Both cryptocurrency and forex markets have aspects which them highly attractive to traders, sharing a number of commonalities and some very distinct differences.
The first obvious similarity is that both are currency markets.
Cryptocurrencies are ‘digital currencies’ - for example, Bitcoin, Ethereum, Ripple, etc. and are decentralized, meaning that they are not controlled by any one organization, person, or government.
Whereas, the forex market is made up of fiat currencies, backed by fully regulated centralized governments, which are traded against one another. For example the US dollar against the Japanese Yen.
Now let’s address the major differentiating factor - volatility.
Cryptocurrency markets are distinctly more volatile and unpredictable in comparison to forex currencies. This is largely by consequent of their youth, and therefore lower trading volumes, with many still establishing their authority and long term value. Yet some dominant crypto assets, namely Bitcoin, demonstrate traditional market trends, however, with greater variance in the market’s movement.
The most severe volatility you will see in forex markets is between 0.5 - 1% for the most established and popularly traded currencies. In comparison, Bitcoin typically sees a wider range of volatility of between 5 - 15% within a 24-hour period.
This contrast in price fluctuation is one of the key elements that will determine whether a person decides to trade in one market or the other, depending on how risk-averse or risk-inclined they may be. There are many traders who choose to participate in both markets and there are several benefits in doing this also.
Both markets trade one currency for another currency, which nowadays can be interchanged with one another. For instance, bitcoin margin trading platform, PrimeXBT, trades crypto assets against the US dollar as its default setting, likewise, Coinbase Pro predominantly offers crypto-fiat pairs. Thus, allowing for more accurate and isolated assessment of the crypto asset by measuring against a more constant fiat marker, as opposed to trading one volatile crypto against another volatile crypto.
Forex Trading Pros
- Very high liquidity, on average, forex plays host to $5 trillion of trading volume each day, which is nearly 100x higher than that of the crypto market. With more participants than any other market, it is quick and simple to execute very large orders.
- Immune to individual (whale) manipulation, one single investor cannot affect the entire market as it is possible with stocks and even more so with crypto.
- Influenced by global news, making it easier to predict price actions and identify opportunities.
- Fully regulated, creating a safer environment for traders with respect to the handling and insurance of their funds held by the broker/trading platform.
- Forex allows for higher leverage (of up to 1000x) due to its less variable and more predictable temperament. However, higher leverage also increases the risk of loss.
Crypto Trading Pros
- Limited supply available, since there is a cap on how many tokens or coins can be created, the value often increases. Provided the crypto asset has strong promise for the future, it often presents favorable conditions for high potential investment opportunities.
- Huge potential gains, $2,500 invested in bitcoin in 2013 would have been worth $1 million + in 2017. After a severe market correction, today that $2,500 would be worth $500,000. As you can see, the risk of loss is also increased.
- Crypto is democratized, meaning that is available to anyone - anywhere in the world. This allows individuals in underdeveloped and unbanked countries to access, use, and trade cryptocurrencies.
- Cryptocurrency is decentralized and unregulated, therefore in some cases, individuals can remain anonymous and still participate in the global financial economy and with no minimum investment - provided their exchange does not require KYC.
- Quick, irrevocable, and transparent transactions. As there are no third party vendors or banks involved, as a result, the transaction fees are very low.
Cons
It’s important to note that both forex and crypto markets are considered to be high-risk markets for trading. Forex may be less volatile, yet offers higher risk trading strategies with the possibility to access higher leverage and to short-sell with infinite losses. Whereas Crypto is inherently risky, therefore the most leverage you will find offered is 100x, and short-selling losses are capped at no more than the available margin (the initial investment).
To avoid high risk, one would presumably opt for forex with no leverage and work a long game with small wins over time. Whereas, risk takers will look for higher leveraging opportunities and/or participate in the crypto markets.
Summary
What becomes clear when looking at both forex and cryptocurrency trading, higher-risk markets and strategies directly correlate with higher potential rewards.
As already mentioned, there are significant benefits in trading both markets. For example, the crypto market is bearish or shows no imminent signs of opportunity, why not try your hand at forex?
By diversifying one’s portfolio, the risk associated with the volatile cryptocurrency market can be diminished significantly. Once a trader sees opportunity once again, they can exit their forex positions and re-enter the crypto market for significant gains.
Furthermore, when traders become immersed in a number of financial markets they gain a broader perspective and deeper understanding of the entire global economy which goes hand-in-hand with performing technical analysis and gauging sentiment by the influence one’s market has on another.
Best of all, there are now a handful of top-grade trading platforms that allow for trading both markets in one place. Most notably, PrimeXBT and eToro both offer all of the major cryptocurrencies, forex currency pairs, commodities, and stock indices on the one platform. eToro is strictly regulated and more so tailored to traditional traders and investors, whereas PrimeXBT is a bitcoin-based trading platform and accessible to all with no KYC or minimum deposit. However, both cater to traders of any and all backgrounds and skill levels.
So which is best, forex or crypto? Ultimately that’s for you to decide.