Online trading has witnessed a remarkable surge in popularity, fueled mainly by the emergence of two major markets: cryptocurrency and foreign exchange (forex). Crypto trading, propelled by the revolutionary blockchain technology, and forex trading, deeply rooted in the global currency exchange, have become attractive avenues for traders and investors seeking financial gains.
However, before delving into these markets, it is crucial to understand their similarities and differences to make informed decisions and navigate the dynamic trading landscapes effectively.
Crypto and forex trading
Understanding these markets empower traders to develop effective strategies tailored to the specific features of crypto or forex trading, ultimately enhancing their chances of success in the ever-evolving world of online trading, especially with platforms like TradingView serving as valuable resources for market analysis and trading execution. Crypto and forex trading share the common goal of capitalizing on market fluctuations to generate profits. Both markets involve buying and selling assets to profit from price movements. However, the underlying structures and dynamics of these markets differ significantly.
What is forex trading?
The FX market is a decentralized market for trading various foreign currencies at current or predetermined values. Spot, forward, and futures trading are the three primary forms of foreign exchange trading. Over-the-counter (OTC) forex trading is conducted through market makers who are brokers. The forex market has been studied for years by traders, and in the last 20 years, there have been more traders than ever. Various factors, including economic indicators, political events, and market sentiment, determine the exchange rates in the forex market.
What is crypto trading?
Cryptocurrency trading refers to the buying, selling, and exchanging of digital assets known as cryptocurrencies. Cryptocurrency trading operates on a decentralized system, leveraging blockchain technology. This decentralized nature eliminates the need for intermediaries such as banks or regulatory bodies. Transactions are verified and recorded by a network of participants, ensuring transparency and security.
Bitcoin was the first cryptocurrency to be established in 2009, and within ars, several others had followed suit. There are now more than 14,000 different cryptocurrencies available, with Bitcoin commanding a sizable majority. Crypto trading takes place on exchanges that operate as market makers. There are three forms of cryptocurrency trading: spot, futures, and peer-to-peer. Cryptocurrency traders, like forex traders, do technical and fundamental research on the market.
Differences between forex and crypto
The two most dynamic financial sectors are the foreign exchange and cryptocurrency markets. Cryptocurrency trading is a multi-billion-dollar industry that has emerged decades after the emergence of the foreign exchange market. The distinctions between forex and cryptocurrencies are substantial enough to affect your trading performance. Several of these distinctions include the following:
The foreign exchange industry as a whole is controlled, but the cryptocurrency market is unchecked. Despite its rapid expansion, most nations still need comprehensive regulations for cryptocurrency trading. However, forex and cryptocurrency trading are both subject to financial regulations. There are regulatory organizations in every country.
Market value and average daily volume
The forex market is worth more than $2 quadrillion, while the cryptocurrency industry is worth a little more than $1 trillion. The significant disparity in their respective market capitalizations has a major impact on the state of the market. Trading in foreign exchange is valued at over $5 trillion, whereas the crypto market is only $500 billion.
When it comes to trading assets, forex traders have a diverse selection of fiat currency pairs to choose from. The US Dollar (USD) takes the lead, accounting for approximately 90% of all forex trades. On the other hand, the crypto market boasts over 14,000 cryptocurrencies, with a multitude available for trading. Notably, Bitcoin, Ethereum, and USDT dominate crypto transactions.
Market dynamics dictate trading conditions in forex trading, such as the spread between currencies. Conversely, spreads do not exist in crypto trading, but slippage levels are a factor to consider.
The accessibility of the market is one of the most distinguishing features between Forex and cryptocurrencies. There are only five trading days a week in the currency market. However, these days overlap in predetermined trading sessions, and traders can find currencies to trade at any time. The cryptocurrency exchange is available 24/7. The accessibility of markets is an essential consideration for merchants.
Market liquidity is the ease with which buyers and sellers may transact in a given market. Liquidity is the critical factor in how easily an asset can be traded. Forex is a more liquid market than cryptocurrency. Few digital currencies, such as Bitcoin, Ethereum, USDT, etc., have sufficient liquidity to ensure instantaneous transactions.
Forex and cryptocurrency trading platforms are essential for traders. In foreign exchange, these platforms are known as brokers. They are referred to as exchanges in the cryptocurrency world. Forex brokers offer decentralized OTC trading, distinguishing them from exchanges despite their similarities.
Similarities between forex and crypto
Forex and crypto trading exhibit numerous similarities, facilitating seamless engagement in either or both markets.
Basic trading principles and trading strategies
The fundamental principle of financial trading remains consistent across all markets: buying low and selling high. This principle is the foundation for creating effective trading strategies for forex and crypto markets. These strategies remain applicable regardless of the market being traded.
Both the forex and crypto markets are characterized by volatility. However, it’s important to note that forex volatility is typically more controlled than crypto volatility. This distinction arises from lower liquidity and limited regulatory oversight in the crypto market. Volatility plays a crucial role in trading, as it directly impacts the potential profitability of trades.
Technical analysis tools
Traders rely on technical analysis to guide their trading decisions. Forex and crypto traders utilize the same technical analysis tools, including charts, indicators, trendlines, and other graphical objects. The principles of technical analysis remain consistent across both markets, meaning traders do not need to relearn the concepts if they transition from one market to the other. They can also use charting tools like Tradingview for both markets.
By leveraging these technical analysis tools, traders can analyze price patterns, identify trends, and decide when to enter or exit trades. The knowledge and skills acquired in technical analysis can be effectively applied to both forex and crypto trading, contributing to a smoother market transition.