What’s the difference between crypto and forex trading?
Today there are plenty of ways to make money through the financial markets. Two of the biggest trends in 2021 are trading with forex and trading with cryptocurrency. Here we will take a closer look at how they differentiate. Which is the best choice for earning a profit?
The trend of investing in forex and cryptocurrency has spread all over the world. Not only professional traders invest in the markets, but all kinds of people have taken an interest in trading. Thanks to the internet, a lot of us have constant access to online trading platforms and can look up the knowledge needed to start out with a new hobby.
You can easily find out which is the best forex trading app for you, chat with other traders, and access the markets almost 24/7. All of this contributes to the increased popularity of crypto and forex trading that we have seen over the last years.
Forex and crypto – the similarities
Both forex and cryptocurrency trading are based on the speculations that the traders make. You can take a long or a short position in both types of trading. That means you can make a profit no matter if the price of the asset increases or decreases, as long as your prediction is correct. This makes forex and crypto trading different from the stock market, where you will lose money when the stock price goes down.
The basic principles that control how the prices fluctuate apply in both types of trading. It’s about supply and demand – if a cryptocurrency coin has more buyers than sellers the price will most likely increase. On the other hand, if there are more sellers than buyers the prices will drop over an extended period of time. That applies to both forex and crypto.
Differences between forex and crypto
Whether you’re on the foreign exchange market or on the cryptocurrency market, you’re dealing with currencies. The difference is that cryptocurrencies are purely digital. There are several other differences between forex and crypto which we will list here.
1. Market opening times
While the foreign exchange market is open 5 days a week (on weekdays), the crypto market is open every day, 24/7.
2. Crypto has higher risks
Forex has lower volatility and higher leverage, while crypto has the opposite: higher volatility and lower leverage. A higher volatility means chance of a higher reward but also significantly bigger risks. Cryptocurrency is a decentralised and a new market, meaning it’s unstable. On the forex market you have the option to trade with currency pairs from stable countries which are less volatile.
3. Size of the market
The forex market is by far the biggest market in the world when it comes to trading volume. Crypto, being a relatively new market, is significantly smaller, although growing fast.
4. Real money vs. digital money
If you’re looking to earn a living through investments, the forex market might be the better choice. On the crypto market you use digital coins instead of getting real money directly into the bank. This could be compared to investing in gold.