Forex vs Crypto Trading: Which One Is More Profitable?
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Forex vs Crypto Trading: Which One Is More Profitable?

Created 10mo ago, last updated 8mo ago

With more and more investors switching to the crypto market every day, this article analyzes the benefits offered by both the markets along with the risks involved. Read more!

Forex vs Crypto Trading: Which One Is More Profitable?

Table of Contents

Continuous participation in the financial markets can be highly profitable for traders. The potential to make huge profits always depends on your understanding of the trading techniques that are suitable for your investments. Nonetheless, it should always be kept in mind that you are the one making the trading decision in the end, therefore you must be aware of the pros and cons of it.

If you are interested in trading, you should know the basic similarities and differences between the conventional forex market and the crypto market. We can put the forex market under the traditional section and the crypto market under the contemporary one due to its reliance on internet-based facilities and devices. Today, both forex and crypto markets offer high-risk-high-reward investment options. However, in comparison, crypto trading has some prominent advantages that are largely accompanied by easily observable trading volume, low barriers to entry, and easily accessible exchanges, among others.

Differences Between Forex Trading and Crypto Trading

The Number of Assets

The difference between the number of available coins/assets is significant between the forex and the crypto markets. The forex market offers limited tradable currencies, such as the United States Dollar, Euro, Japanese Yen, Pound Sterling (GBP), Chinese Yuan, and others.

However, there are more than fourteen thousand cryptocurrencies currently available, according to CoinMarketCap. These currencies involve USDT, LTC, DOT, ETH, BCH, LINK, XMR, and many others. But it is notable that Bitcoin is the top cryptocurrency when it comes to market dominance, popularity, userbase, and market capitalization. Similarly, besides Bitcoin, Ethereum, Binance Coin, Solana, and Cardano are the most actively traded cryptocurrencies in the market.

Liquidity

When it comes to converting your investments into cash, the forex market has a relative advantage. For example, forex trading volume exceeded $6.7 trillion back in 2019. It makes it evident that it is comparatively easy for users to trade assets. Increased liquidity decreases the bid-ask spread, making it convenient for traders to trade assets at reasonable prices.
However, the case in cryptocurrency trading is a bit different. Certain assets in this market offer high liquidity, hence low bid-ask spread and reasonable prices to trade coins. However, if you go for coins with less trading volume, chances are that you will not be able to trade those coins at the desired price.

Volatility

The crypto market is highly volatile in comparison to the forex market. This factor is a window of opportunity for those looking to make huge profits within a small time period. Especially, currencies with low trading volume fluctuate rapidly while the ones with higher market capitalization and trading volume maintain stability in the short term. Low fluctuation in the forex market has its own pros and cons. Where it limits the opportunity to make large profits, it controls risks associated with investments.

Profit Potential

As discussed above, the high level of fluctuation in the crypto market increases the potential to make huge profits. However, other factors, like the amount of investment, also play a role in the profit potential. If you make a huge investment, you will enjoy greater rewards. However, you must invest diversify your investment wisely and stay updated to trade cryptocurrencies.

Although the forex market also offers a large profit potential, it is more relative to the amount of investment.

Market Size

As of November 2021, the crypto market cap stands at $2.8 trillion with a 24-hour trading volume of $124 billion. Even though cryptocurrency prices have exploded during the past few years, the trading volume of the forex market is still very high. It can be determined by the fact that in 2019, more than seven trillion dollars were being traded on a daily basis.

Venues for Trading

As compared to crypto trading, forex trading is mainly done through brokers who are usually banks. These banks trade with each other, a process known as the “interbank market.” These brokers are usually called institutional investors who accumulate and trade the investments of their clients. However, the market offers opportunities to retail investors as well.

On the other hand, crypto trading is done through two main venues: decentralized and centralized exchanges that require electronic devices with the internet to connect. Some traders use centralized exchanges to take advantage of a secure environment with high liquidity. Other traders utilize decentralized platforms to keep themselves anonymous and trade tokens without involving any third party.

Similarities Between Forex Trading and Crypto Trading

Despite the major differences among the forex and crypto trading patterns and techniques, there are some similarities as well such as:

  1. Both forex and crypto traders aim to take advantage of short-term investments. Both the markets come with risk as well as the prices of assets are influenced by events and news.
  2. Both forex and crypto traders rely on technical analysis to trade their assets.
  3. Finally, trading in both forex and cryptocurrency demands a strong, substantial understanding of the market, functions, tactful practices, and favorable trading techniques to avail a consistent profit.

Final Thoughts

High-speed internet and advanced computer technology have increased our accessibility to trading arenas all over the world. We have extensively discussed and highlighted the potential similarities and differences between crypto and forex trading. This discussion will provide you with a primary and comprehensive understanding of how these trading techniques work and help to generate profits. Ultimately, the structure, preferences, investments, and size of both crypto and forex trading differ from each other. It is also notable that the increased popularity of cryptocurrency has attracted many people to invest that today many forex traders have switched to cryptocurrency. Qualities, such as the number of available options, ease of access to exchanges, ability to make even small investments, distinguish cryptocurrency from forex trading. Yet, the decision to trade in either market depends mainly on your goals, risk assessment abilities, and relevant expertise.

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