The Difference Between Forex and Crypto Trading
Over the last decade, trading options have evolved like never before. New players such as cryptocurrency trading have entered the game and are proving to be a lucrative idea. However, some people find cryptocurrencies too complicated and intimidating, and so they’re still relying on the old reliable forex trading.
Trading with cryptocurrencies and Forex trading are often considered similar, as they both involve trading with currencies. In this article, we will point out some key differences between the two, so that you can better understand how they differ from one another, how they are similar, and decide which is the right market for you.
Let’s begin!
Forex Trading
The Forex market is one of the largest trading markets in the world. It is open 24h a day and is composed out of banks, businesses, retailers, and financial institutions. Forex (foreign exchange market) is a place where currencies are exchanged. Currencies are very important because they need to be exchanged so that foreign trade and business can be possible.
The forex market was established in the 19 century as a result of the creation of the gold standard-a country’s monetary system directly linked to gold. Still, the trading space we have today was established in the 70s when institutional and retail investing began to thrive. When internet trading began in the 90s, forex trading became more available than ever.
As a market, Forex can move quickly and can be highly volatile. It has attracted traders for decades as its volatility allows for remarkable opportunities. Several factors can influence the forex market. This includes GDP, inflation, unemployment, and many more. Because of this, experienced traders use economic calendars to stay updated about such information and events that might bring changes to the market.
Forex trading is usually done by Brokers. Once you open an account you will have direct access to the market, which is highly regulated. The unique aspect of the Forex market is that there is no central marketplace for foreign exchange. Instead, trading with currency is done electronically. This means that all transaction occurs through computer networks between traders from all around the world
Institutions, corporations, and individuals trade forex in three ways:
- The spot market
- The forwards market
- The futures market
Trading in the spot market is the largest market because it is the fundamental asset on which the forwards and the futures market are based on. Years ago the futures market was the most popular choice of traders, as it was available to individual traders for a longer time frame. Nevertheless, with the emergence of electronic trading and countless forex brokers, the spot market has exploded inactivity and it exceeds the futures market. For instance, when forex brokers in the UAE refer to the forex market, they are always referring to the spot market. The forwards and futures markets are in general more famous with organizations that need to fence their unfamiliar trade hazards out to a particular date later on.
Cryptocurrency Trading
Similar to Forex, crypto trading involves trading with currencies. However, in forex trading, middlemen, brokers, and other institutions are always involved and naturally collect fees at almost every step of the trading process. With crypto trading, there are no middlemen or institutions involved, and this is why crypto trading has been growing in popularity ever since bitcoin was introduced in 2009.
Another big difference between the two is the amount of liquidity available in forex and the lack of it in crypto trading, especially if you don’t use major crypto coins such as Bitcoin, Litecoin, Etherium, etc.
Crypto traders speculate on cryptocurrency movements using a CFD trading account or buy and sell the underlying crypto coins on exchanges. CFD trading accounts are leveraged products that allow you to speculate on crypto price movements without taking ownership of the coins.
When you buy coins at exchanges, you gain ownership of the coins. You will need to make an exchange account, and store your coins in a crypto wallet until you’re ready to sell.
Crypto markets are completely decentralized, which means they are not backed or issued by a central authority. Cryptocurrencies exist only as a shared digital record of ownership, which is stored on the blockchain. When users want to send crypto units to another user, they send them to the other user’s crypto wallet. The transaction is only valid once it is verified and added to the blockchain through the process called bitcoin mining.
Summary
Whether you choose to trade with crypto or forex, keep in mind that they both carry risks and rewards. As we said, Forex trading is regulated, safe, and more stable than bitcoin. However, if you decide to trade with crypto, you should expect larger returns than with forex. Still, due to the growth of digital assets, many forex traders have started working with crypto.
Bottom line, it all depends on your goals, resources, and how much you are ready to risk. Continue learning about the market trends, and the answer will reveal itself.
