Differences and Similarities between Forex and Crypto Trading? Which should I choose?
If you’re planning to start crypto trading, then you’re sure to have this question,
“What’s the difference between forex and crypto trading? And, which one should I choose?”
Before, we look at the pros and cons of both, the first fact you should know is that Forex and cryptocurrency market are unique and cater to different traders. Both these markets have distinct features that make them appealing to different categories of traders.
A quick introduction to the Forex and Cryptocurrency Market
The Forex (Foreign Exchange) market is the world’s biggest and most liquid market. It’s a global market, where all fiat currencies are traded. Since, it’s a global market, the Forex market is influenced by several factors like disputes between countries, political announcements, inflation, civil wars and more. The volume of transaction in the Forex market every day averages around $5.3 trillion USD.
Cryptocurrencies, on the other hand, are digital currencies. They are not real-world currencies like USD, Euro, Yen, or INR. Instead, these are currencies that exist only in the digital world. One of the biggest distinctions between Forex currencies and Cryptocurrencies is that the latter is not backed by any specific government. Rather, they are hosted online in the digital world. Crypto coins are backed by a peer-to-peer authentication system. The people who work in ensuring the authenticity of crypto networks are awarded digital cash and are known as miners.
Earlier, the global crypto market had previously reached market caps of more than $700 billion USD. While this number is lower compared to the market value of Forex, industry experts agree that the crypto market hasn’t reached its potential yet, and the numbers are only expected to climb.
Though both the Forex market and the crypto market are different, the basic operations are the same — both involve exchanging one currency for another, and the value of the currencies are dependent on several external factors.
When compared to the Forex market, the crypto market is highly volatile as the currencies are relatively new. Even for extreme foreign currency pairs, volatility ranges from 0.5 to 1%. On the other hand, the volatility of Bitcoin ranges from 5 to 15%. It’s one of the reasons why traders with high risk tolerance prefer trading on the crypto market.
Differences between Forex and Cryptocurrency Trading
Since the forex market is made up of the world’s currencies, it has an unlimited supply.
Forex trading allows you to take leverage positions up to 50:1. It means you can take a Forex position worth $100 for as low as $2.
However, one drawback of this high leverage is that the potential of your losses are high.
The Forex is the biggest trading market in the world. There are plenty of traders and the trade volumes are massive. Hence, it’s extremely easy to liquidate your currencies.
Influenced by Global Factors
The Forex market is influenced by external factors like global news, earning reports, announcements, etc.
It’s one of the biggest draws of cryptotrading. With limited supply, there is an increase in demand. All cryptocurrencies have a fixed upper limit, which increases the value of the currency.
Low Transaction Costs
Since the crypto market is not controlled by a centralized vendor or banking system, the costs of transactions are low.
High Potentials for Gains
Picture this: An investor who had invested $1000 in Bitcoins in 2013 would have made investments over $400,000.
However, traders have to note that with higher potentials for gains, the risks are also high.
Easy to get started
Unlike Forex trading, it’s easy to get started with crypto trading as it is open to investors from all over the world, irrespective of their origin country, banking partner, etc.
The Common Trait in Forex and Crypto Trading
High volatility — It’s both a positive and negative trait. Both Forex and crypto trading are not exempt from high risks. However, note that with high risks, the potentials for rewards are also higher.
The Bottom Line: Which is the better option?
There’s no single answer that works for all. Both crypto and forex trading involve high levels and of engagement, proper risk management, and effective planning. It all depends on your financial objectives. However, there’s no doubt that trading in either of these popular markets gives you plenty of opportunities to earn big.
If you’re looking for a trading network that is easy to get started and has the potential for larger returns, then crypto trading is the better choice.