The worlds of forex and cryptocurrency trading certainly have some similarities. Forex focuses on trading around traditional financial markets, while cryptocurrencies simply convert this into digital currency. So why, in fact, are both forms of trading so different?
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On the surface, both forex and cryptocurrencies appear to be popular mediums of exchange leveraging highly profitable markets.
Today, with over $7.5 trillion in daily foreign exchange trading volume, the cryptocurrency market has yet to reach such astronomical heights, but since the launch of Bitcoin in 2009, It’s growing significantly.
As coin market cap Data show that the market cap of cryptocurrencies soared to nearly $3 trillion by the end of 2021, despite a market cap of just $193 billion at the beginning of 2020. Tough economic conditions have slashed that number to $1.1 trillion in recent months, which shows: The market tends to grow rapidly.
Even though both trading options focus on financial assets, there are many important differences between Forex trading and Cryptocurrency trading. Let’s take a closer look at the three main differences that traders should be aware of when entering the market.
What are the three differences between cryptocurrency trading and forex trading?
Both the cryptocurrency and forex markets have certain similarities, such as being driven by supply and demand, but there are also many differences that traders must keep in mind.
These fundamental differences can make a significant difference in how the market behaves, so it’s worth understanding before trading one or the other.
1. Risk
All forms of trading involve varying degrees of risk. Both cryptocurrency and forex trading have great profit potential, but some key differences between the two markets can benefit different traders, depending on their style and risk tolerance. there is.
In terms of predicting market movements, forex trading is generally considered to be more stable and offer a more predictable ecosystem for traders.
Prices related to foreign exchange are highly dependent on geopolitical and global economic events. This means that they can be highly volatile, but rarely reach the level of unpredictability afforded by cryptocurrencies.
This makes forex a better option for more risk-averse traders, as well as for those looking to derive investment options from more traditional fundamental analysis.
Furthermore, the forex market is heavily regulated, while the cryptocurrency market is unregulated. This makes cryptocurrencies very risky and requires far more due diligence in the asset purchase process.
However, the cryptocurrency market is much more unpredictable for traders. In such a peculiar situation, there can be a great many factors affecting market sentiment, and the lack of regulation means that many threats to traders in the form of fraud and fraudulent activity. means to exist.
Nevertheless, the potential of the cryptocurrency market leaves little doubt for investors willing to take greater risks. Today, despite undergoing a severe market correction, Bitcoin is trading at around 40,000% more than it was worth a decade ago. This shows that there can be great opportunities for skilled traders to generate profits well above forex.
2. Volatility
The cryptocurrency market is notoriously volatile. However, the idea that coins like Bitcoin are highly volatile may be inaccurate, with BTC showing lower volatility than some traditional markets in recent years.
Since the cryptocurrency landscape is smaller than the forex landscape, smaller amounts of funds can dramatically change the look of the market. For example, if he entered the cryptocurrency market today with $300 billion, its total market capitalization alone would increase by more than 20%, and we can expect a significant price increase for the coins that exist in the ecosystem.
But even if the same amount entered Forex, the change would be much less pronounced within the considerable trading volume already occurring in the market.
This high volatility goes hand in hand with risk, with some traders drawn to cryptocurrencies for the fantastic opportunity to generate greater profits, while others are afraid of incurring large losses. This is why we shy away from the market.
High volatility can be good or bad, depending on your level of risk aversion. Low volatility in the forex market means that the market can remain relatively firm even in the event of unexpected economic events.
3. Trading pairs
Another important difference is in trading pairs. Whenever you trade, you are exchanging one asset for another. Whether this means exchanging dollars for stocks and shares, euros and US dollars, or BTC and ETH, you always need to trade units of value. I have.
Trading pairs is a natural part of forex trading and most experienced traders will understand how these swaps work. For example, a trader can speculate using 7 major currencies and these can leverage 21 different trading pairs.
This simplifies the whole trading process. Many forex platforms allow you to log in, find a suitable exchange rate quote, and execute a trade.
Traders don’t even need to have dollars or yen in their account to trade USD/JPY because they are speculating on exchange rate movements instead of physically trading currencies.
This is not the case with cryptocurrencies. Observing cross rates is easy, but most cryptocurrency pairs are backed by big coins like Bitcoin (BTC), Tether (USDT), Ethereum (ETH), or native tokens on exchanges like Binance’s BNB. depends.
As of this writing, there are over 29,000 cryptocurrencies. This can make it very difficult to create swaps between two small cryptocurrencies from a liquidity perspective. This means that funds have to flow into intermediaries such as BTC, USDT, or ETH, and traders can lose time and profitability.
Cryptocurrency and forex trading platform
As fintech continues to provide a more inclusive trading environment for investors around the world, more platforms are becoming available with the ability to trade both cryptocurrencies and forex.
1. Etro
When it comes to trading platforms, few companies offer the broadest mix of cryptocurrency, forex and stock market options as eToro.
Tools such as trailing stop loss, one-click trading, extensive charting, and zero balance protection make it easy for traders to get started and build portfolios across a range of investment options.
2. metatrader 5
MetaTrader 5 is the star of mobile Forex trading.
With 38 technical indicators, 44 analytical objects, and a wide range of automated trading options, MetaTrader 5 is widely adaptable to suit individual trading approaches, for both risk-averse and more ambitious portfolio builders. is sufficient for both.
3. fx pro
FxPro is also a giant in the trading world, offering a wide variety of investment options including cryptocurrencies, forex, commodities and stocks.
Importantly, FxPro accepts payments in major cryptocurrencies such as BTC, USDT, ETH as well as the more widely accepted PayPal and Skrill. The platform also features trading features such as MetaTrader 5 and its own feature-rich FxPro cTrader portal.
Four. simple FX
Another platform making headlines around the world is SimpleFX, which provides trading services to over 200,000 clients in 160 countries.
With no minimum deposit and up to 1:500 leverage, SimpleFX is an attractive proposition for both newcomers to the ecosystem and experienced traders seeking high performance and broad insight.
Ultimately it all comes down to personal preference
There is no right or wrong answer when it comes to whether it is better to trade Forex or cryptocurrencies. As you can see from this article, there are many differences between the two trading options even though they both represent currencies.
Whether you prefer cryptocurrencies or forex, always conduct due diligence and research your trading pairs before making a decision.
Also, remember that it is possible to use the many excellent integrated trading platforms available to find the right balance for both cryptocurrencies and forex.
