If you’ve ever thought of investing in currency trading, chances are that you have imagined whether there’s any difference between cryptocurrency trading and Forex trading.
Although they are both forms of currency trading, Forex trading and crypto trading differ considerably. In fact, one is a much larger form of currency trading than the other.
Interestingly however, both forms of currency trading have peculiar advantages which continuously attract traders to them.
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Cryto Trading and Forex Trading Compared
The cryptocurrency market and the foreign exchange market are two different marketplaces although with some similarities. Frankly, the Forex (foreign exchange) market is, by large, a bigger market than the cryptocurrency market. In fact, it is the world’s most liquid market.
Generally, Forex is a market with global coverage as it is a marketplace for trading in all of the world’s currencies. On a daily basis, an average of $5.3 trillion is traded on the Forex market, making it the world’s largest financial market. Although a decentralized marketplace, the Forex market is vastly influenced by such factors as job reports, inflation rates and political announcements.
Markedly, there are a number of notable differences between the cryptocurrency market and the Forex market. The first, and perhaps most conspicuous, of these differences is that the Forex market deals with physical currencies while the crypto market deals with digital currencies. Whereas Bitcoin and Ethereum are leading examples of digital currencies, common examples of physical currencies include the U.S dollar, British pounds and Japanese yen.
Unlike cryptocurrencies, which are backed by P2P verification, Forex currencies are backed by a central authority. Moreover, mining, which is the activity of those working to secure the crypto network, markedly distinguishes the crypto market from the Forex market.
Frankly, the Forex market is a much bigger marketplace than the crypto market but the crypto market appears more volatile. By reason of this, traders capable of coping with huge risk may want to choose crypto trading in place of Forex trading.
Notably, Bitcoin’s volatility ranges between 5% and 15% while extreme volatility in the Forex market is pegged at 1% to .5%.
Pros of Forex Trading
The benefit of leverage –In Forex trading, a trader can enjoy huge leverage. For example, a trader with the leverage of 100:2 can take advantage of $4 to clinch a trading position worth $200.
Limitless supply of currencies –There is no limit to the amount of currencies supplied in the foreign exchange market simply because the market is an ecosystem comprising the world’s financial markets.
Ease of finding trading opportunities –The Forex market relies heavily on influential global trends such as global announcements, news (on politics and economy) and the reports of earnings. Therefore, expert Forex traders thoroughly analyze relevant global trends so that they are able to identify trading opportunities. For instance, the traders can leverage on their expert adoption of fundamental analysis to eke opportunities out of such trends.
High liquidity –The level of liquidity in foreign exchange is very impressive and this is because the Forex market boasts a huge number of traders. In fact, it is the financial market with the highest number of participants.
Due to the massive level of trader engagement in the Forex market, anyone can find buyers/traders for lots of currencies in relatively less time. Meanwhile, another advantage of the huge number of traders is that it makes it difficult for a single investor to heavily influence the market.
Pros of Crypto Trading
Quick and low-cost transactions –The costs of transactions in crypto trading are comparatively low. Besides allowing traders the benefit of decentralized transactions, crypto trading paves the way for efficient transaction speeds. In fact, numerous crypto transactions can be processed within seconds.
Unrestricted access –Crypto trading is available to almost anyone regardless of their location in the world. This, on a convincing note, is because the crypto sphere allows for freedom of entry, making it possible for individuals of various categories to invest in crypto currencies. In fact, individuals with limited or zero access to banking institutions can invest in crypto currencies.
Limited supply –This limited supply is defined as the cap imposed on the creation of crypto currencies. The value of a given crypto currency tends to increase since there’s a cap on the supply of the currency.
Huge potential returns on investment –ROIs in crypto trading could be extremely huge depending on the value of the cryptocurrencies involved in the trading. For example, Bitcoin is the most valuable cryptocurrency in the world and so a Bitcoin investment of $2,000 today could be worth more than $1 million in the next 6 years.
What Con is Common in Both Crypto Trading and Forex Trading?
If there’s one difficult thing to exclude from the cons of crypto trading and Forex trading, that thing is definitely volatility. Some experts may argue that the crypto market is more volatile than the Forex market but the unarguable fact is that both markets are considerably volatile.
Prices in crypto and Forex markets vary extensively and within relatively short periods. While high volatility (in both crypto and Forex markets) gives room to high risk, it is quite fascinating that high risks, if well managed, often come with high rewards.
What the Beginner Trader Should Know
As a beginner trader or somebody about to dip their feet in the waters of currency trading, you should note that both crypto trading and Forex trading demand desire, dedication and appropriate risk management. While it is undeniable that immense opportunities exist in each of crypto trading and Forex trading, the beginner trader is advised to receive sound education before committing large funds to trading.
Sound crypto or Forex education (as the case may be) is an essential tool the beginner trader needs for proper risk management as well as smart identification of trading opportunities.
Conclusion
Crypto trading and Forex trading are risky avenues that require thorough planning and risk management practices. If you’re keen to make success with any of the two trading avenues, you must be ready to approach your trading with great care.
