Forex Trading or Cryptocurrency?
Updated: Apr 18, 2019
The two are very similar, in that you are exchanging one currency for another. However, there are quite a few differences which are worth analysing. lets look at the similarities and differences between the two.
Both work on decentralised marketplaces and both are widely accessible to trade through the internet.
There are thousands of cryptocurrencies now, but the main, and most reliable, exchanges trade the main ones which are: Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Dogecoin and Ripple.
With regards to market access, Cryptocurrencies actually offer more accessibility, due to the fact that the market is open 24 hours a day, 7 days a week. The Forex Market, on the other hand, is open Monday to Friday only.
It is very easy to set up a trading account for both. Cryptocurrency exchanges require just a small amount of capital to get started - some require the completion of KYC protocols, but not all of them. this is the same for accessing Forex Broker platforms, with traders merely needing to complete a few forms and deposit a small amount of capital to become active in the Forex Market.
The Forex Market is by far the largest traded market. With a daily traded value of $5 Trillion, there are millions of traders and thousands of brokers. This keeps the volatility of the Forex Market relatively low, between 0.5% and 1%.
In contrast, Bitcoins daily value turnover, the most traded Cryptocurrency, rarely exceeds $1 billion. This can be both advantageous and disadvantageous, because the potential winnings with Crytocurrency are larger, due to them being more volatile. However, this also opens the door for much larger losses as well!
The sheer size of the Forex Market lends it much more liquidity, depth and stability, that makes it an overall more trustworthy marketplace. Currency values, to a large extent, are influenced most by the central banks of the countries where the currencies originate, and it is in their interest to keep them at a consistent value. The relative success or failure of a country, based on its balance sheet, is also a big factor impacting the value of their currency. This means that Forex Traders can get an incling on the direction a currency might go based on the overall sentiment towards it which, in turn, is based on how the economy of that country is performing. Of course, it can always change quickly.
Compare this with Cryptocurrencies, where the drivers behind the value are still unclear, but seem to be based purely on the actions of those using it and their response to the goings on around them. This makes the trading of Cryptocurrencies infinitely harder, because the future direction appears to be totally unclear - making the trading of them seem to be more guesswork than anything else.
Also worth taking note of here, is the relatively different trading styles that appear to be associated with each. Forex Trading comes with a lot more charges. Forex Brokers charge a spread (the difference between the buy and sell price) which is how they make their money, as well as commissions on trades and overnight rates (a charge to keep your trade open overnight). Due to the fact that these charges can mount up, Forex Trading is seen as a relatively short term strategy.
Cryptocurrencies, in contrast, have relatively low commissions, but due to the amount of volatility, a buy and hold strategy has been seen to be more lucrative, meaning that Cryptocurrency trading lends itself more to a long-term trading strategy.
In the end it appears that both offer their positives and negatives. In both instances, we would recommend doing a lot more independent research no matter which route you choose. As both offer advantages and disadvantages, you could also consider having a portfolio including both, but, again, you should seek independent advice on this.
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