The cryptocurrency and bitcoin market has expanded wildly over the recent past. In fact, the sudden rise and prominence of the crypto market have had investors talking all over due to the impressive gains it brings. In fact, several forex investors are now considering switching to cryptocurrency market. While both forex and cryptocurrency involves trading on currencies, there are several differences between them. Forex involves trading on real currencies like the British Pound, US dollar, or Japanese Yen. Cryptocurrency trading involves the use of digital currencies such as bitcoin, altcoins and Ethereum and more. Below are other significant differences between the two.
Differences between Forex Trading and Cryptocurrency Trading
Supply of currency
In cryptocurrency, the supply amount comes as a result of an exponential algorithm that is specially designed to handle inflation in case supply increases. The supply of cryptocurrency is finite unlike forex currency where money is printed and its supply controlled by the central banks and government. Therefore, for one to make a profit in forex trading, they must analyze various currency pairs and their patterns.
There is a uniform demand in foreign exchange currencies since the government controls its supply and usability. On the contrary, cryptocurrency is not manipulated by any third party but is influenced by factors such as public confidence, adoption and market emergence. It means when an emerging market accepts crypto, then public demand rises. However, investors must consider evaluating ICO offerings and pick the ones that suit their trading needs.
It is true that cryptocurrencies are immune to inflation particularly concerning monetary inflation. However, cryptocurrency is still affected by price inflation. Taking the instance of bitcoin, the maximum amount that can be mined and supplied is 21 million. It’s not just bitcoin, but other cryptocurrencies come with finite mining and supply volumes. It means cryptos are insusceptible to monetary debasement. This is not the same case with Forex where the government can decide to print as much as they want making them vulnerable to inflation.
There is a huge difference in volatilities of fiat currencies and cryptocurrencies. The volatility of fiat money is influenced mostly by factors such as a nation’s debt level, existing market segment, Gross Domestic Product, and political stability and more. However, cryptocurrencies are influenced mainly by speculations, criticisms, skepticism, media hype, cynicism, and exaggerated market news.
A majority of cryptocurrencies typically have a volatility rate of less than 0.5%. However, the volatility of cryptocurrencies is more prominent unlike that of forex. For example, the volatility of bitcoins can spike to as high as 10%. Its rates can drop to 5% and sometimes rise to 15% in one trading session. It is true to say that the volatility of cryptocurrencies is higher than that of fiat money.
Forex trading requires more of skill-based compared to cryptocurrency. It is also stable but sadly requires one to take time and gather relevant information about various fiat currencies. Forex trading, however, comes with less profit compared to cryptocurrencies. Though crypto trading is volatile, one can make quick cash. Besides, it doesn’t require tedious studying just ability to predict the market and other general information is enough to get started.
Another difference is that in cryptocurrency trading, one can begin trading with very low sums of money. Besides, there are no big risks to encounter when you trade on cryptocurrency as it comes with a margin call. An individual can quickly identify the price movements in a cryptocurrency market. On the other hand, forex trading requires large sums of capital to start or else limited profits. A few hundreds or even thousands of dollars are needed to venture into forex trading. There is also no assurance of making a profit in forex because there are huge risks to encounter.
There is a big contrast regarding market size between the two trading platforms. Forex has a larger market and comparatively greater liquidity, stability, and depth. In fact, it is the largest marketplace in the world with participants from all parts of the globe. The volumes of transactions in forex trading have increased from $1 trillion in 1998 to $5 trillion in 2016. Though cryptocurrency trading has proven to be very desirable to investors, the market is still quite small. Additionally, its acceptance is still low and under study.
markets are profitable, technical and fundamental analysis are vital. Cryptocurrency market is still growing but comes with several promising benefits to investors. It is critical to consider the benefits and disadvantages offered by the two types of trading before investing.
About The Author
Name : Daffa Zaky
With over 7 years’ experience in the heart of the investment industry, Daffa Zaky has become one of the most respected commentators in the financial world. Daffa remains a keen forex, stocks, commodity, bitcoin, cryptocurrency and binary options trader and is a regular featured analyst for a number of online news portals and was responsible for FXDailyReport.com