Forex vs. Cryptocurrency Trading
If you want a compressive guide on forex vs. cryptocurrency trading, this is the place to be. This article will give you an easy to understand and in-depth information on what is forex and cryptocurrency trading. We will also touch on the difference between the two.
Lastly, we will take a look at the advantages and disadvantages of both. So, without further to do, let us get started.
What is Forex Trading?
Forex trading is foreign exchange trading. The practice of buying and selling currency for trading, tourism, or commerce. We will look at the trading aspect of forex and cryptocurrency in this article. The same for cryptocurrency trading as well.
In forex trading, you have the forex market. This is where trading happens. It is one of the largest trading markets. Forex is also decentralized. In essence forex trading requires you to speculate the changing value of the two currencies.
The two currencies together make up the currency pair. There are a couple of popular currency pairs in forex trading. For example, you have EUR and USD. Other popular currency pairs are USD and JPY, GBP and USD, etc.
You will always have a base currency and the quote currency. You can either make a profit or incur a loss depending on the difference in the currency’s price.
Investors buy and sell currency and are looking to make a profit. Since the forex market can be extremely volatile, this creates a great opportunity for savvy investors to make money – in fact, this is one of the main reasons.
In most forex markets, traders can negotiate without any sort of governing body guaranteeing the trade. This is also called OTC trade. Two parties either deal directly or through brokers.
What is Cryptocurrency Trading?
Cryptocurrency trading is relatively new. Thanks to the internet and all the new technologies it has facilitated, cryptocurrency trading has seen a boom in recent years.
In cryptocurrency, the idea is essentially the same as forex trading. You buy and sell currencies in hopes of making a profit. You can speculate about the price direction in both ways.
The price can either increase or decrease. If you speculate correctly, you will have a higher chance of making a profit.
You might be wondering what is cryptocurrency in the first place. Cryptocurrency is a digital medium of exchange. The backbone of cryptocurrency is blockchain technology.
There is no central authority that controls cryptocurrency at this point. Plus, since cryptocurrency uses blockchain, it has a couple of unique advantages. Such as it is transparent, decentralized, and also immutable.
One of the most important things to note is cryptocurrency only exists digitally. They are intangible. So, you cannot touch or see cryptocurrency.
Compared to the forex market, the cryptocurrency market is less affected by financial markets and global events. Having said that though, they are still pretty volatile.
Much of cryptocurrency trading happens through exchanges. There are some OTC, but not as much as in forex trading.
Forex Vs. Cryptocurrency Trading
We will take a look at how they differ and what are the similarities as well. Forex vs. Cryptocurrency trading – let us get into the differences between the two.
Both forex and cryptocurrency trading have their fair share of payout potential and also the risk for losses.
With forex, there is a vast opportunity to earn. You will also find possibilities of getting large tax-free payouts as well. But the flip side is also true – you can incur significant losses as well.
Cryptocurrency can be volatile. If done, the payouts can also be big here. But if you misjudge, you may incur huge losses as well.
As of now, forex is more reliable for trading. That is not to say cryptocurrency trading cannot be reliable. However, fiat currencies are legal tender. They are even government-backed. But forex is more vulnerable to the world economy.
With crypto, you essentially have to rely on the integrity of the company that created the specific cryptocurrency you are trading. However, although crypto is still very volatile, they are less vulnerable to world events.
They fluctuate more due to market trends. This might be making cryptocurrency trading much harder to predict.
Each has its own set of costs for trading. Cryptocurrency trading is done through exchanges. So, there is a fee associated with whichever platform you choose. There might be some fees when you withdraw or make a deposit.
There is also a capital gain tax on profit. Terms and conditions between exchanges can vary, sometimes quite a lot.
Forex is not taxable. There are however trading fees. Plus, the cost of each trade can truly be known after a trade is finished. The duration of the trade also has some varying fees. Longer trades might charge an 'overnight funding fee'.
Broker rates may differ as well. Some brokers might be inclined to charge a commission. Whereas others might charge a fixed rate.
The point being, it is better to do some research on your own here.
Short Points to Consider
- Unlimited supply of currencies available to trade
- High liquidity since it has a large number of participants. Forex is therefore quick and easy to trade
- Forex allows leverage. This is an attractive feature of forex trading. Some leverage ratios can go low as 50:1. This can increase your losses as well.
- Reasonably high volatility
- Crypto has a limited supply which can increase the demand and raise the value
- Low transactions costs with cryptocurrencies
- The potential for large payouts are huge
- High volatility
A lot of people may see the high volatility for both as an advantage or disadvantage. The high volatility means you can gain large profits if you do things right but it also means chances of high losses. Crypto in general fluctuates a lot – but both are quite volatile.
Now that you know some differences in trading forex and crypto, hopefully, it will be easier to choose when picking which one to trade. Forex vs. Cryptocurrency trading – which one is for you?