Forex and Crypto, in a way, are the same in one field. Crypto is a legitimate currency in Foreign Exchange. Forex traders recognize crypto, and many forex traders use bitcoin (BTC) to exchange currencies, but these two still have differences and similarities. Forex Trading is a popular method of earning money, and that said, this article will discuss facts about Forex and Crypto. Let’s start with an overview of what Forex and Crypto are so you’ll have a basic understanding of what they are. Then, let’s discuss the similarities and differences between Forex and Crypto.
What is Forex?
Forex, short for Foreign Exchange, is the practice of buying and selling one currency for another, either with cash or through an exchange. Each currency has its value, and some currencies are more popular than others. Wedging yourself between two markets where prices are increasing through exchange rate can be beneficial if you can buy low and sell high at a profit. Forex traders can accomplish this through utilizing options and futures contracts which are helpful in this activity.
What is Crypto?
Cryptocurrencies are digital currencies that traders can exchange for conventional currency. They are based on peer-to-peer protocols and algorithms rather than any central authority. Whereas governments issue fiat currencies, cryptocurrencies are designed to reduce the role of intermediaries in transactions. They allow anyone to make secure, instant payments without needing an agent or a bank account.
Similarities
Decentralized
One of the greatest strengths of the cryptocurrency system is the complete freedom it provides to individuals to move money around as they please. This means that novice traders and investors can participate without being bound by any particular financial institution. In theory, this makes financial market investing less risky than traditional investing in securities. The same can be said for the forex market. The forex market also doesn’t have an existing actual central regulation, no genuine government involvement whatsoever.
Market
The Forex market and Crypto have similar market structures. Both are large, decentralized and primitive marketplaces where people buy and sell assets for cash or other valuable instruments of value. As speculators in either market, you are likely to profit from appreciation in either asset’s price. The only real difference between the two is how easily you can access it.
Supply/Demand
Both supply and demand are essential in the Forex and Crypto world. In supply, you have Crypto or forex; in demand, you have brokers trying to get as many clients as possible. They both function the same.
Differences
Market Size
The forex market size dominates the crypto counterpart. The global forex market is a multi-billion dollar market with traders from all corners of the globe exchanging cash for currency at drastically low price points. The Forex industry was valued at $650 billion in 2016 and is forecasted to grow to $900 billion by 2022, making it the largest regulated industry in the world. The sector includes assets such as stocks, derivatives, ETFs and credit default swaps (CDS), which make up everything from common shares in companies to complex financial instruments that typically involve complex multi-layered strategies designed to profit from price variations. It is estimated by research company IDEO that the global crypto market will reach $391 billion by 2022, an increase of more than 200 per cent from today’s value of $280 billion.
Because Crypto being smaller than forex, the crypto market is much more volatile than the forex market. The higher the volatility means more risk for traders; thus, the higher the volatility, the lower the liquidity. You may be asking, what is volatility and liquidity?.
Volatility: Volatility is the risk for traders. When interest rates are raised, retailers experience higher prices and failures in the stock markets because there are more purchases on the market, causing the prices to be bid up to and sellers to fall behind. If the market goes up, everything looks easier, but if it goes down, things look much worse. The most reliable generic indicator for volatility is the Standard & Poor’s 500® Index.
Liquidity:Â The more liquid a market, the less likely it is to move predictably. For example, a company that claims to offer high liquidity in one market might report poor performance in another. This lack of predictability makes it difficult for investors or analysts to identify profitable opportunities. Equity investors need liquidity to follow the trends of investing effectively. In addition, highly liquid companies may be less willing to give help to their investors if necessary, thus losing out on mutual opportunities that might otherwise be won through disbursements of profits or other sources of liquidity.
Time
In a nutshell, crypto is 24/7 for the entire year. Crypto gives you the ability to trade anytime, everywhere. You literally have full control of your time. Forex, on the other hand, usually only opens 5days/week. This means you have to have a schedule to follow, and unlike Crypto, you have to plan out the days.
To summarize, forex trading is a versatile career you can take. You can trade any currencies or Crypto in the market. It may share its differences, but at the end of the day, both platforms give you the ability to trade and being a successful trader is a good title to have.
