trading digital currencies such and impact on Forex market

Crypto currencies have been around for over 12 years, starting with Bitcoin in 2009, and have become increasingly popular since then. But why do we mention cryptocurrencies when we discuss Forex? Cryptocurrencies are a form of digital or virtual currency that can be used to buy goods, exchange other cryptocurrencies, or trade them in the form of CFDs on platforms like Plus500. When you trade CFDs on cryptocurrencies, you are effectively speculating on the price movement of the underlying instrument.

Cryptocurrencies can be paired against other cryptocurrencies, and can also be paired against fiat currencies such as the US Dollar (USD) British Pound (GBP), and Euro (EUR) thus forming a cryptocurrency pair. Furthermore, cryptocurrencies are known to be very volatile, sometimes experiencing massive price spikes or significant drops in just one day. Therefore, you should always use risk management strategies and tools to avoid trading more than you can afford to lose.

There are many factors that make cryptocurrency trading risky and the volatility of the cryptocurrency markets. For example, one of the reasons why Bitcoin is such a volatile market is because there is high demand for a limited number of Bitcoins (the available limit is 21 million), so prices can see significant increases. A look at trading digital currencies like Bitcoin and their impact on the Forex market.

When trading cryptocurrencies, there are some things you should keep in mind. First, there are major cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Solana (SOL) in the same way that there are major fiat currencies, like 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.

Major cryptocurrency trading pairs

Now that we have discussed how cryptocurrencies relate to Forex, we will mention the main and most widely traded cryptocurrency pairs available on the Plus500 platform. This is important for traders who may want to assess the liquidity available in the market before choosing their next trade.

Below are the most popular cryptocurrency pairs to trade due to their high liquidity and market capitalization:

  • BTC/USD – Bitcoin (BTC) versus US Dollar is the most traded pair of all time. In this case, BTC is base, with one BTC expressed in dollars as the quote currency.
  • ETH/USD – Ethereum (ETH) is the second largest cryptocurrency after Bitcoin. For this reason, it also experiences high trading volume against the US dollar, with a lot of liquidity.
  • LTC/USD – Litecoin (LTC) is traded against US dollar. Litecoin is a currency designed to be faster and lighter than Bitcoin.
  • Cardano/USD – Cardano (ADA) also trades against the USD, and Cardano is the seventh largest cryptocurrency by market cap, with a market capitalization of over $37 billion.
  • Solana/USD – Solana (SOL) Similar to Ethereum, Solana is a cryptocurrency and platform that allows decentralized applications to run.

Effects of Cryptocurrencies on Forex: Cryptocurrency trading is still not as popular as forex trading, but traders’ interest in cryptocurrency trading is steadily increasing due to high levels of volatility.

Before deciding to buy or trade virtual currencies, it is important to consider the differences between the two methods in detail.

You may be interested in buying cryptocurrencies if:

  • You want to obtain full ownership of the virtual currency
  • I was happy to pay the full value of the asset in advance
  • Wanted direct exposure to each account on the underlying exchange
  • You do not mind having preliminary limits or maximum limits for deposits
  • You don’t mind paying additional fees for deposits and withdrawals

There are many factors that affect cryptocurrency prices:

  1. Supply and demand: Cryptocurrency prices are affected by the forces of supply and demand. If there is a large demand to buy a particular digital currency, the price rises, while the price decreases if there is a large offer to sell.
  2. Economic and political events: Economic and political news and events can significantly affect cryptocurrency prices. For example, a government announcement regulating digital currencies may lead to price fluctuations.
  3. Legislation and regulation: Legislation and regulation affecting the use and trading of digital currencies can play a role in determining their prices. Developments related to industry regulation may be a catalyst for price fluctuations.
  4. Blockchain technology: Developments in blockchain technology and ongoing innovations may affect digital currency prices. New projects or improvements in cryptocurrency technology can lead to increased confidence and interest from investors.
  5. Technical Analysis and Technical News: Many uses technical market analysis to understand future price trends. Analyzing charts and technical indicators can have a significant impact on trading decisions.
  6. Performance of global markets: The performance of global markets affects digital currencies. For instance, a decline in traditional markets may reduce cryptocurrency prices due to increased demand for traditional assets. The digital currency market is volatile, making price prediction challenging due to numerous factors.
  7. Trading on Margin (Leverage): Using margin trading means that investors can trade with larger amounts of money than they actually have. This can increase price volatility and lead to big movements in a short time.
  8. International Regulations: Decisions of international regulatory bodies regarding digital currencies, such as tax legislation and regulatory procedures, can affect the adoption and trading of digital currencies.
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