While it was dismissed as a passing fad, Cryptocurrencies have surged in popularity, and traders have taken notice. But should you shift your focus from Forex to Crypto?
Or try to leverage both markets to maximize your opportunities? Before you answer that, read on to explore what these two have in common, and how they are different in many ways too.
Where Crypto Markets and Forex Markets are alike
Anyone who wants to begin trading will first need a trading account and an internet-connected device such as a smartphone, laptop or tablet.
Those who already understand the fundamentals of Crypto trading will find it easy to transition into Forex trading, and the same is true for Forex traders looking to try Crypto trading.
Both markets are determined by the supply-demand balance – prices rise when there are more traders buying a unit than selling, and prices drop when more traders sell than buy.
This makes it easy for traders to transition from Crypto to Forex as the indicators and chart patterns are similar.
Where Crypto Markets and Forex Markets differ
Despite the many common aspects of the two, there are several key differences you should look out for. These include:
Difference in Available Instruments
Forex traders usually focus on main currency pairs such as (EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD).
There are also certain traders who choose to trade exotic currency pairs, such as a major currency and a currency of a developing economy like Madagascar or Peru.
On the other hand, with over 11,000 different cryptocurrencies and growing, Crypto trading is a whole other ball game. But while most trade in Bitcoin or Ethereum, hard-core crypto enthusiasts might dabble in lesser known assets.
This means that it’s unfeasible to track every cryptocurrency, so most traders simply choose a few coins to track to limit their watchlist.
Liquidity
With trading volume exceeding $6.6 trillion in 2019, the Forex market is highly liquid. This allows you to easily buy or sell your chosen instrument without material slippage – whatever your position size may be.
This is a good thing as you can get out of the trade at a price that is equal or very close to the price that is on the screen.
However, this is not true for most cryptocurrencies as the total crypto market cap is less than $2 trillion, and more than 45% of this market cap is taken by Bitcoin.
As such, other cryptocurrencies are less actively traded compared to Bitcoin, which makes it difficult for traders to get out of the trade at a desired price.
Coin Disparity
As there is a vast variety of cryptocurrencies, the differences between coins can be huge. If you are interested in trading in lesser-known cryptocurrencies, you will have to take the time to study these fundamental differences.
This, combined with the difficulty in tracking every coin means that traders usually focus on a few coins. As a result, their trading watchlist will end up similar in size to a typical Forex trader’s watchlist.
Volatility
When it comes to volatility, Cryptocurrencies can be highly volatile while Forex markets are usually more stable. In fact, the number one cryptocurrency Bitcoin began the year at $29,000 and moved up towards the $65,000 level before pulling back to $30,000 and rebounding towards $45,000. Smaller cryptocurrencies are known to be highly volatile within short periods.
This is unlike Forex markets which mostly occur in exotic pairs. This makes risk management much simpler compared to crypto.
Profit Potential
With ample opportunities to earn outsized profits, crypto markets are gaining in popularity. However, with greater profit potential comes higher risk, so traders should always be aware of that.
This means that if the projects do not work well or when capital flows into more established coins, there’s a possibility that your coin value could drop to zero which is quite common in the advanced stages of developing markets.
What’s more, Forex traders are able to maximize their potential by using leverage. But be warned that leverage is a double-edged sword with increased risks, although traders can manage risks by choosing the appropriate amount of leverage for their trades.
Trading Hours
The crypto market is open for trading 24 hours a day, 7 days a week, and while the Forex market is also open 24 hours a day, you can only trade from Monday to Friday. Why does this make a difference?
Well, Forex traders can simply spend their weekends relaxing, but crypto traders tend to stay in touch with markets as the weekends are often when cryptocurrencies make big moves.
This is because Forex trading is driven by big institutions which leads to Forex market activities following a regular pattern.
This is vastly different from crypto markets as many coins are driven by individual traders or small crypto investing firms instead of more established institutions – although that may change in the future.
Security Risks
As crypto markets are still relatively new, many regulations are still being developed around the world. That means that crypto traders could face counterparty risks such as scams and hacks.
For example, hackers recently stole $600 million from Poly Network (strangely, they have since returned about half of the stolen assets).
In contrast, the Forex trading industry is well-developed and heavily regulated. As a result, Forex trading faces fewer risks, and scams have been mostly eliminated. However, Forex traders should still vet their broker and the country regulations where the broker is registered.
Which should you choose?
In short, it depends on your financial goals, available capital, trading style, and lifestyle demands. The sensible thing to do is to try both crypto trading and Forex trading with minimal accounts to see which suits you best in order to make an informed choice – you could even decide to trade on both markets if you are up for it!
Whichever you choose, you’ll need a stable, secure and proven platform to start trading, and Forex4you is a leading broker that allows you to do just that. Register your account with Forex4you and gain access to more than 150 tradable instruments today!
Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand Forex4you’s Risk Disclosure.
