Forex Trading Vs Cryptocurrency: What You Need To Know
New ways of transacting, managing, and investing money continue evolving as the financial world around us reshapes. One significant change over the past decade is the emergence of cryptocurrency (crypto) – digital currencies without central control. Forex Trading Vs Cryptocurrency both are similar by having minor difference that will identify the system of buying and selling currency.
Contrarily, the conventional financial system heavily relies on centrally controlled operations. It depends on banks and governments to issue and regulate the money supply. Further, all transactions have to pass through an orderly payment system. You can easily know that why is crypto important and what is the value of forex trading nowadays.
Furthermore, the word forex (foreign exchange) is exchanging one fiat currency with another. Each country has its fiat currency; however, a few coins are globally accepted, like U.S. Dollar or Euro. Therefore, international transactions use these significant currencies by converting local currency into dollars or euros – this is where forex jumps in.
However, through this article, we will distinguish between Forex trading Vs Cryptocurrency.
So, let’s get started.
The Nature of Forex trading Vs Cryptocurrency
First, let’s understand the core nature of both sets of assets.
Crypto and fiat currency prices depend on the law of demand and supply. However, different risk profiles mark the valuations.
Fiat currency derives its value from gold reserves backing, while cryptocurrency gets its value from a high utility. Additionally, the fastest growing cryptocurrency relies solely on the shared belief of parties involved in the trade.
Similarly, fiat currencies are government-backed, while cryptos are decentralized and free of any control by anyone.
Forex trading Vs Cryptocurrency – Similarities
Despite several fundamental differences in nature, both markets have certain similarities. So, let us first explore them.
- Mutual Value
One fundamental similarity is that crypto and forex accept mutual trading, thus they now share value relative to each other. You may not consider so, but in reality, forex changes; believe in it.
Many forex exchanges across the globe have already started accepting cryptocurrencies as a mode of trade. Additionally, now you can open accounts both for fiat and cryptocurrencies.
Since both currencies ebb and flow similarly, you can develop the same sense of investment. However, the decision for both depends on different factors, and there are separate financial tools for each.
- Decentralization
If you are surprised to see decentralization under the similarities heading, worry not! By taking a closer look, we can deduce that forex exchanges are also decentralized, as there is no central regulation on the forex market.
As for cryptocurrency is concerned, we all know it is decentralized.
- Market Physics
The money physics which drives forex movements also regulates crypto. The economic rule of demand and supply determines the prices of both; if there are more buyers and fewer sellers for a crypto coin, the price increases, and vice versa.
Similarly, a higher supply of any fiat currency reduces its value.
Forex trading Vs Cryptocurrency – Differences
Before investing, consider the critical differences between crypto and forex. Selecting the one which best suits your interest may help to get extra cents of returns.
So, here are the key differences:
- Market Size
Forex is the largest market when it comes to trading volume – by a daylight margin. As reported by Bank for International Settlements, a forex market’s daily average trading value is $6.6 trillion. Contrarily, the total crypto market accumulates to around $256 billion.
The large market size adds both volatility and stability. Newcomers can start trading with more stable currencies, while experienced traders play with the fire of speculative trades.
However, the cryptocurrency market is highly volatile. It is still to hit a flat pattern of trade, even for a short time.
- Volatility and Liquidity
Since crypto is smaller than the forex market; thus even small amounts move cryptocurrency substantially; if we add another $256 billion to the crypto market, it will double. However, if added to the forex market, the same amount will only impact a 4% increase. As a result, the crypto market is highly volatile than the forex.
High volatility leads to higher risks – a greater chance of upside or a downward financial slide. Higher volatility also represents low liquidity.
So, the forex market can easily manage financial shocks, unlike cryptos.
- Anonymity
Cryptocurrency offers anonymous transactions, which is not possible with forex trade. Therefore, cryptocurrency is your baby if you intend to trade remaining behind the scenes.
On the other hand, forex trade has strict regulations requiring traders to register themselves, thus providing their identity.
Pros and Cons – Forex Trading
On paper, forex trading is safer, but it is essential to understand what lies ahead.
Pros:
- Stability
- High Liquidity
- Centrally controlled
- Less prone to fraud
Cons:
- Less potential for short-term gains
- Taxable returns
- Higher entry barriers
Pros and Cons – Crypto Trading
Before investing in a highly volatile crypto market, consider the below points.
Pros:
- Anonymity
- High growth potential
- Low fees
- Low entry barriers
- A large number of options
Cons:
- No government insurance
- Lower liquidity
- Less secure
Frequently Asked Questions
What is more profitable – crypto or forex?
It all depends on liquidity and volatility. Since both markets have their highs and lows, you need to make intelligent and calculated investment decisions to get maximum return.
Can I lose money in forex?
Yes, forex does not assure full positive returns. It also has low days where investors tend to lose money through trading.
What is the difference between forex and crypto?
Although both are currencies, forex is in hard form, while cryptos are virtual. Forex is centralized, and cryptos are decentralized. Similarly, forex is much older and well-established compared to crypto, a relatively new concept.
What do I need to know for forex trading?
Keep the below points in mind before investing in forex;
- Know the market
- Make a plan and stick to it
- Practice
- Forecast fluctuations
- Know your limits
What do I need to know for crypto trading?
Keep the below points in mind before investing in crypto trading;
- Know your tolerance level
- Make a plan by consulting experts
- Do not put all your money in a single basket
- Study market trends and act accordingly
Parting Thoughts
Cryptocurrency has shaken the traditional financial system. Many people are finding it attractive to invest in cryptocurrency instead of forex. However, high volatility and low liquidity make the crypto market uncertain.
Similarly, the forex market has never slowed down; it keeps hitting new heights besides threats from cryptos. Many investors, especially newcomers, still find forex trading a safe option. However, both markets have challenges and opportunities, of which all stakeholders are fully aware and act accordingly.
Forex and cryptos offer good returns and losses depending on prevailing market conditions for investment purposes. So, the right strategy is essential for making money out of these financial markets. Investing responsibly is always the message we send out.
Good luck with your investments, and keep visiting this space for more related topics and tips.