Fiat vs Crypto Trading

There’s an increasing amount of activity happening in the financial market, particularly around trading in fiat and cryptocurrencies. You’ve probably heard a couple of buzzwords being thrown about and you’re wondering what all of it means. In this article, we’ll talk about trading fiat and cryptocurrencies, and the differences and similarities in trading both currencies.

Fiat currencies are currencies that are issued, regulated, and backed by a central government. They often do not have intrinsic value and essentially have value because the central government says they do. Fiat could also be a legal tender that the government has deemed to be generally acceptable. Previously, a government would create money out of physical assets, like gold or silver, and so the currency would have value based on the demand of those physical commodities. However, in the case of fiat currencies, they are not linked to these commodities and thus risk losing their value as a result of inflation.

Cryptocurrencies on the other hand are not created, backed, or controlled by a government or central bank. Cryptocurrencies are decentralised digital assets that serve as a medium of exchange. Unlike fiat currencies, transactions via cryptocurrency do not require a middleman, they are directly conducted between the sender and the receiver without interference from the banks or other intermediaries

Trading in this context is the act of buying and then selling digital assets in order to make a profit. The goal is to sell an asset or currency for much more than you paid for it.

What is fiat trading?

Fiat trading, also known as forex trading, is done on the Fx market, which is the largest financial market in the world and consists of private individuals and institutions buying and selling or exchanging one currency for the other. Making money through fiat trading is straightforward, but requires some knowledge on the part of the trader to get started.

To make money through fiat trading you have to do so based on predictions of the value of currencies; if you have reason to believe that the value of a currency would appreciate you buy it, and if you think that the currency will reduce in value you sell it. 

What is crypto trading?

Crypto trading is the buying and selling of cryptocurrencies in order to make a profit. Owing to their extremely volatile nature, they are seen as a way to quickly make profits, provided one can make accurate future predictions about their price changes. However, unlike in the Fx market, there aren't a lot of factors affecting the prices and change of cryptocurrencies that are known, meaning traders don’t always have a lot of information to predict price changes correctly.

Since crypto is very volatile, literally anything could cause a change in prices; it could be an aftermath of global news like countries banning crypto, or even Elon Musk tweeting about a crypto asset.

Read more: Crypto Trading for Beginners

Read also: What are Stablecoins?

Now that you know the definitions, differences, and similarities between fiat and crypto trading, you probably have to decide which of the two markets are best for you and which you would like to get started trading in. Forex trading provides more stability, lower volatility, and high liquidity, while crypto trading provides easier entrance to the market, the potential for higher returns, and lower fees. To make a decision on what market to enter you should do more research, go over the risk and rewards of the two markets, and then make a decision that you are comfortable with.