Although cryptocurrency trading and investments have made their way around the block once or twice, crypto’s decade-long industry is still relatively new compared to mature trading markets like the Foreign Exchange Market, also known as “forex”.

Novice traders, who are not familiar with the functionalities of these markets, may think of forex and crypto as different as apples and oranges. While the two markets do have their marked differences, crypto and forex trading also show a number of similar functionalities.

In this article, we take a look at the similarities and differences between the various components of crypto and forex trading. We also dive into the trading environment aspects of both these markets so that a new trader can assess which is the right investment opportunity depending on their individual preferences.

Basics of Crypto and Forex Markets

With a daily trading volume of $5 trillion, the Foreign Exchange Market is the largest trading market in the world. At its core, forex is the exchange of national fiat currencies like EUR and USD. Traders bet on the possibility of one currency moving up in contrast to the other.

Cryptocurrency trading, on the other hand, is the exchange of blockchain-enabled tokens for other tokens or fiat currencies. This market is at a relatively nascent stage in comparison to the forex market. As of this year, the daily trading volume of crypto is nearly $50 billion.

Forex trading general involves Over the Counter (OTC) trading networks instead of centralized exchanges. Buyers and sellers across the globe conduct transactions on these electronically managed OTC networks. Cryptocurrency trading is usually carried out over centralized exchanges, and users need a digital wallet to store and manage their digital tokens.

Similarities Between Crypto and Forex Trading

Though it might not be immediately apparent, crypto and forex markets hold several similarities:

  • Supply/Demand Factors: Both the trading markets function on the supply and demand economics. The price of any currency, in crypto and forex, is based on the supply and demand factors.

  • Digital Platforms: The trades are conducted electronically on the internet. Any individual can trade multiple currencies on various digital platforms for the crypto or forex market.

  • Flexibility: Traders have the flexibility of conducting trades from anywhere in the world. Additionally, these trades take a short amount of time in both cryptocurrency and forex markets.

  • Understanding Markets: Both markets demand a certain degree of understanding and awareness of technical factors in order to gain profitable returns.

  • Bots:

    Forex and crypto trading can be conducted by using online auto bots (robots) that enable automated trading of forex or cryptocurrency trades.

Differences Between Crypto and Forex Trading

From functionalities to market size, there are considerable differences that exist between the two markets:

  • OTC vs Exchanges: One of the key differences between the two markets is the nature of platforms on which trades are conducted. Forex trades are usually placed through OTC platforms, while cryptocurrency trades are usually carried out on exchanges offering trading services.

  • Timings: The cryptocurrency market is open round the clock, 365 days a year. Any individual can trade directly at any point in time. Forex markets are open only 5 days/week.

  • Intermediaries: Forex trading usually involves a middle man to place an individual’s trades. Subsequently, the intermediary cost and fees for forex trades are relatively higher in comparison to cryptocurrency trades. Although cryptocurrency trades involve exchanges, the transaction fee is low.

  • Volatility: In comparison to the forex market, cryptocurrency markets have higher price volatility. With daily price swings of crypto tokens, a canny trader can leverage the factor of volatility to generate greater profits.

  • Liquidity: Forex markets possess higher liquidity than cryptocurrency markets. This feature is due to the substantially higher daily trading volume in the forex market in comparison to the cryptocurrency market. Because of this liquidity, larger trades conducted in forex do not have any major impact on the price.

  • Regulation: Because the crypto industry is relatively new, cryptocurrency trading is not completely regulated across the globe. Meanwhile, forex market trades fall under a legal regulated structure.

  • External Factors: Prices in forex markets are impacted by external factors including economic events, political events, GDP growth, monetary policies, global news, major announcements, etc.

Crypto vs Forex- Which One is Right For You?

Many traders contemplate whether to invest in crypto or forex markets. Both markets have their pros and cons in investments and trading. A trader’s choice comes down to the suitability of the trading environment for the individual.

As forex markets are more mature, they have inherent stability. In comparison to crypto markets, they are less volatile. This stability provides a degree of safety. Additionally, forex trading integrates a regulated environment to provide additional security to traders. The market consists of big players and institutional investors that provide a higher degree of liquidity to trading.

At the same time, investors can benefit significantly from cryptocurrency trading because the market is not yet completely mature. Bitcoin, altcoins, and digital tokens have a huge potential to scale. Making investments at a primary stage may enable a trader to secure huge profits in forthcoming years. Additionally, cryptocurrencies are currently prone to a greater degree of volatility. A savvy trader can leverage the factor of volatility to gain significant returns.

While forex trading markets are largely held by institutional investors, cryptocurrency investments integrate retail traders as well, in part due to the comparatively-less capital crypto trading requires as opposed to forex. The costs of high trading fees are also eliminated when dealing with crypto markets.

Both crypto and forex markets have benefits and risks. It depends upon an individual trader to access their preferred trading environment, and in both these landscapes, a trader should have a certain degree of knowledge and awareness. But given the proper research, both systems present the possibility of a large return on investment.