The Differences Between Forex and Crypto Investing

Nov 20, 2018 · 4 min read

On the surface, forex investing and crypto investing both have a lot in common. They both involve the exchange of currencies and they both yield extremely volatile results as compared to more traditional investments in stocks and commodities. Yet while these two investments may seem similar, there are some core differences that traders must be aware of to succeed in the market. Forex traders are uniquely well-suited to crypto trading, and many of their strategies can be brought over to the crypto market, with some modification.

A Brief Overview of Forex and Crypto Investing

At its simplest, forex investing involves buying and selling the currency of different countries. An investor may purchase United States Dollars (USD) with Canadian Dollars (CAD) with the belief that USD will rise in value and CAD will fall. Thus the value of the currency they hold increases. A lot of forex trading involves betting whether a certain currency will rise or fall against a different currency. Forex trading is always done in pairs in this way, with the most popular pairs containing USD.

Crypto investing is a little different. Crypto investing involves purchasing cryptocurrency with a traditional currency in the hopes that the cryptocurrency will rise. Popular cryptocurrencies include Bitcoin, Litecoin, and Ethereum. Some crypto investors will trade out at a certain time, other crypto investors will hold their cryptocurrency indefinitely.

Forex vs. Crypto: Market Caps

There are many differences between forex and crypto, but the core difference involves market caps. The size of the forex market is the size of global currencies; this is immense compared to the crypto market. Crypto markets are rated based on their market cap; the amount of value currently held in them. Many of these market caps are quite small — in just the millions — for smaller or more obscure currencies.

About $5.4 trillion in currency is traded on average every day on the forex market. As of November 2018, the Bitcoin market cap itself was under $150 billion. While this is a substantial number, it signifies a much smaller pool. This is actually better for investors in some ways, but investors must understand why.

A smaller market is what leads to higher levels of volatility. Forex traders are used to dealing with this type of volatility in ways that stock traders simply are not. Forex traders have techniques such as scalping — making many very small trades, sometimes with seconds between them — in order to capture income. It’s these types of techniques that may be transferred into the fast-paced market of crypto.

Forex vs. Crypto: Age

It goes without saying that cryptocurrency is a new technology and it’s still being developed. Not only does this contribute substantially to its volatility, but it’s also part of what makes it more difficult to trade. There are hundreds of options for trading forex, but there are very few markets on which you can safely trade crypto. Still, forex traders should be looking for the same features that they have come to expect from their foreign exchange trading, in the crypto market.

Many of the crypto markets that were first built were untrustworthy. Crypto is still largely unregulated and it can’t be traced the way foreign exchange trades can be traced. Consequently, it’s easier to lose money in crypto due to bad actors. This highlights a need for investors to find trustworthy platforms on which to trade.

The relative youthfulness of crypto also means that the market is poised for expansion; if crypto is adopted into the mainstream, it’s likely to grow in value. Many cryptocurrencies are intentionally designed as deflationary currencies which are finite in number; they will go up in value because they will become rarer over time. As cryptocurrency becomes more stable, it will start to mimic traditional forex more and more.

Forex vs. Crypto: Technology

The age of cryptocurrency also means that there haven’t been the same number of tools designed for crypto that there have been for forex trading. There are many trading solutions and algorithms available for those who want to get into forex. For crypto, investors usually need to trust their own trading strategies, which means understanding the way the market rises and falls in-depth. Often, this has to do with the news and investor sentiment — the same type of research most foreign exchange traders do regularly.

When foreign exchange traders see issues arising, such as a potential trade war in China, they know that currencies are going to be impacted. Likewise, when crypto traders see issues such as increased regulations of cryptocurrency coming up, they know that crypto will be impacted. A forex trader who trades based on news and sentiment is going to see the exact same patterns in crypto, the results are simply going to be far faster and grander in relative scale.

While forex markets and crypto markets do have some similarities — and forex investors will find themselves at a definitive advantage when trading crypto — the commodities themselves are quite different. Cryptocurrency is a more volatile type of currency that offers both greater risk and greater reward.

The world has been quickly adopting crypto into the mainstream, and in the coming years, it’s likely that crypto is going to see a vast increase both in market cap and stability. For investors, the biggest challenge is finding a safe way to conduct transactions and to invest in this growing form of currency. To that end, i-Pandora has created a professional, reliable, and secure platform for cryptocurrency traders — one that forex traders can get started on today.

Originally published at on November 20, 2018.


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