The forex market is well established as compared to the cryptocurrency market. The prices of financial instruments in the forex market tend to remain more stable than cryptocurrencies.
Secondly, currencies always appreciate or depreciate following a reason, such as economic releases, interest rates, change in fiscal policy, improvement or depletion of the current account balance, etc. However, the prices of cryptocurrencies are usually driven by speculation as well as occasional governmental intervention.
Both markets have unique traits that make them appealing for various classes of traders. For example, The forex market offers excessive liquidity, attracting high volume traders, whereas cryptocurrencies being highly volatile is the favorite investment market of risk takers.
Not to mention, both forex and crypto trading comes with several pros and cons that you may wish to consider before getting started.
In this piece, we explain the difference between forex and cryptocurrency along with some key features.
What is the difference between forex and cryptocurrency?
While forex is a large-scale and well-established market, on the other hand, crypto is relatively a new entrant to the financial trading industry.
Forex refers to the exchange of foreign currencies on a decentralized market to make profits. All the foreign currencies that are traded in the forex market are backed up by respective central governments. As an average estimate, the forex market undergoes a daily trading turnover of more than $6 Trillion.
Blockchain-based cryptocurrencies are often regarded as digital currencies created by individuals, or private companies. Cryptocurrencies are also decentralized in nature having no central authority regulating them.
Unlike traditional currencies, cryptocurrencies are backed up by an online peer-to-peer authentication network. The self-authentication mechanism prevents holders using cryptocurrencies more than once, known as the double spending issue. According to Statista, one of the major cryptocurrencies Bitcoin (BTC) have reached a market capitalization of around $1,179 Billion as of April 14, 2021.
Main Features of Forex and Cryptocurrency
Given below are some key features that can help you decide which market you should prefer to trade.
As the forex market comprises global financial markets of the world, the supply of currencies remains unlimited.
Cryptocurrencies may have a supply. For bitcoin that will be 21 million in circulation, and for others it depends on their tokenomics which indicated on the whitepaper.
Forex traders can use high leverage to open sizable positions with limited capital investment. Usually, regulated brokers offer a leverage of up to 1:30. In some jurisdictions of the world, traders can use a leverage of up to 1:500 or even more.
Since cryptocurrencies are extremely volatile, usually low leverage is offered to crypto traders. Most exchanges offer a maximum leverage of up to 1:5. However, some exchanges may offer higher leverage.
With a daily trading turnover in billions of U.S. dollars, the forex market is highly liquid. The increased liquidity of the forex market enables traders to fill up their positions instantly.
Since cryptocurrencies carry more risk than fiat currencies, the crypto market is far less liquid than the forex market. It sometimes becomes very difficult for traders to fill up their position at their desirable prices.
Cost of Trading
Forex trading is relatively cheaper. Mostly, traders only need to bear the spread cost. It usually involves no hidden fees or transaction costs.
Apart from being quite expensive to buy, traders also need to pay a fee to the relevant exchange depending upon the account type i-e makers or takers.
Clients may also need to bear transactional charges for crypto conversion charged by the respective exchange.
The transaction cost and the exchange fees make the cost of crypto trading way higher than forex trading.
Both forex and crypto trading can be quite lucrative.
However, depending upon your personal interest, risk tolerance, and available resources, it’s up to you to decide which of the trading assets suits you better.