Forex VS. Crypto: similarities and differences

Forex VS. Crypto: similarities and differences

The foreign exchange and cryptocurrency markets are large financial markets offering vast trading opportunities. Over the past few years, cryptocurrency has turned from an obscure fad into a mainstream investment. Many forex traders, afraid of missing out on significant gains, wonder whether they should switch to the crypto market. In this article, we’ll look at the similarities and differences between forex and crypto trading.  

What is Forex?

The foreign exchange market, commonly referred to as the Forex or FX, is a financial market in which market participants exchange one currency for another and profit from the differences in their value. With a daily trading turnover of roughly $6.6 trillion, Forex is the largest market in the world in terms of volume and liquidity.

If you are a retail trader, you can access the Forex market only through a brokerage firm. That’s why it’s important to pick a reliable broker, for example, the AMarkets online broker, which offers the lowest spreads, lightning-fast order execution, different types of trading accounts, and a wide range of trading instruments such as currency pairs, stocks, bonds, commodities and cryptocurrency.

What is Crypto? 

Cryptocurrency (crypto) is a class of digital assets created using cryptographic techniques that make them difficult to counterfeit. When trading cryptocurrencies, you’re buying and selling assets like Bitcoin, Ethereum, Solana and etc. To trade crypto, you also need to set up a crypto account with a crypto exchange. 

Market participants 

The Forex market participants include central and commercial banks, investment funds, hedge fund managers, prime brokers, retail brokers and traders.

In the cryptocurrency market, the prominent players are crypto exchanges, large fund investors, institutions, social media/crypto influencers, and whoever can significantly influence the market’s sentiment, and also retail traders. 

Liquidity

Forex is an extremely liquid market. Regardless of your position size, you can easily buy or sell the desired trading instrument without substantial slippage. This is a huge advantage of this market as your orders get filled at a price equal to or very close to the one you see on the screen.  

This is not the case for most cryptocurrencies. The total crypto market capitalization now sits at around $900 billion, with Bitcoin accounting for more than 45% of the global crypto market cap. In most cryptocurrencies, trading is not as active as in Bitcoin, so traders may have to settle for a different price than what they initially requested.

Market Hours 

The forex market is open to retail traders 24 hours a day, five days a week. A trading day is divided into four trading sessions: New York, Tokyo, Sydney, and London. The market is more active during different sessions or when there is an overlap between two sessions. 

The cryptocurrency market, by contrast, is open 24/7, so you can place your trades at any time, even on weekends. 

Regulation 

Both forex and crypto markets are decentralized, meaning that they exist outside the control of governments and central authorities. There’s no single regulator that controls these markets. 

However, there are supervisory bodies in different countries that do regulate Forex by setting standards all brokers under their jurisdictions must comply with. Therefore, if you pick a trustworthy regulated broker, you can be confident that your funds are secure.  

Cryptocurrency activities, on the other hand, aren’t controlled by any authorities. The safety of your crypto account depends mostly on how secure the crypto network and the exchange is. The blockchain itself is impossible to hack, as the transactions recorded are validated 24/7 by millions of computers across the network. But crypto exchanges that enable traders to purchase crypto operate on a single, internal database. When you buy crypto from a platform and leave it in your hot wallet, someone can hack into it. 

Profit Potential

The public buzz around cryptocurrency was caused by speculation that the crypto market offers huge profit-making opportunities. But don’t get caught up in all this hype so fast. Remember the fundamental trading principle – the higher the potential profit, the greater the risk. And while trading crypto, you can make good money, there are also more risks, for example, the risk of a coin moving to zero if the project doesn’t pick up or something goes wrong. Terra LUNA Classic, which was once trading at $120 is now trading around $0.00030. 

With Forex, traders can always increase their profit potential by using leverage. Leverage allows you to open trades of a larger volume and earn more. AMarkets broker, we’ve mentioned earlier, offers leverage trading for cryptocurrencies. The broker provides its clients with the best crypto trading conditions and top-quality services and was recognized as “Best Cryptocurrency Broker 2022”. With AMarkets, you don’t have to choose between the two markets. You can take advantage of both Forex and crypto trading.