Any comparison between the FX and cryptocurrency markets comes down to one simple thing- old and new ways of thinking about money. It might appear impossible to compare currencies backed by governments with those by code. However, individuals today are developing real power in their everyday lives by mastering both types. To invest in Cryptocurrency, Forex, or both, you need to first understand the difference between them. In order to diversify your portfolio, you must first understand what you will be investing in! Let’s learn about the distinction between Forex and cryptocurrency.
Cryptocurrency & Forex - The Definition
In recent years, one must have definitely heard about cryptocurrency. You haven’t? If so, does the term ‘Bitcoin’ ring a bell? Yep, that’s it. A cryptocurrency is defined as a virtual currency that is impossible to counterfeit and is secured through cryptography. Any other cryptocurrency other than Bitcoin is commonly called ‘Altcoin’. With me so far? Great! Now, let’s take a look at what Forex means.
Forex (FX) is a blend of the words ‘foreign currency’ and ‘exchange’. Foreign exchange is the process of converting one currency into another for a variety of reasons, the most common of which are commerce, trade, and tourism. Currencies are traded as exchange rate pairs. EUR/USD, for example, is a currency pair that allows you to trade the Euro against the US dollar.
Forex & Crypto Trading - The Difference
While crypto trading is defined as the buying and selling of digital assets such as crypto, tokens, and NFTs, Forex trading is defined as the exchange of one fiat currency for another in the belief that the value of the currency will grow, allowing the trader to ultimately convert it for profit. In comparison, crypto trading has certain significant advantages over Forex trading, like readily observable trade volume, minimal entry hurdles, and easily accessible exchanges, among others. Let’s check out the differences more elaborately.
1. Liquidity
Forex trading has a ‘comparative’ advantage when it comes to converting your prized investments into cash. For example, the global forex market is worth $2,409,000,000 ($2.409 quadrillion) as of now. One can conclude that the forex trading volume must exceed trillions of Dollars. The scenario with crypto trading, on the other hand, is a little different. Certain assets in this market have considerable liquidity, resulting in a low bid-ask spread and acceptable coin trading prices. However, if you choose coins with low trading volume, you may not be able to exchange them at the required price.
2. Market Size
The crypto market cap is $997.53B as of September 2022, with a $99.79B 24-hour trading volume. Despite the fact that cryptocurrency values have skyrocketed in recent years, the FX market's trading volume remains quite large. It is demonstrated by the fact that more than $6 trillion is being traded daily on the foreign exchange market as of now.
3. Volatility
Volatility refers to the rate or magnitude of a price change (in either direction). In comparison to the FX market, the cryptocurrency market is more volatile. This element provides a window of opportunity for anyone hoping to make large gains in a short period of time. Low volatility in the currency market has both benefits and drawbacks. It decreases the risks associated with investing by reducing the likelihood of significant gains.
4. Number of Assets
The number of accessible coins/assets differs significantly between the FX and cryptocurrency marketplaces. The forex market offers a restricted number of tradable currencies, including the US dollar, Euro, Japanese yen, Chinese yuan, and others. However, there are already over twenty thousand cryptocurrencies available today. Bitcoin is the leading cryptocurrency in terms of market domination, userbase, and market value. Similarly, in addition to Bitcoin, Ethereum, Solana, & Cardano are the most actively traded cryptocurrencies in the market.
5. Regulation
The forex market is highly regulated. FX has existed for as long as there have been trading markets, and because of its volatility and worldwide consequences, governments have a strong interest in currency traders. Cryptocurrency, on the other hand, is still in its infancy. While concurrently touting the benefits of investing in their cryptocurrency marketplaces, crypto markets continue to argue that they are producing technological products that are no more susceptible to SEC scrutiny than a Word document. Government authorities haven't decided on any aspect of crypto legislation, and progress has slowed as the industry has become larger.
Final Thoughts
The forex and cryptocurrency markets share traits, yet their risk-reward dynamics could not be more unlike. Forex may be your game if you desire a smooth, liquid market that rewards patience. If you're seeking pure growth, you should consider cryptocurrency. Consider discussing various investment opportunities with a renowned company like Clarisco Solutions before investing your valuable assets in crypto/forex markets, and never speculate in any market with money you cannot afford to lose.
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