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!
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.
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.
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.
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
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:
- 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.
- Both forex and crypto traders rely on technical analysis to trade their assets.
- 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.
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.