Forex and crypto trading are popular ways to invest in the financial markets. While both involve trading currencies, the underlying assets and market dynamics differ significantly.
Forex trading involves buying and selling different currencies in the global foreign exchange market. The goal is to make a profit from changes in exchange rates.
On the other hand, cryptocurrency trading involves buying and selling digital assets such as Bitcoin, Ethereum, and others to profit from price fluctuations.
While currencies are generally traded on the industry standard MT4 and MT5 platforms, cryptos are on respective crypto exchanges. This article compares Forex and cryptocurrency and explores how to leverage them for financial gain in 2023 and beyond.
What is Forex?
Forex markets involve trading different international currencies as pairs for speculative purposes without necessarily owning the underlying financial instruments. Traders invest in the exchange rates of various currencies and forex pairs, aiming to profit from specific price movements.
The forex market is highly volatile and complex, making it unsuitable for beginners. The market has no single marketplace or regulatory framework, and currency pairs are subject to macroeconomics, geopolitics, supply, and demand.
What is Crypto?
Cryptocurrencies are digital assets with a limited supply. Cryptocurrencies do not have any physical form, making them unsuitable as a store of wealth. They are built on blockchain technology, allowing decentralization and transparency in transactions without third parties or transaction fees.
While cryptocurrencies have evolved and newer versions have addressed scalability issues, the asset class is still highly volatile. This is due to the lack of tangible value and the influence of speculation. This volatility is more pronounced than that of the forex market.
Forex Vs. Crypto Trading
| Crypto Trading | Forex Trading | |
| Market Cap | $256 billion in May 2020 | $7.5 trillion daily in April 2022 |
| Market Hours | 24/7 | 24/5 |
| Volatility & Liquidity | Less liquid | Highly liquid |
| Anonymity | Highly anonymous | Personal details required |
| Payments | Third parties like banks involved | Decentralized transactions |
Market Cap
The forex market is the largest in the world, far surpassing crypto trading. As of April 2022, the forex market had an average daily trading value of $7.5 trillion. The crypto market’s cumulative market cap was around $256 billion in May 2020.
The size of the forex market affects its volatility and liquidity. Beginners can start by trading currency pairs from stable countries to minimize risk.
It is important to remember that currency pairs can be complex and require knowledge and experience to navigate. However, starting with simple pairings and gradually expanding one’s portfolio can be a manageable approach.
Market Hours
Crypto markets differ from Forex in terms of availability as they operate 24/7. In contrast, Forex is open 24 hours a day, five days a week. As a result, payment transactions on crypto platforms can impact daily and weekly trends more quickly than in Forex, which is less sensitive. Furthermore, purchasing cryptocurrency can be a spur-of-the-moment decision, unlike buying other assets.
Volatility and Liquidity
In terms of liquidity, the forex market is more liquid than the cryptocurrency market. The major currency pairs, such as EUR/USD, are highly liquid and benefit from constant demand.
On the other hand, only Bitcoin can be considered a liquid cryptocurrency. However, its demand fluctuates significantly, and a fixed number of tokens are circulated, making it difficult to shift.
Forex is volatile, but major currency pairs are less volatile than minor and exotic pairings. This means that assets such as EUR/USD trade within predictable ranges, even though prices fluctuate.
However, cryptocurrencies like Bitcoin have a history of bull runs and crashes, making them highly volatile. Even lesser-known cryptocurrencies can be volatile, with their value rising and falling unpredictably.
Anonymous
Crypto transactions can be more anonymous than forex trading. This is because crypto transactions are processed through decentralized blockchain networks, which do not require disclosing personal identification information. However, personal identification may be required depending on the cryptocurrency used and the exchange or wallet used to make the transaction.
On the other hand, forex transactions are typically conducted through centralized financial institutions, such as banks, which require customers to provide personal identification information to comply with regulatory requirements. This means that forex transactions are generally less anonymous than crypto transactions.
Payments
In Forex, payment security issues can arise due to the involvement of third-party intermediaries, such as banks and payment processors, which can increase the risk of fraud and hacking. In addition, using credit cards and wire transfers for forex transactions can also pose a risk of chargebacks and fraud.
On the other hand, crypto transactions are typically conducted on decentralized blockchain networks, which can reduce the risk of fraud and hacking. However, crypto transactions are irreversible once confirmed, meaning there is no way to recover lost or stolen funds. Furthermore, the lack of regulation in the crypto market can increase the risk of scams and fraudulent activities.
