of trading traditional assets always comes in handy.
The OANDA survey mentioned above also showed that the main barrier to crypto trading is a lack of knowledge, with 57% of respondents sharing that they don’t feel confident in their knowledge. Other reasons for reluctance to trade crypto were “lack of historical data to make projections” (21%) and “lack of tools to plan trades and spot opportunities” (10%).
Most of these barriers are mitigated for those with some experience trading traditional assets, as they can borrow powerful tools from forex trading platforms like OANDA.
Finally, crypto adoption is supported by a boom in financial literacy observed across all cohorts over the past two decades.
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