/ Forex vs Cryptocurrency

Cryptocurrencies have skyrocketed in value in recent years, and many traders are wondering whether they should focus on trading cryptocurrencies instead of the Forex market or try to do their best in both.

Similarities between the cryptocurrency and Forex markets

To start trading, you need a trading account and a modern electronic device with a stable internet connection. If you have experience trading in the currency market, you can easily learn the basics of cryptocurrency trading and vice versa. Charts are widely available and trades are executed quickly, allowing you to focus on trading. Like Forex, the cryptocurrency market is determined by the balance between supply and demand. If there are more buyers than sellers, prices rise; if there are more sellers than buyers, prices fall. Therefore, well-known indicators and chart patterns can be used to trade cryptocurrencies. Although cryptocurrency trading is very similar to Forex trading, there are some differences between them, which are described below:

Number of tools available

In the Forex market, traders usually focus on the major currency pairs (EUR/USD, USD/USD, USD/JPY,USD/USD, USD/CHF, USD/USD, USD/USD, USD/USD, USD/USD, USD/USD, USD/USD, USD/USD and USD/USD). Some traders prefer to trade little known currency pairs that include major currencies and emerging market currencies such as South Africa and Mexico.

There are currently more than 11,000 cryptocurrencies and the number continues to grow. While some cryptocurrencies such as Bitcoin and Ethereum are actively traded, many of the cryptocurrencies are only known to market fans. Since it is impossible to track all cryptocurrencies, traders have to choose from a limited number of cryptocurrencies, so traders are still working with a limited list.

Liquidity

The currency market is characterized by high liquidity. You can easily buy and sell your chosen financial instruments with minimal slippage, regardless of the size of your position. This is an important advantage because it means that you can always close your trades at a price that matches or is close to the price displayed on the screen. This cannot be said for most cryptocurrencies. The total market capitalization of the cryptocurrency market is just under two and a half trillion dollars, with bitcoin accounting for over 50% of that capitalization. Most cryptocurrencies do not trade with the same strength as bitcoin, so it can be difficult for traders to transact at the desired price.

Key differences between the currencies

Because of the large number of cryptocurrencies, there are significant differences between them. If you want to trade the lesser known cryptocurrencies, you need to have a good understanding of their fundamentals. As mentioned above, it is impossible to keep track of all assets in the cryptocurrency market, so traders should focus on the currencies they understand best. Thus, the size of a crypto trader's tracking list is similar to the size of a Forex trader's overall tracking list.

1. Volatility

While the currency market is relatively stable, cryptocurrencies are highly volatile. Bitcoin, the leading cryptocurrency, started the year at $42,000, rose to nearly $74,000, fell to $50,000, and is now trading around $65,000 to $70,000. Small cryptocurrencies can experience sharp fluctuations over a short period of time. Whereas in the currency market, such movements are rare and occur mostly on little known pairs. Because of this, the risk in the currency markets is more manageable.

2. Profit potential

The cryptocurrency market is growing in popularity as it offers greater profit potential. When trading cryptocurrencies, traders should be prepared to take higher risks because risk increases along with profit potential. Indeed, the value of many cryptocurrencies can go to zero over time if a project fails or funds flow into more established projects. Traders should remember that Forex trading potential can always be maximized through the use of leverage. Leverage is a double-edged sword, so it increases risk, but traders can manage risk by choosing the right amount of leverage for their trades.

3. Market hours

The cryptocurrency market is open 24/7, while the Forex market is open 5 days a week. This is a significant difference in terms of lifestyle. Forex traders can close their screens and enjoy their weekends. Cryptocurrency traders must constantly monitor the market because cryptocurrencies often make big moves over the weekend. Both markets are open 24 hours a day, but since currency trading is done through large institutions, it follows a certain pattern. The situation is different in the cryptocurrency markets because large institutions have only recently become more active, and many currencies are traded by private traders and small cryptocurrency investment companies.

4. Security

The cryptocurrency market is still in the early stages of development and regulations are being developed in many countries. Cryptocurrency traders have to face the risk of fraud, which is normal in a rapidly developing market. There is also the risk of hacking. In contrast, the risk for Forex traders is much lower as the Forex market is highly regulated. However, traders still need to check the background of the broker and the relevant regulations of the country in which it is registered. The Forex trading industry is well developed and fraud is largely eliminated.

Choosing between cryptocurrency trading and Forex trading

When choosing between cryptocurrency and Forex trading, you should consider your financial goals, available funds, trading style and lifestyle requirements. The best way to make an informed decision is to try cryptocurrency and Forex trading on a small account. After a few months, you will realize which market best suits your needs. This is also how you can take advantage of the opportunities in both markets.