Are you willing to bet your cards on Forex or crypto? Which one is more profitable? Perhaps the nagging question would be – should you choose one option over the other?
The world of traditional Forex and the crypto arena offers lucrative investment opportunities to beginner and veteran traders. The concept of trading cryptocurrencies is coming up fast outside of forex trading as a popular way of investing funds in financial markets. Some people believe that the mechanics of crypto trading are similar to trading fiat currencies like the US dollar or the British pound.
But although there are some undeniable areas of overlap, there are plenty of places where cryptocurrency trading differs from conventional foreign exchange trading. Let us take a closer look.
What is Crypto Trading?
Cryptocurrency trading is speculating on cryptocurrency price via buying and selling the underlying coins through an exchange. Cryptocurrencies work under the principle of blockchain technology, which indicates that they are decentralized. They work without involving any third party/central authority; however, they can be stored in wallets.
When users want to send cryptocurrency to other participating parties, they send it to their digital wallets. In simple words, cryptocurrencies provide entirely unique ways to enable money transfer over the internet, which is why it is a buzzword nowadays.
Differences Between Crypto and Forex
Cryptocurrencies Can Be Traded 24/7
Unlike the foreign exchange markets, which are only accessible 24 hours a day, five days a week, cryptocurrency markets are open 24/7. There is always an opportunity to buy or sell a cryptocurrency, regardless of which cryptocurrency exchange you use. Think of cryptos as a byproduct of today’s digital society. Just like the always-on, always-connected digital world, cryptocurrency price moves wait for no one.
Forex has Greater Liquidity Compared to Crypto
Recent reports on forex and crypto trading found that forex liquidity is still far more significant than even the most prominent crypto assets like Bitcoin. This goes to show that cash flow still reigns supreme in the traditional forex markets – for now.
Cryptos are More Volatile than Forex or Fiat Currencies
As cryptocurrency markets are much newer than conventional Forex markets, they tend to be considerably more volatile. With little history to go by, the markets can fluctuate enormously in the space of 24 hours based on economic or political news.
Cryptos are Easier to Trade
When people decide to start trading with cryptocurrencies, they believe that price will grow and profit. Moreover, digital assets are easy to trade, and their market is accessible 24/7, unlike the forex exchange market.
Different Trading Strategies
Bitcoin, the first-ever cryptocurrency, started as a scalable global retail trade not governed by institutional players, which means bitcoin markets differently from traditional forex markets.
Similarities Between Crypto and Forex
Both Markets are Driven by Supply and Demand
One similar attribute in the crypto and forex markets is that price activity is primarily driven by supply and demand. When there is heightened demand for Bitcoin or the US dollar, its price will go up, and, similarly, it will fall when supply exceeds demand.
Both Trading Types Can Be Automated
There is software that can automate the execution of trades in both the Forex and crypto markets. This software can automatically set entry and exit points in the market, as well as stop-loss points, to ensure that you manage your risk. Crypto trading robots can automate the process with ease and more profitability score.
Risk management is Extremely Important to Gain Profit
It’s impossible to know how the cryptocurrency and Forex markets will move with each trade you open. That’s why both forms of trading require rock-solid risk management to maintain profitability. You may have sound fundamental and technical analysis awareness but, without stop losses to protect your positions, you could face losses far more significant than your losses if the markets don’t move the way you expect them to.
There are pros and cons of trading in either market. Given that crypto trading is more volatile than Forex, it’s possible to trade both simultaneously, with the slower-paced forex markets offering lower-risk opportunities and cryptos giving you a chance to generate those higher returns.
A Deeper Look into Forex and Cryptocurrency Trading
Forex trading is the exchange of currency into another currency for multiple reasons. It is also known as Forex or foreign exchange(FX). It is considered a global marketplace for exchanging national currencies with other currencies. Because of its worldwide reach, FX markets tend to be the most liquid asset markets globally.
It is a network that allows buyers and sellers to transfer currency at an agreed value. The best way to understand forex trading is to consider an example of it. If you plan to travel abroad, you have to make a forex transaction (to exchange your native currency into that respective currency).
The foreign exchange market is a decentralized, global currency market. Market participants include financial institutions, individual and retail investors, as well as banks and corporations. It is fast, paced, liquid, and highly volatile, offering trading opportunities 24 hours a day, five days a week.
Forex involves trading on the shifting prices of various national currencies, so fundamental factors such as social or political upheaval and economic indicators will impact the currency’s value.
In contrast, cryptocurrency trading deals with coins that have no connection to a specific country. Far younger than the forex market, though it is growing at an incredibly rapid pace. Cryptocurrency trading can take place 24/7, every day of the year, with no interruptions for weekends or holidays.
One of the significant features of cryptocurrency market trading is that the level of regulation differs between countries, as governments respond to the developments in decentralized finance at different speeds and differing degrees.
So, when looking at cryptocurrency vs. Forex in terms of legislation, the foreign exchange markets are more established with more consistent regulatory oversight. For this reason, new regulation, alongside factors such as supply and demand and market sentiment, is a primary factor influencing cryptocurrency prices.
Most Forex trading is done Over the Counter (OTC), whereas most cryptocurrency trading is done on exchanges. OTC trading involves a broker to whom a fee needs to be paid, often taken off the spread.
In contrast, exchange trading, while also involving the payment of a fee, in this case to the Bitcoin exchange, will entail lower transaction costs overall. This is due, in part, to the fact that there is usually a fixed fee that applies to all trades and is not dependent on the specific currency pair, market conditions, or other factors.
Top Strengths of the Forex Market
A primary characteristic of the forex market is its size and the vast number of participants. This makes for exceptional liquidity, increasing trading opportunities and making it possible to execute large volumes of trades rapidly and reliably.
When looking at forex trading vs. cryptocurrency trading, you also need to consider that while both allow even those with only small amounts to invest in participating, Forex provides the advantage of leverage. Your forex cryptocurrency broker will offer up to 50 times the trading power of the amount you have placed on your trade. This provides a means of making much more significant profits but also involves significantly higher risks.
Advantages of the Crypto Market
Profit in Volatile Markets
Whether you trade cryptocurrency or Forex, volatility is a central characteristic of both markets. However, this is far more extreme in the case of digital currencies. For example, Bitcoin is renowned because it has skyrocketed to hundreds of times its price and then gone into freefall within a few short months before climbing again to new heights.
This is one of the top benefits of cryptocurrency trading for short-term traders looking to profit from market shifts. Still, it also holds inherent risk, making cryptocurrency trading a lucrative but less than a reliable short-term investment opportunity.
However, the trajectory of Bitcoin is upward, and long-term traders who got on board early and held on to their coins have made millions.
Accessibility and democratization of the global financial ecosystem are two benefits of crypto trading. For those without bank account access, it allows a means of saving, making payments, and receiving funds securely, all at a meager cost.
Because no financial institutions act as middlemen, payments made through peer-to-peer networks are direct, so fees are lower, and transactions are faster.
The Wild West of the Financial World
Crypto is under-regulated and has been termed the financial “Wild West.” As a result, crypto traders need to be extremely cautious when choosing an investment platform or wallet for storing their cryptocurrencies, as criminal elements have been known to exploit the anonymity of the crypto space. Much of this danger can be avoided by using a licensed and regulated crypto services provider.
What’s the Verdict?
When examining the opportunities offered by Forex vs. cryptocurrency trading, your choice will very much depend on your risk appetite. What kind of trader or investor are you? Are you willing to go all-in?
The foreign exchange market offers greater liquidity as well as far greater security from a regulatory perspective. While Forex is still a highly volatile market, offering excellent profit potential, nothing compares to the extreme ups and downs of the crypto exchanges and the accompanying increased risk and reward.
As we have discussed, if you know how to buy and trade cryptocurrency safely, choosing a regulated crypto investment platform with an excellent reputation allows you to trade with the same peace of mind as to any forex trader.
When it comes down to cryptocurrency vs. Forex, both offer exceptional revenue opportunities. So, why choose between the two when you can have the best of both worlds?
Your best option is to diversify your portfolio and enjoying the benefits of both types of currency markets, spreading your risk across a wide choice of assets, including a range of major, minor and exotic currencies as well as a variety of established cryptocurrencies and emerging altcoins. This is how you win the FX and crypto game.