Key Differences Between Trading Crypto vs. FX
Forex is short for foreign exchange – a financial market that helps you to get good exposure to international currency pairs. It’s a market in which one currency is digitally converted into another. TradingView markets are an example of this.
When trading forex, one would generally buy and sell a currency against another at an agreed-upon price. If you’ve ever bought anything from an international online vendor in a currency that’s not your native tender, you’ve had forex exposure!
On the other hand, crypto is short for cryptocurrency – a digital currency of which a record of the transactions is made and verified and recorded on a decentralized system instead of a centralized or single authority one. In other words, it’s a digital currency, but it can be used similarly to any traditional tender.
Most cryptocurrencies store their transactions on the blockchain to increase their transparency. This helps in lowering the risk and removing the proverbial middleman that often results in additional transaction fees.
There are some differences between these two economic markets. Here are some of the most important ones that you need to know.
There are a few factors and participants that make up the forex market in general. They range from central and commercial banks and investment funds to companies and retail brokers, and even traders.
Different foreign exchange factors and participants have specific roles they play in the market. For example, commercial banks are the main hub that facilitates an exchange of currency pairs being traded on an international level. Central banks enter this specific market not to make profits but instead to stabilize the currency of the national exchange rate, which impacts the country’s overall economy.
In the cryptocurrency market, there are three specific types of participants. These are exchanges, miners, and traders. Exchanges are digital marketplaces where a person can sell and buy cryptocurrencies. Crypto miners are the people or companies that complete blocks used to verify transactions within the blockchain network. Cryptocurrency traders speculate on the fall and rise of the price and its movement and don’t take ownership of the underlying crypto coins.
The forex market is big, mainly because it’s composed of transactions from international entities such as companies and banks, investors and funds, and individuals who solely depend on this system to exchange foreign currencies in real time.
While still in its early years, the cryptocurrency market has made huge forward movements as blockchain networks have grown and expanded. In 2021, the whole global cryptocurrency market was valued at 1.5 billion dollars and was expected to reach 2.3 billion dollars by 2028.
The forex and cryptocurrency-specific market structures mostly rely on demand and supply, which impact how traders can negotiate the price without the go-ahead from government agencies. Trading forex and crypto can be done over the counter (OTC) or through an exchange or other brokerage.
The market structures for both forex and crypto are also decentralized, which means they’re not issued or monitored by a central authority like the government. This means no single party controls the market. Some consider this transparency to be the biggest strength and win of the market, especially in the case of cryptocurrencies.
When compared to traditional currencies traded on the forex market, cryptocurrencies mainly exist in the digital space only and are then stored on a blockchain. Cryptocurrency transactions take place only via digital wallets and are verified once they have been completely mined.
The forex structure is regulated mostly within the formalized markets. On the other hand, cryptocurrencies have a much less formal structure, making them more open to criminal activity or fraudulent transaction types.
Accessibility of the Assets
The FX market provides much more accessibility compared to digital assets like cryptocurrency. Cryptos have less liquidity than forex. They also require a digital wallet plus an exchange account to trade, which has deposit limitations and can be very expensive to manage.
Unlike the limited number of FX currency pairs currently available worldwide, there are over 11,000 cryptocurrencies and counting, which are also actively traded on the blockchain, as well as the well-known ones like bitcoin and ether. This also makes it quite difficult, if not near impossible, to track the cryptocurrency market in its entirety.
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Both markets are somewhat volatile. But, cryptocurrencies tend to experience more volatility than forex pairs do. This means that crypto prices are likely to feel the effects of even the slightest market movements, leading to major fluctuations in one trading session.
However, forex pairs have high daily trade volumes with many movements within thin bands. This high volatility rate, compared to other asset classes that are not cryptos, is what attracts a lot of traders.
So, there you have it; some of the key differences between trading crypto and forex. Use this article to help you decide what suits your niche better!