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What Are The Differences And Similarities Between Cryptocurrency Trading and Forex Trading?

Since you are here you probably have decided to start trading or you are thinking to get into it. But yet you are not sure where. You might have heard of forex trading or cryptocurrency trading but you don’t know where to start.

First and foremost do not get discouraged because you can learn to trade. It requires certain intelligence to navigate unpredictable market conditions in order to get profit so it might look hard at the beginning but it is not rocket science. 

Although sometimes it is hard to make a decision, in this article we will try to elaborate on the differences and similarities between forex and cryptocurrency trading. Even though they both manage monetary forms there are a few things that make them differ from each other. But first, let’s see what does trading forex, or cryptocurrencies mean?

What is Forex trading?
Forex exchange is the largest financial market in the world. Trading forex means selling a currency like EURO or USD while buying another one for an agreed price. It can be done by individual traders or financial institutions such as banks. Banks are involved in large quantities of foreign exchange trading. This market is known as the interbank market.

What is cryptocurrency trading?
A cryptocurrency is a digital form of currency available worldwide and accessible via the internet. Bitcoin was the first-ever cryptocurrency released in 2009. Then many other cryptocurrencies got released such as Etherium, Ripple, etc. Trading involves exchanging cryptocurrencies for one another or exchanging fiat currency into crypto. It is all done through blockchain which allows bitcoin and other crypto exchanges to operate without the need of central authority.

What are the main differences between forex trading and cryptocurrency trading?
The fundamental difference is that the forex is managed by national banks of each national fiat currency. Consequently, these banks bolster the standards by means of their approaches and they manage the market. On the other hand, cryptocurrencies don’t have national banks that would regulate them. It is a totally decentralized market meaning that there are no directions from any bank to administer them.
So, forex involves a middleman such as forex brokers or other institutions that charge fees for the trading process, while in crypto trading there is no middleman.

Forex trading is an investment for a shorter period of time since the forex market is pretty fast. There are smaller profit margins so it is important to take advantage of every chance to trade. The investor must be experienced and up to date on the forex market since the largest profit is made by making a lot of trades. Therefore the investor must know when to place a trade and when to pull it out.

Now, when we talk about cryptocurrency, it is a different story. Prices can go very high and crash later within the day or after a couple of days. Last time bitcoin went very low was a few weeks ago due to coronavirus. So, cryptocurrency is extremely volatile. Therefore when one decides to invest in cryptocurrency it must be taken into consideration that it will be a long term investment since most of the time there are no results within a couple of days. 

Another key difference between forex and crypto trading is security and regulation. Cryptocurrencies can be hacked since they are a new technology and coins can be stolen. It has happened a couple of times throughout their short history of existence. On the other side, the forex market is regulated heavily and many brokers are registered with the National Future Association and the Commodities Futures Commission

What are the similarities between forex trading and crypto trading?
They might have their differences but there a lot of similarities since the same concept applies to both. We could call cryptocurrency trading an updated version of forex trading.  Both, forex prices and crypto prices are determined by levels of supply and demand in the market. In one word, they both involve the digital trading of multiple assets in the digital world.

Which one should you go with?
Well, it is all up to you! It depends on your preference. Trading, either cryptocurrency or forex involves a high level of engagement and there is no doubt that trading either of these markets leads to exceptional opportunities. But you must know one thing. You have to be consistent and determined to continuously learn in order to succeed.

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Kshitij Chitransh