In the last few years, trading in cryptocurrency has increased and is becoming more popular as we experience the surge of technological advancement. The increase in the use of digital currencies has raised the overall market value of cryptos to more than $3 trillion.
The speculation about the growth of blockchain technology and the numerous cryptocurrency has attracted traders’ attention who fear missing the opportunity to make huge profits.
It is an enormous distinction from the forex (FX) market, in which the rate of exchange between currency pairs barely change. The leverage used in forex is what gives it its appeal to traders. Below we will look at the difference between crypto and forex trading.
1) Market Size
Forex is considered the number. one market worldwide in terms of volume and trading–by a considerable margin. It is reported that the Bank for International Settlements reported an average of $6.6 trillion worth of daily trade in the forex market for 2019, which is an increase of 29.4 percent increase over the last report, which was released in April 2016. In May 2020, the market cap total for the crypto market was $256 billion.
The dimension of the forex market can also result in various levels of volatility and liquidity (concepts which are discussed in the following paragraphs). Beginners in forex can begin trading currency pairs of stable nations with more excellent protection against significant losses before making more risky trading.
2) Liquidity and Volatility
The crypto market is smaller than forex; therefore, less money will be moved more quickly than forex. If another $256 billion were to enter the market for crypto, we could probably anticipate the price of all crypto to rise more. A higher level of volatility means more risks for investors — more chance of explosive upside and colossal loss that could be financially devastating.
Higher volatility can also mean lower liquidity (ease of trading) since more traders are naturally drawn to a sluggish market. High liquidity and low volatility imply that the forex market can more easily handle economic changes. It is beneficial to the average person who is both an investor and a non-investor, as they have relatively stable currencies, even in difficult economic times.
The rise of cryptocurrency was initially due to its ability to facilitate anonymous transactions. The government’s intervention has hampered the capacity of the top currencies such as Bitcoin and Ethereum to hide their identities; however, smaller coins such as Monero, Zcash, and Verge keep this feature.
Forex transactions, however, are controlled by a complex internet made up of Forex brokerages and financial professionals, referred to by the interbank market. In 2014, the market for interbank transactions incorporated the “know you client” (KYC) requirement that requires traders to disclose their details to gain access to an exchange.
4) Accessibility to Assets
Since these assets are all on different exchanges, you could require different brokerage accounts or systems to access these assets. Certain brokerage services offer access to just one or more. If you want to transfer your virtual currency into an account in a cryptocurrency, dedicated exchanges like Binance and Coinbase permit this.
The process of funding and withdrawing funds from accounts for forex has a more regular flow: Forex traders can perform ACH transfers to their bank accounts, make wire transfers, make online checks, and even use credit cards in various situations.
A decade ago, discussion of cryptocurrency was confined to chat rooms and online forums as an alternative to a myriad of issues that are a part of the current fiat currencies security concerns, privacy issues, central commands and controls, theft, fraud, and many more. However, while emerging cryptocurrencies tackle many of these issues, they are still used in the primary role of substitute for currencies in our everyday lives.
Neither crypto nor forex trading is suitable for the weak of heart because both come with the risk of the trading process, volatility, and complexity. Experienced traders are the ideal candidates to invest in these markets since they have more strategies to reduce risk and hedge their investments appropriately.