If you’re just starting out in the world of online trading, you may be wondering what the difference is between forex and cryptocurrency trading. Both offer opportunities to make money (or lose it), but they operate in very different ways. Here’s a look at the pros and cons of each type of trading to help you decide which is right for you.
What is crypto trading?
Cryptocurrency trading is the buying and selling of digital currencies, which are created through a process known as mining. Cryptocurrencies are stored in digital wallets, and they can be used to purchase goods and services or traded on exchanges for other assets, such as traditional fiat currencies or other cryptocurrencies.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, hundreds of other cryptocurrencies have been created, and the total market value of all digital currencies is now more than $800 billion. Here is a handy guide to buying crypto if you are looking to get started.
What is forex trading?
Forex trading is the buying and selling of foreign currencies, and it’s one of the largest markets in the world with a daily trading volume of more than $6 trillion. Forex trading is conducted through a global network of banks, and it’s open 24 hours a day, five days a week.
When you’re opeating in forex, you’re basically betting on the value of one currency against another. For example, if you think the euro will strengthen against the US dollar, you can buy EUR/USD. If your prediction comes true, you’ll make a profit. If it doesn’t, you’ll incur a loss.
Understanding important industry-related terms
Before we go on to describe the differences between forex and crypto trading, it’s important to be aware of a few industry-related terms. These include:
- Leverage: You’ll come across this term on forex trading platforms. Leverage is a loan that’s provided by forex brokers to help you magnify your returns. For example, if you’re trading with 50:1 leverage, it means that for every $1 you have in your account, you can trade up to $50.
- Margin: Margin is the money that’s required to open a leveraged position. For example, if you’re trading EUR/USD with 50:1 leverage and you want to buy $100,000 worth of currency, you’ll need to have $2,000 in your account as margin.
- Liquidity: Liquidity is a measure of how easy it is to buy or sell an asset. For example, the EUR/USD currency pair is one of the most liquid pairs in the forex market, because there’s always a large amount of currency being traded.
- Volatility: Volatility is a measure of how much the price of an asset moves. For example, crypto assets are notoriously volatile, meaning their prices can rise and fall very sharply in a short space of time.
- Market capitalization: Market capitalization — also called market cap — is the total value of all the assets that have been mined. For example, at the time of writing, Bitcoin’s market capitalization is more than $800 billion. In the context of forex trading, market cap refers to the total value of all the currency that’s being traded, which at the moment is $2.409 quadrillion.
Now that we’ve covered some important industry terms, let’s take a look at the key differences between forex and crypto trading.
What are the differences between forex and crypto trading?
There are a few crucial differences between forex and crypto that you need to know before entering either market.
For starters, forex trading is regulated by central banks, while crypto trading is not. This means that there’s more oversight and protection for investors in the forex industry than there is in crypto.
For someone who is just starting out, this may mean that forex trading is a safer option. However, it’s worth noting that crypto assets have become more regulated in recent years, and this trend is likely to continue.
Another key difference has to do with market timings. The forex market is open 24 hours a day, five days a week. Crypto markets, on the other hand, are open 24/7, which gives investors much more flexibility when it comes to trading. But this also means that it can be difficult to keep track of the market if you’re trading 24/7.
Then comes volatility, which is probably the most important thing to know as a new investor. As we mentioned earlier, crypto assets are notoriously volatile, which means their prices can rise and fall very sharply in a short space of time. This can be both a good and a bad thing.
On the one hand, it means there are more opportunities to make money in a short space of time. On the other hand, it also means that there’s a higher risk of losing money just as quickly.
Lastly, another key difference between forex and crypto trading is the amount of money that’s traded on a daily basis. The forex market is the largest financial market in the world, with a daily trading volume of more than $6 trillion.
In comparison, the crypto market is still relatively small, with a daily trading volume of around $500 billion at best. What this means for you as an investor is that the forex market is much more liquid than the crypto market, which means it’s easier to buy and sell currency pairs.
So, which one is better — crypto or forex?
Well, crypto and forex both have their own advantages and disadvantages, so it really depends on your goals as an investor as to which one is right for you.
If you’re looking for a more stable investment with less risk, forex trading might be the way to go. But if you’re willing to take on more risk for the chance of higher rewards, then crypto trading could be a good option. Either way, both forex and crypto trading carry signficant risks that you need to be aware of before you start.
As with any type of investing, it’s always a good idea to do your own research and understand the risks involved before entering any market.
We hope this article has helped you better understand at least some of the risks involved with crypto and forex trading. Happy trading!
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.