The Similarities and Differences Between Crypto and Forex Trading

An in-depth guide to understanding the fundamentals of crypto and forex trading, similarities and difference in their features.


Fundamental Characteristics of Forex and Crypto Markets

The Similarities and Differences Between Crypto and Forex Trading

The total market capitalization of the Forex industry is worth $6.6 trillion. This figure indicates that the industry is relatively older than the $2.1 trillion capitalization of the cryptocurrency industry. While on one hand, forex and cryptocurrency trading share striking similarities, the fundamentals of both these industries are quite different. The maturity of blockchain industry and emergence of technological solutions like smart contracts have led to the increasing prevalence of cryptocurrencies like altcoins in recent years.

This post seeks to discuss the fundamentals of crypto vs forex trading. In this post, we explore the features, similarities, and differences across both industries.

What is Forex Trading?

Forex trading is the exchange of one fiat currency for another. The value of fiat currencies depend upon a variety of factors including tourism, commerce, geopolitical arenas, and other economic industries. Trading these currencies takes place on the foreign exchange market.

The Forex exchange market is the world’s largest and most liquid securities/assets market. Traders profit from price fluctuations influenced by the basic economics of trade flows, financial strength, geopolitical factors, tourism, demand, and supply. These factors are known to create daily fluctuations across forex markets, resulting in trillions of dollars changing hands on a daily basis.

What is Crypto Trading?

Crypto trading is the buying and selling of cryptocurrency pairs for profit. The traders inherently speculate price movements across digital asset markets and open/close positions through a cryptocurrency exchange. The cryptocurrency market is not as mature as the forex market given it’s only a decade old. However, the industry was able to cross both the $1 trillion and $2 trillion cap milestones in 2021.

The daily trading volume for the digital assets market is $50 billion. While cryptocurrency trading takes place through a centralized and decentralized network, forex trading occurs across OTC (Over the Counter) trading platforms. Operational agents manage these OTC networks electronically for traders worldwide to conduct transactions. On the other hand, crypto traders require a digital signature and a digital wallet to access a digital currency exchange.

Similarities between Crypto and Forex Trading

Trading cryptocurrencies and forex has the following similarities:

In both, prices are controlled by the forces of demand and supply. Traders across both markets benefit from price fluctuations, and both markets demand sufficient market analysis before opening positions.

  • Flexible - Trading in crypto and forex can be done remotely and only require a PC and a stable internet connection. Any person can join the market and trade assets regardless of where in the world they are. Trading in both the markets is flexible.

  • Fundamentals - Forex and crypto demand a deep understanding of market fundamentals, knowledge of technical indicators, and how they affect price performance.

  • Supply/Demand Factors - Both the trading markets function on the supply and demand economics. The price of any currency, in crypto and forex, is based on the supply and demand factors.

Differences between Crypto and Forex Trading

Below are the differences between cryptocurrency and forex trading:

  • Different timing - the cryptocurrency market is open 24 hours a day and seven days a week. On the other hand, the forex market is open five days a week and closed during weekends. The forex market is also closed on Christmas and New Years Day.

  • Intermediaries - Cryptocurrencies are decentralized, and their trading is dependent on exchanges that charge low transaction fees. Forex trading is dependant on brokers and brokerage platforms that charge extraneous fees.

  • Difference in volatility - Crypto markets have high volatility compared to the forex market. This makes the cryptocurrency market riskier and yet more profitable. Forex volatility is moved by different factors ranging from inflation rates, political activities, GDP, geo-economic factors, among others.

  • Liquidity - The forex market is considered the most liquid market, resulting from its high daily trading volumes. Some big trades might be limited across crypto markets due to limited liquidity.

  • Regulatory frameworks - Forex markets have a defined legal, regulatory framework, while cryptocurrency markets lack fully defined regulatory structures. This is a result of crypto’s relatively nascent nature.

  • Profit-making - Forex traders earn interest by computing the difference between their bid price and asking price. While profit on the cryptocurrency market comes from exchange fees, hodling, mining, and completing microtasks.

  • Currency ranking - Bitcoin and Ethereum account for over half of the total cryptocurrency market capitalization, while the US dollar accounts for over 90% of all transactions occurring on forex markets.

Verdict: Which is the Right one for you Between Crypto and Forex Trading?

Both crypto trading and forex carry their own individual risks, rewards, and losses. Most entrants contemplate whether to enter the more profitable but risky/unregulated crypto industry or stick to the less rewarding and risky forex market, which is also more regulated and less volatile. However, both markets bring the same convenience of engaging from anywhere you want. All you need is a stable internet connection and a dedicated personal computer.

Additionally, it is necessary to always do your homework in both forms of trading. You cannot jump into a crypto/forex trade without conducting research, due diligence, understanding the fundamentals, and technical analysis. A cautious cryptocurrency trader can leverage the volatility of digital currencies to make profits. While a forex trader can gain benefits from the high liquidity offered across forex markets.

At the end of the day, the choice depends on your preferences, available resources, personal goals, and risk tolerance. You might have to spend some time researching both markets and analyzing your preferences to determine what’s suitable for you.