Forex vs. Crypto

When it comes to investing, the options are endless. With the rise of digital currencies like Bitcoin and traditional currency trading in the forex market, you may be wondering which option is better for you?

The forex market has been around for decades, while cryptocurrency is a newer player in the investment world. Both markets have seen significant growth in recent years, attracting investors from all over the world. Understanding the differences and similarities between the two can help you make an informed decision on where to invest your hard-earned money.

This article will explore the key differences between forex trading and investing in cryptocurrencies, as well as the potential risks and rewards associated with each. Let's dive in.

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What Is Forex?

Forex, also known as foreign exchange or currency trading, is the global market in which currencies from different countries are traded against each other. The forex market is the largest and most liquid financial market in the world with a daily trading volume of more than $6 trillion. It operates 24 hours a day, 5 days a week and enables people to trade currencies from anywhere in the world.

Pros and Cons of Forex Trading

On the surface, forex is safer than crypto, but you still need to know what you’re getting into.

What Is Crypto?

Cryptocurrency, also known as digital or virtual currency, is a form of digital money that is secured by cryptography. Each cryptocurrency has its own blockchain, and no central authority controls it. Cryptocurrency transactions are recorded on the blockchain and validated by a process called mining. The transactions are secure, transparent and almost perfectly immutable, making them attractive to investors looking for an alternative to traditional banking systems.

Pros and Cons of Cryptocurrency Trading

Before deciding to invest in these quickly changing environments, consider the following pros and cons.

Similarities Between Forex vs. Cryptocurrency

Before moving into the differences between crypto and forex trading, take a look at why these markets may not be so different after all.

Decentralization

Decentralization means there is no central regulation on the market, and it’s a central attribute of the crypto market. Here’s a little secret: the forex market is also decentralized. Decentralization does not mean that a market is less stable, although you still need to do research and be aware of pitfalls.

Similar Market Physics

The same basic money concepts — such as supply and demand regulate movement in forex and crypto. If there are more buyers than sellers for a crypto coin, the price of that coin generally goes up. More sellers than buyers means a crypto bear market, like in forex. 

Efficient market absorption of news means that forex and crypto respond instantly to market shocks. For example, if a BTC whale converts $30 million BTC into Japanese yen, it affects the cryptocurrency market just as talk of war in the White House would change the value of certain U.S.-based forex currency pairs.

Differences Between Forex vs. Cryptocurrency

Differences between the markets help you decide which you prefer to invest in. You might invest in both, but the average investor often chooses one or the other as a starting point. When you get your feet wet, you might get to know other markets that you did not fully understand when you started investing.

Keep your eyes open for these differences.

Market Size

The forex market is the No. 1 market in the world for trading volume — by a wide margin. As of May 2024, the cumulative market cap for the crypto market totaled around $2.56 trillion. The Bank for International Settlements also reported an average of $6.6 trillion daily trading value in the forex market as of April 2024.  

The large size of the forex market also gives it different levels of volatility and liquidity. Forex beginners can start out trading currency pairs from stable countries with more protection from large losses before moving on to more speculative trades.

Keep in mind that currency pairs may seem simple when industry experts present them, but they are new to you. Because the market is so massive, you can comfortably start with a simple pairing, learn what to do and slowly expand your portfolio without encountering anything that feels too complex to manage.

Volatility and Liquidity

Crypto is a smaller market than forex. For example, if another $256 billion entered the crypto market, you could ideally expect the prices of all crypto to double. That same $256 billion represents a change of about 4% in the forex market. As a result, the crypto market is more volatile than the forex market. 

A higher volatility means more risk for investors — and a greater chance of an exponential upside as well as huge, financially crippling losses. Higher volatility also means less liquidity (ease of trading) because more people are naturally attracted to a smooth marketplace. Low volatility and high liquidity mean the forex market can better absorb economic shocks. This characteristic benefits the average person — investor and non-investor — with relatively stable currencies even in bad economic times.

At the same time, an experienced investor can do well for themselves on the crypto market — if they do their research and know when to buy and sell.

Anonymity

Cryptocurrency first took off primarily because of its ability to foster anonymous transactions. Government intervention has limited the ability of top coins like Bitcoin and Ethereum to hide identities, but smaller coins like Monero, Zcash and Verge retain this characteristic.

Forex transactions are regulated by a tight web of forex brokers and financial professionals known as the interbank market. Since 2014, the interbank market has incorporated a “know your customer” (KYC) standard that requires traders to provide personal information to access an exchange. Perhaps spurred on by crypto’s anonymous structure, companies like EagleFX that subvert or ignore KYC rules are popping up for forex traders.

Compare Brokers for Forex Trading

The broker you use for trading forex can make a huge difference in your success. Here are some of the best forex platforms to consider.

Compare Brokers for Crypto Trading

You can divert quite a bit of risk trading crypto with the right broker. Take a look at some of the more reputable and popular choices.

Which Market is Right for You?

The forex-crypto trading question comes down to different risk-reward dynamics. If you want a smooth, liquid market that rewards patience, forex may be your game. If you’re looking for pure growth, then you may want to look into cryptocurrencies. Consider talking to a financial adviser about forex vs. crypto and avoid speculating with money that you are not willing to lose.

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