Forex vs Crypto trading has become prevalent over the past few years; it is now the mainstream of new technology and innovation. Although people didn’t understand much about cryptocurrency and forex in the past, there is a sharp rise in digital currency investment due to more awareness and its ever-increasing benefits.
However, there is a massive difference from forex markets where the exchange rates between currencies hardly move, but the appeal traders get from forex is its leverage.
Hence, if you are a beginner investor interested in these two markets, this article will compare forex vs crypto to help you know which is best for you.
What is Forex?
Forex means foreign exchange, which involves exchanging, buying and selling international currencies. These currencies are traded as speculative assets and usually in pairs; in forex, you invest in the exchange rate between foreign currencies and forex pairs and leverage the forex market volatility to secure short- or long-term profits.
Due to the relative complexity and volatility of the forex market, it is not easy for beginners to get familiar with the trade; moreover, there is no regulatory framework to operate within. Most currency pairs are subject to free-floating exchange rates, which fluctuate due to economic factors, supply and demand, geopolitical tumult, etc., but will crypto trading be easier for beginners? Let’s find out.
What is Cryptocurrency?
Unlike fiat currencies which are tangible assets with unending supply only regulated by central banks, cryptocurrencies are quite the opposite; they are entirely virtual, has a finite supply, and are not regulated by any central authority.
Crypto tokens are not tangible; they are built on blockchain technology, which creates an immutable store of transactional data. It is very transparent and has less risk of market manipulation, but the finite supply significantly affects the tokens with factors like high demand and scarcity.
Forex vs Crypto; How do They Compare?
Market Participants
The market participants in forex range from investment funds, central and commercial banks, companies, traders, retail brokers, etc. Therefore, forex markets have a wide range of participants with different roles in the market. Conversely, the cryptocurrency market has three types of participants: miners, exchanges and traders.
Crypto miners are companies or individuals who complete blocks to verify crypto transactions within the blockchain network. While exchanges are digital platforms that allow you to buy, sell and exchange cryptocurrencies. Then crypto traders speculate on the rise and fall of the price and value of crypto to trade and make a profit.
Size
The forex market comprises transactions from several international entities such as investors, banks, companies and more, and these entities all depend on the system to exchange a wide variety of foreign currencies in real-time. So you can see that the forex market is vast.
However, while still in its early stages, the cryptocurrency market has made huge strides, and the blockchain network has continued to expand. However, it is good to note that Bitcoin accounts for about 70% of the entire crypto market, so the investors have a concentrated market segment they focus on. This makes the forex market more flexible and larger than the crypto market.
Liquidity
Liquidity has to do with the accessibility of an asset; it is the ease at which assets can be bought and sold.
Forex is comparably more liquid than crypto because forex has more assets that come with uninterrupted and almost constant demand. For example, the major currency pairs in forex are USD and EUR, which account for about 24% of the total daily forex volumes. There is an infinite supply of these currencies to meet demand, and forex still has other highly accessible currencies.
For cryptocurrency, Bitcoin is the only asset that can be referred to as liquid, and even so, there is a fixed number of Bitcoin in circulation. Also, the demand frequently fluctuates for several reasons, like market sentiments. Meaning the liquidity is not stable and can diminish at any time.
Volatility
Forex is a highly volatile market. However, some major currency pairs are known to be less volatile than other minor pairings meaning even as the prices fluctuate considerably in a short time, major assets like USD and EUR will typically trade in narrow and predictable ranges. Hence, their changes in prices are usually small and sometimes predictable.
The same cannot be said for cryptocurrency; for example, Bitcoin has experienced recurring bull runs and crashes throughout its history, and its changes in price and value are usually massive and unexpected. For example, Bitcoin has peaked in value and market cap since 2020, but in 2022, it shed nearly 70% of its value. People didn’t expect this huge fluctuation, and at the same time, they didn’t know how low it could still go.
However, aside from Bitcoin, other small cryptocurrencies are also volatile, meaning all crypto holdings can rise and fall with minimal warning.
Pros and Cons of Forex VS Crypto
Pros of Forex
- Low fees.
- High liquidity ($6.6 trillion in daily volume).
- Low minimum investment.
- High leverage (up to 50:1).
- Lower risk (compared to crypto).
- Great for automated trading.
- The market is open 24 hours in all five working days.
- Great for day trading.
Cons of Forex
- Not suited for long-term investing.
- Poor spreads on the weekend.
- Low regulatory protection.
Pros of Crypto
- 24/7 trading (weekends included).
- High volatility increases the potential for massive gains.
- Low starting capital is needed ( you can start with just $10).
- Lowest fees.
- Suitable for both short-term and long-term investments.
- High margin available (up to 100x).
Cons of Crypto
- High volatility means the potential for massive losses too
- Profits are subject to capital gains tax.
- The market is full of pump-and-dump schemes.
Forex vs Crypto, Which is Best for a Beginner?
Now that you have seen the comparison, benefits and downsides of forex and crypto trading, you should realise that there is no investment without risk, so considering which is best for you as a beginner depends on your priority. If you want to invest with minimal risk, you can go for forex trading, but if you are looking for a less complex market where you will easily learn and fit in, crypto is the one for you.
So you need to weigh what you can gain and lose from each market before choosing what is best for you, bearing in mind that they are both profitable if you know how to navigate the market.
