What Is Forex And Crypto Trading? - Know The Difference
For sure, it has been a mind-boggling question for you, what is forex and crypto trading? It is often mistaken that crypto trading is the same as foreign exchange or commonly called Forex. Same with crypto, Forex also involves currency trading. However, there are a few distinguishing factors between these two. For forex trading, it is already a large and well-established practice.
Meanwhile, crypto trading is a new entrant. Mostly for Forex, there is a participation of brokers, middlemen, and some institutions that take fees along the trading process. The absence of a middleman is one significant factor of crypto trading. Find out more in this article!
Forex versus Crypto Trading
It is vital to know what is forex and crypto trading and their similarities and differences from each other before you jump into trading. Either you choose either one or both of them, make sure to study and understand what is forex and crypto trading. Trading in these fields is both rewarding and risky, but as long as you know the basics and understand what is forex and crypto trading, you are good to go. One significant difference they have is the liquidity available in Forex but none for crypto trading. Both Forex and cryptocurrencies are affected by several factors. By history, crypto trading is unstable and unpredictable, making it a high-risk tolerance. For Forex, the volatility is around 1% and 0.5% for most established currencies. Below are the indicators which you need to consider:
Swiss Francs vs. Bitcoin
In terms of size, Forex trading comes first because it is relatively large. The average trade last year 2016 was 5 trillion dollars. To compare, the significant coin in crypto- Bitcoin has only a one billion dollars turnover. In the Swiss franc, the BTC trading is not as large as the Forex trading, which gives almost 5% of trading volume daily. However, unlike Forex, crypto trading can provide a return of 70%, but compared to Forex trading, it is almost unheard of.
Also, because Forex is already proven, most likely mature and regulated in the market. It only means that everywhere in the Forex world, mediators exist. From brokers, exchanges, and other costs, the Forex trading gets costly even before it can profit. Traders, through Forex, needs considerable capital before they trade. Also, the involvement of Institutions is what sets apart Forex trading compared to crypto. Forex traders compete with firms, banks, and other traders. Because of this, competition might be challenging.
Stability and Volatility
Same with crypto, forex also dearth volatility, which makes it hard to take advantage of small variances in exchange rates. However, liquidity also comes as a benefit. Trading is easy for any given currency, such as the likes of, from US dollars to Nigerian naira. These orders are easily filled quickly. Because Forex has a high turnover, several pairs are available even though others are minor currencies. The Forex's liquidity makes it that it would not overly change the asking price of a given trade despite large trades.
Meanwhile, in crypto trading, large trades have a significant impact on price. If dealt with altcoins and lesser-known tokens, the crypto price may shift. The process seems easy and quick reasons why many begin to trade instantly. Also, compared to Forex fees, the fees are much cheaper and the absence of a middleman paving away hidden costs. The volatility of crypto is too large. It can have swings daily, which is typical. It is easy to purchase in the morning and sell high during the evening.
Security and Rules
Security is another significant factor that can be distinguished between Forex and Crypto trading. For cryptocurrency, the risk is high due to the advancement of technology. Various stories have been told about cryptocurrencies being stolen, hacked, and even lost simply due to glitches. Due to the unchangeable nature of the blockchain, it is a challenge to reverse.
In terms of regulations, there is a minimal and almost zero that surrounds crypto trading. Because of this process, traders are open to scams and behaviors that can be fraudulent without recourse. It will never be a pleasant experience when your funds are stolen and hacked. Because most often, there is no way of getting back your money. While for Forex trades, it often carries the same protection level. In case of fraud or theft, brokerage accounts are usually insured by the government.
Why Support Forex and Crypto Trading?
- Reasons for Forex Trading:
- More stable and less volatile
- Liquidity is higher
- The leverage available is extensive.
- Unlimited supply in trading
- Reasons for Crypto Trading
- A high potential for returns
- Lower fees
- Easy entry and exit to market
What to choose- Forex or Crypto Trading?
Either you select to trade crypto or Forex, it is vital to know each type of trading. It involves risks and rewards, pros, and cons. Forex trading stands first in terms of protection, while crypto trading promises large returns compared to Forex.
Both trading platforms are accessible through the internet and a computing device when you begin trading.
Also, the forex market's liquidity and the volatility of the crypto market would mean that traders need to utilize various strategies in trading for the two markets. Learn more about forex and crypto trading here!
Generally, the realization of what is Forex and crypto trading is that the foreign exchange market is the most liquid and most extensive globally. It is a decentralized global niche where all of the world’s currency is traded. While the cryptocurrency or "digital currencies" are not backed up by the centralized government and involve exchanging currency for a different currency. Be vigilant, plan, and know what you trade for, and be ready to face the risks.
UPDATED February 2, 2021
By: Lance Richards
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