What You Should Know About Forex and Crypto Trading

It seems like new ways to trade and invest pop up all the time.

And recent years have added some new spice to the world of day trading, especially with the growth of cryptocurrencies as a serious contender. It all started with Bitcoin in 2009, a strange new innovation that many regarded with suspicion.

Now there are thousands of different cryptocurrencies. At the same time, foreign exchange (forex) trading continues to experience robust growth.

So what are the differences between forex and crypto? And which one is better? Keep reading to find out.

Forex and Crypto: What They’re All About

A good first step is to understand the nature of crypto trading vs. forex trading.

Forex and crypto both rely on the venerable law of supply and demand to determine value. Nevertheless, they have very different risk profiles.

For one thing, crypto trading involves buying and selling digital assets, which include cryptocurrencies and non-fungible tokens (NFTs). The nature of these assets means that crypto trading is purely speculative.

On the other hand, forex trading involves exchanging one fiat currency for another. Traders do so in the hope that the currency will increase its value and thereby profit the trader.

But forex and crypto are very different animals. Fiat currencies have agreed-upon and more or less stable values, which is a far cry from cryptocurrencies.

Forex trading boils down to pitting one national economy against another, and it’s been around for decades. Forex is strongly tied to real-world economies and is influenced by the fluctuations of the world market. Crypto markets, however, are unstable and have very little anchorage in traditional economies.

The Size of the Markets

The trade volume of forex markets is immense—in fact, it’s the largest in the world. With a daily volume of $6.6 trillion, the forex exchange exceeds even the stock market.

The crypto exchange doesn’t enjoy quite the same heft as the forex markets. Even so, the popularity of cryptocurrencies has skyrocketed in recent years, leading to enormous gains.

How Are Forex and Crypto Markets Structured?

Forex and crypto are similar in their trading paradigms.

Both use brokers, exchanges, over-the-counter deals, and direct negotiation between parties. In other words, there is no governing body to set pricing and oversee transactions.

Stocks, on the other hand, are traded on official exchanges. Trades with stocks are governed by official bodies and are saddled with strict rules and guidelines.

Market Participants

To begin with, crypto exchanges were limited to the miners and retail clients who dealt with this novel technology.

For about a decade, this is how things remained. Only those with niche tech interests were involved in the buying and trading of digital currencies. But things changed in 2020 when corporations began purchasing Bitcoin as a part of their holdings strategy.

A larger group of traders now entered the market, inaugurating a rush by institutions to acquire Bitcoin and Ethereum, the largest and most popular cryptocurrencies.

Forex trading began long ago with large banks, which had always swapped currencies as part of doing business in a globalized economy. In recent decades, the market has expanded to include smaller forex traders.

These savvy traders have perfected the technology to buy and sell foreign currencies. At the same time, they’ve learned to shield themselves from the same risk that large banks incur.

Market Cap

As it stands (late January 2022), the total market capitalization for cryptocurrencies is $1.7 trillion. The crypto market cap didn’t reach its first trillion dollars until early 2021, after well over a decade of trading.

The total market capitalization of forex trading is more difficult to evaluate. The total world economy is estimated to be $94 trillion, and this is theoretically the market capitalization for forex markets.

The difference between forex and crypto has a lot to do with longevity. Forex has been around for a while and has many established tools for trading.

Cryptocurrencies are much younger, as are the mechanisms for trading them. These tools have only become generally available in the past few years.

Asset Accessibility

Accessing forex and crypto-assets isn’t too difficult, though sometimes multiple brokerage accounts are necessary.

There are some accounts that limit holdings to crypto alone, such as Coinbase. Others allow access to forex, stocks, and cryptocurrencies.

This is why it is usually best to open an account with a dedicated cryptocurrency exchange for crypto trading. This way, you can access your assets with ease, and withdraw them to a secure “wallet” whenever you wish. Trading crypto with an investing app may not allow you to do this.

With forex markets, things are a little easier. It’s simple to transfer funds using online checks, wire transfers, and even credit cards.

The Bottom Line

There are many differences between forex and crypto, but there is some overlap as well.

Crypto is still very speculative, and it is for the most part an alternative to fiat currencies, with intriguing future potential. Forex, on the other hand, trades with real-world, national currencies, and is a tried-and-true method. This is why, for the time being, forex trading has a leg up on crypto trading.

Either way, it takes a strong stomach to engage in either form of trading. There are risks involved with both, and only seasoned traders should dip their toes in these waters.

If you’re ready to take the plunge into forex trading, you’ve come to the right place. Join us today to receive a Premier Forex League Membership, and start trading with the best in the business.