Cryptocurrency forex trading has exploded in popularity in recent years. Trading major cryptocurrencies like Bitcoin and Ethereum on the foreign exchange (forex) market has many advantages compared to buying and selling on crypto exchanges.
This comprehensive guide will teach you everything you need to know about getting started with cryptocurrency trading on the forex market.
Introduction to Cryptocurrency Forex Trading
Cryptocurrency forex trading means buying and selling digital coins on the foreign exchange market. Here are some key points about how it works:
- Forex brokers now offer cryptocurrencies like Bitcoin, Ethereum, Litecoin, etc. alongside fiat currencies.
- You can trade crypto/fiat currency pairs like BTC/USD, ETH/EUR just like regular forex trading.
- Cryptocurrency CFDs allow you to go long or short on crypto without owning the underlying asset.
- Trading cryptocurrency through forex brokers provides easy access compared to crypto exchanges.
- You can trade with leverage and only put up a small margin deposit.
Trading cryptocurrency on the forex market has several advantages over buying crypto on exchanges:
- Regulation – Major forex brokers are regulated in their jurisdictions, providing accountability and security for traders. Crypto exchanges are largely unregulated.
- Trading Options – Forex brokers offer leverage, short selling, stop losses, and advanced order types not available on crypto exchanges.
- Liquidity – The forex market has enormous liquidity, so it’s easy to enter and exit trades instantly. Crypto exchanges can suffer from low liquidity.
- Trading Hours – The forex market is open 24/5 for trading most cryptocurrency pairs. Crypto exchanges only operate during regular business hours.
In summary, cryptocurrency forex trading provides easier access, more trading options, and security through regulation compared to crypto exchanges. Let’s look at the top digital coins for trading forex.
Top Cryptocurrencies for Trading Forex
Here are the most widely traded cryptocurrencies on the forex market:
As the first and largest cryptocurrency, Bitcoin enjoys immense trading volume in currency pairs like BTC/USD and BTC/EUR. Some key advantages:
- Extreme liquidity – Easy to enter and exit large BTC positions.
- Price stability – Less volatility compared to smaller cryptocurrencies.
- Universal acceptance – Bitcoin is traded on every forex brokerage.
When trading Bitcoin on forex, be mindful of price fluctuations caused by news and events like SEC rulings and mining rewards halving. Use stop losses to manage risk.
Ethereum is the second largest cryptocurrency with a current market capitalization of $XX billion. Reasons to trade ETH:
- Increasing adoption – More projects continue to build on the Ethereum blockchain.
- Futures potential – Ethereum plans to transition to proof-of-stake consensus which can spike prices.
- Correlated to Bitcoin – ETH prices generally follow Bitcoin’s price movements.
Monitor Ethereum development roadmaps and major partners like JP Morgan adopting Ethereum for trading signals.
Litecoin is a popular alternative to Bitcoin appealings to traders because of:
- Faster block time – 2.5 minutes vs Bitcoin’s 10 minutes increases transaction speed.
- Optimal liquidity – Large enough daily volume for easy entries and exits.
- Lower fees – Sending LTC costs pennies compared to much higher BTC fees.
Litecoin is well-suited for short term, technical traders who benefit from fast transaction times.
Ripple has grown rapidly among banks and financial institutions with its real-time gross settlement system. Key features:
- Large circulating supply – Over XX billion XRP coins in supply creates ample liquidity.
- Bank partnerships – Ripple’s partnerships with banks gives it stability and widespread use.
- Speed – Settlements take just 4 seconds on average, appealing to high frequency traders.
Watch out for major partnership announcements from Ripple that can impact prices.
Bitcoin Cash (BCH)
A fork of Bitcoin, Bitcoin Cash is accepted by many forex brokers. Benefits:
- Active development – The BCH roadmap focuses on usability with features like Smart Contracts.
- Low fees – Sending BCH costs under a penny, facilitating high volume trading.
- Liquidity – Daily trading volumes are in the billions across major exchanges.
Monitor Bitcoin Cash adoption rates and new feature releases which can precede price jumps.
This covers the top cryptocurrencies available for forex trading due to their liquidity and widespread adoption. However, most major brokers also support other coins like Dash, Monero, Zcash, EOS, Stellar etc.
Now let’s look at proven crypto trading strategies tailored for the forex market.
Cryptocurrency Trading Strategies on Forex
Here are effective strategies to profit from crypto price movements on forex:
Day trading involves opening and closing trades within the same 24-hour trading session to capture small price movements. Benefits:
- Take advantage of volatility – The crypto market often sees 5%+ price swings in a day.
- Manage risk – Never hold trades overnight by closing all positions by market close.
- Earn compounding returns – Increase total returns by making multiple winning trades per day.
Use technical indicators like RSI and moving averages to identify entry and exit points. Set tight stop losses of 1-2% per trade.
Swing traders hold trades for days to weeks to profit from medium term trends and retracements.
- Ride momentum – Stay with a trend for extended periods until signs of reversal emerge.
- Less time intensive – Check charts and positions just once or twice a day.
- Bigger returns – Let wins run to maximize gains from major trends.
Use the 1-hour and 4-hour charts along with indicators like MACD for swing trade signals.
Arbitrage takes advantage of price discrepancies across different exchanges and markets. Steps:
- Identify price difference for a coin on different exchanges.
- Buy the coin on the lower priced exchange.
- Sell on the higher priced exchange at the same time.
- Book risk-free profit from the price difference.
This works well for newly listed altcoins with large pricing inefficiencies. Use automated trading bots for best results.
Margin trading allows you to open much larger positions with small initial capital by borrowing funds from your broker.
For example, 100:1 leverage means controlling a $10,000 position by depositing just $100 of your own funds. Benefits include:
- Increased profit potential – Amplify wins by leveraging more trading capital.
- Short selling access – Margin trading allows you to profit from falling coin prices.
- Risk management – Set stop losses appropriately and use lower leverage to avoid liquidations.
Use margin cautiously only after gaining solid trading experience. Never risk more capital than you can afford to lose.
Using Technical Indicators
Indicators analyze price charts to identify high probability trading setups. Popular examples are:
Relative Strength Index (RSI) – Measures overbought and oversold conditions in the market. Values above 70 indicates an asset is overbought while under 30 is oversold.
Moving Averages (MA) – Plot the average price over time to determine trend direction and dynamic support/resistance levels. The 50 & 200 day MA are widely used.
MACD – The Moving Average Convergence Divergence indicator shows momentum and strength of trends by comparing two moving averages.
Combine indicators like RSI, MACD and MA for highly accurate trade signals. Use them on 1 minute charts for day trading and 4-hour charts for swing trading.
Now that you know proven trading strategies tailored to forex, let’s discuss tips for trading crypto successfully.
Tips for Successfully Trading Crypto on Forex
Follow these tips for effective cryptocurrency trading on forex:
Choose a Regulated Forex Broker
Select a reputable broker regulated in jurisdictions like the UK, Australia or Cyprus for reliability and security of your funds.
- eToro – Market leader regulated in UK and Australia. Offers copy trading.
- AvaTrade – Over $16 billion in monthly trade volume with 200+ tradable assets.
- Plus500 – Commission-free trading on 100+ cryptocurrency CFD pairs. FCA regulated.
Start with a Practice Trading Account
Open a free demo account to gain experience without risking real capital. Build your strategy and learn how crypto markets move before trading with real money.
Be prudent with your trading capital and use stop losses on every position to limit downside. Never risk more than 1-2% of your account on a single trade.
Keep Up with Cryptocurrency News
Stay updated on news which can impact prices like new regulations, exchange hacks, major partnerships and computing advancements. Set price alerts on your chosen coins.
Use Technical Analysis
Master reading charts using indicators like RSI, MACD and SMA to identify high probability setups. Backtest strategies before using them.
Don’t Panic During Volatility
The crypto markets are highly volatile. Don’t panic when prices suddenly spike or crash more than 5-10% in a day. Stay calm and stick to your strategy.
Patience and discipline are key – don’t get fooled into FOMO buying at the top or panic selling at the bottom!
Cryptocurrency trading on the forex market is an exciting avenue for profits. Major digital coins like Bitcoin provide excellent liquidity and trading options not found in crypto exchanges.
Use the trading strategies outlined to capitalize on market volatility and trends. Choose a trusted forex broker and start with a practice account. Control risk through stop losses, position sizing and avoiding over-leverage.
With the right broker, trading strategies and risk management – you can successfully trade cryptocurrencies on forex. The future looks bright for crypto trading – take the opportunity today!