As a trader, you can choose from different asset classes. Forex and cryptocurrencies are only two examples. But those are the ones we will focus on today. The idea of comparing forex to cryptos may surprise you at the beginning. Read the article and you will discover it is totally justified.
Forex vs cryptos
Both, forex and cryptocurrencies, are very popular nowadays. Nevertheless, cryptos are a relatively new market and the forex is quite a long time on the scene.
One of the things that attract traders to cryptos is that there is no middleman. When you trade fx, there are brokers and other institutions and they collect fees.
We can talk about the liquidity in the forex market, but not in cryptos.
First, let’s discuss forex and crypto trading separately. Then, we will get to the comparison.
The forex market
The FX means the foreign exchange market. It is the largest financial market all over the world. Trading in FX markets reached $6.6 trillion per day in April 2019 according to Triennial Central Bank Survey. It is built on exchanging currencies. You buy one currency for another one. There are plenty of currencies to choose from and the market is available 24 hours a day through the week.
You can trade in the forex as an individual, institution or even government. The exchange happens through the interbank market, OTC (over the counter).
It is a good idea to check the economic calendar when trading FX. This is the market whose volatility is easily influenced by the news and events such as election, inflation, unemployment and many others.
Basically, you trade one currency for another. You must learn about the different currencies first. You will have to analyse the market in order to predict whether the value of the currency of your choice will go up or down. This will be the base for your decision, whether to buy or sell.
Trading cryptocurrencies is a quite novel possibility for the traders. It has started in 2009 when Bitcoin was created. More than 1,600 cryptos have emerged from that day and over 40 million crypto wallets have been created. Still, bitcoin remains the most powerful one.
In the beginning, cryptos were typically utilised in the black market. Then, they began to constitute alternative funds and trading source. There are already companies that accept cryptos as a mean of payment for products and services.
The crypto market is independent of governments and central banks. This factor makes it attractive to many. Remember, bitcoin is not the only one worth checking. There is, for example, Litecoin or Dash. Learn about different cryptos to find one that suits best your needs.
Investing vs trading
There is a difference between investing in cryptocurrencies and trading them. Investing in cryptos means you are buying them for a long time. You assume their worth will rise in the future and you will earn a great profit.
Trading cryptos, on the other side, means you are using them as an instrument to gain profits on a day-to-day basis. You do not have to explore all the technology and ideology to trade cryptos. You just need to forecast how will they behave in the market in the near future. And because they were created as decentralised currencies, they are not influenced by factors like political changes or news releases.
What does influence the price of the cryptocurrencies? Simple supply and demand law. When there are more buyers, the price goes up. When there are more sellers, the price goes down. You need to know that there were and there might be some defects in security that can lead to attacks on the crypto exchanges. There is also a risk of banning crypto market by the law in a specific country.
Generally, cryptocurrencies are extremely volatile, but there are big differences between different crypto types. So prepare yourself and get to know the market before you start trading cryptos.
Comparison of the forex and crypto trading
Similarities between both types of markets
No matter you plan to trade forex or cryptocurrencies, you need to do research about the markets. Get the necessary knowledge and understand the basic rules.
The law of supply and demand dictates the prices.
Both, forex and cryptos, include digital multi-currency trading.
You just need a computer or a smartphone connected to the internet to begin trading.
There are many digital platforms on which you can trade forex and cryptocurrencies.
Opening a transaction takes just a few seconds.
The volatility can be high in both types of markets. High volatility causes notable price changes within a short time. But for sure cryptos are more volatile.
Train to keep your emotions in check and prepare yourself for losses. The losses are inevitable, but emotional trading can cost you much more.
Differences between the forex and crypto trading
Forex market exists much longer in the financial world which makes it more stable.
The risk involved in trading seems to be smaller in the FX market.
You can trade forex 24 hours 5 days a week. Cryptos are accessible 24 hours 7 days a week.
A daily trading volume in FX is above $6.6T, where 88% of the trades are conducted with the use of the USD. For cryptos, the total market capitalization is around $300B, where more than $168B has bitcoin and $22B Ethereum.
Central banks and institutional players dominate the foreign exchange market. Global retail trade has started and developed cryptocurrency trading.
It matters when you trade forex because some factors like economic events may influence the prices. For cryptos, it rather matters from where you are trading as in some locations you might not be able to use cryptocurrencies.
You can expect profits in a short time in FX, while cryptos are a rather long-term investment.
Make your decision
Which market to choose is an individual decision. You should take all similarities and differences into consideration and pick a market that fits your personality better.
Basically, forex trading is more stable, more protected and less volatile, the liquidity is high, there is an unlimited supply to what can be traded and there is a great option to add leverage to your transactions. Cryptocurrency trading involves lower fees and potentially higher returns, furthermore entering and exiting the market is very easy.
The markets size, structure and behaviour are different. You will thus need different strategies to trade each of them.
Consider your risk tolerance and your resources. Analyse both markets thoroughly before you make your decision.
I believe, this article has helped you in understanding the nature of both, the foreign exchange and cryptocurrency markets. Knowing the differences and similarities is definitely helpful.
Use the comments section below to share your opinions and preferences. I would be glad to hear from you.
Wish you only good choices!