Traders consistently active in the market stand a good chance of generating substantial profits. Knowing which trading strategies are most suited for your assets is the most important factor in maximizing your earning potential. Still, you’re making the trading call in the end, so you need to weigh the benefits and drawbacks before moving.
As a trader, you should know how the cryptocurrency market differs from the foreign exchange market. Crypto markets are modern since they use internet-based facilities and equipment, while foreign exchange markets are outdated. Lately, FX and Crypto markets are high-risk, high-reward ventures. However, cryptocurrency trading has many advantages, like visible trade volume, low entry hurdles, and open exchanges.
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Forex and Crypto: Differences
Let’s let about some major differences between forex and crypto so you may have a clearer picture of both.
1. The Number of Assets
The FX and cryptocurrency markets have vastly different supply levels of coins and assets. Just a handful of currencies are available for trading on the foreign exchange market. These include the US dollar, Euro, Japanese yen, British pound, Chinese yuan, and others.
However, there are over 14,000 distinct cryptocurrencies tradeable at the moment. Tokens (USDT), Litecoin (LTC), DigiBytes (DOT), Ether (ETH), Bitcoin Cash (BCH), Link (LINK), and Monero (MXR) are all examples of such digital currencies. Although many different cryptocurrencies are available, Bitcoin stands out as the leader because of its large market share, widespread acceptance, a large community of users, and large market capitalization.
The foreign exchange market is best for turning money into cash. In 2019, foreign exchange trade exceeded $6.7 trillion. It demonstrates how relatively simple it is for users to transact with assets. With more investors and buyers in the market, the bid-ask spread narrows, making it easier for investors to buy and sell assets at fair prices.
However, things are not so cut and dry when dealing with cryptocurrencies. Coins can be traded at affordable prices and a narrow bid-ask spread thanks to the high liquidity of some assets in this market. It’s more likely that you won’t be able to sell your coins for the price you want if you choose those with low trading volumes.
3. Market Size
With a 24-hour trading volume of $124 billion, the total market cap of all cryptocurrencies is currently $2.8 trillion. The forex market’s volume of trade remains high despite the dramatic increase in cryptocurrency prices over the previous several years. Every day, trades totaled more than $7 trillion.
In contrast to the decentralized nature of crypto markets, banks typically act as brokers when trading FX. The “interbank market” is where these financial institutions deal with one another.
On the other hand, the trading of cryptocurrencies is conducted primarily through two online platforms that require access to the internet and electronic equipment. Centralized exchanges provide a safe place to trade in a market with many buyers and sellers. Many investors prefer to remain anonymous when buying and selling tokens. Therefore they turn to decentralized exchanges.
Forex and Crypto: Similarities
There are certain similarities between forex trading and crypto trading, even though the former has different patterns and methods than the latter.
- Forex and cryptocurrency traders alike focus on making quick profits from their holdings. Investing in the market carries a real risk, and the value of assets can be drastically impacted by unexpected news or occurrences.
- Technical analysis is used by forex and crypto traders alike.
- Finally, suppose you want to make money trading forex or cryptocurrencies consistently. In that case, you must have a deep, thorough, and favorable comprehension of the market, its functioning, skillful practices, and good trading tactics.
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High-speed internet and other cutting-edge computer technology have made global markets more accessible. We’ve discussed crypto and forex trading’s similarities and differences. Cryptocurrency and forex trading differ in structure, preferences, investments, and scale. Due to bitcoin’s popularity and investor interest, many forex traders have switched to cryptocurrency. Due to liquidity, transaction costs, and micro-investments, cryptocurrency trading differs from foreign exchange trading. Choosing a market depends on your goals, risk assessment skills, and market knowledge.