Comparing the cryptocurrency and Forex markets is about paralleling new and old ways of thinking about money. As cryptocurrencies become a buzzword, many traders wonder whether to abandon Forex trading and join crypto or dabble in both. If you’ve been looking for the answers, this article will shed enough light on the subject to help you decide.
Crypto vs. Forex
Just like Forex, cryptocurrency trading comprises trading currencies. The main difference is that the Forex market is more prominent, older, and well-established than the crypto market that the new kid is on the block. Forex trading involves intermediaries that collect fees and commissions at every turn. Nonetheless, there are no middlemen in cryptocurrency trading, and that’s the biggest attraction to it.
The main similarities
The main similarity between cryptocurrencies and Forex is that they both hold a monetary value relative to each other. Perhaps you don’t consider cryptocurrencies legitimate; Forex exchanges and leading banks do.
First, in both cryptocurrency and Forex trading, you require stable internet, a modern electronic device, and a trading account. Anyone with some experience trading Forex online can quickly learn only crypto trading and vice versa. You can access different kinds of charts, and due to fast execution, you can sink your brain into trading.
Just like the Forex market, supply and demand balance is the driving force of the cryptocurrency market. The prices will escalate when there are more buyers than sellers in the market and drop whenever there are more sellers than buyers. Once you begin learning crypto trade, you’ll get to know the critical patterns and indicators as you trade.
The main differences
Crypto trading may look like Forex trading on the surface, but there are fundamental differences. Most people prefer to start with one before progressing to the other. Once you learn the ropes and know the markets better, you may choose to dabble on both. Some of the key differences include:
1. Available Instruments
Forex traders mainly focus on the leading cryptocurrency pairs. These include EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD. There are at least 11,000 different types of digital currencies, with several of them trading actively. The cryptocurrency market offers many more instruments to choose from as compared to Forex.
The Forex market is exceptionally liquid, and regardless of your position size, you can always buy and sell your chosen instrument without serious material slippage. The advantage is that you can quickly get out of a trade at a price that is close or equal to what the screen shows. The cryptocurrency market is slightly different with its marker cap of about $2 trillion and Bitcoin as the most outstanding player. Traders sometimes find it difficult to vacate a trade as soon as they desire.
Cryptocurrencies are more volatile than the more stable Forex market. Consider Bitcoin, which started the year at $29,000 and is currently headed to $50,000. You can’t experience such moves in the Forex market unless you’re dealing with exotic pairs. The profit potential is more significant in the cryptocurrency market, while it’s easier to control risk in the Forex market.
4. Return on Investment
The profit potential is more tremendous in the cryptocurrency market. However, the amount of risk increases with the higher profit potential. You must be prepared to take a bigger risk if you choose to enter the crypto trade. Forex traders increase their profit potential by using leverage. The risk potential is more significant since leverage is a double-edged sword.
5. Trading Hours
Driven by big institutions, the Forex market is open 24/5. The cryptocurrency market is open 24/7 since it’s driven mainly by individual traders.
Since the crypto market is still developing, regulations are still being developed in different countries. Traders must live with the potentials for scams and hacking incidents like the recent $600 Poly Network heist. Forex trade is more regulated, meaning fewer risks are involved, as long as you use a registered broker.
Choosing between Crypto and Forex trade
Check your financial goals, trading style, available capital, and lifestyle demands before choosing between cryptocurrency and Forex online trading. You may want to attempt both crypto and Forex trading at small volumes before choosing what market is best for you. That way, you can take advantage of available opportunities in both markets. When it comes to online trading, only invest as much money as you don’t mind losing.
Tom is a long-serving freelance writer who specializes in the blockchain and cryptocurrency niche. You may even call him a crypto-enthusiast with over 10-years’ experience in content creation, blog writing, and SEO. He is a philosophical figurehead who believes that to make our world a better place, we must invest in incorruptible products and procedures, of which Bitcoin and other cryptocurrencies are leading examples.