The forex market is the world’s biggest and most liquid financial market. The main participants of the forex market are Central banks, big financial institutes, insurance companies, multinational companies, and retail forex brokers. On the other hand, the cryptocurrency market is very new in the investment world. The market structure, operation, transaction, etc is very different in the cryptocurrency market compared to the traditional forex and stock market.
Therefore, many traders and investors feel confused to know where they should deposit their money for trading. If you are a forex trader and want to switch your activities from forex to cryptocurrency or you want to diversify your portfolio in the cryptocurrency market you should understand the difference between forex and cryptocurrency market.
So Forex vs Cryptocurrency: Which One You Should Choose for Trading? In the following section, we will take you to a deep insight into the forex and cryptocurrency market with some important comparison to let you know which market you should choose for trading.
As you know we are going to discuss forex vs cryptocurrency trading. First, you should set your mindset about trading. Before making an investment decision you should ask yourself whether you are planning to make an investment or trading.
Trading is Not an Investment
If you have a plan to open a trading position with an appropriate stop loss and take profit and wait for the market to hit any of the levels, you are probably an investor.
There are a lot of differences between trading and investment that you should clear yourself before injecting funds into your trading account.
A trader always flows with the current sentiment of the market where an investor follows a set and forget rules in trading. Moreover, a trader sometimes makes some ad-hoc decision to match the current market sentiment that an investor does not do.
Any intraday scalping, day trading or swing trading is a good example of trading where position trading is an example of investment. Trading requires a lot of liquidity in the market to give traders a maximum benefit.
In that sense, the Forex market is the most liquid market in the world, therefore, you are recommended to trade in the Forex market if you are actually planning for trading not investment.
What is the Forex Market?
The forex market is the market within which participants can exchange, and speculate on currencies. The forex market is formed by banks, industrial firms, central banks, investment management companies, hedge funds, and retail forex brokers and investors. The currency market is taken into account to be the most important money market with over $5 trillion in daily transactions, which is much bigger than the futures and equity markets combined.
No one can dominate this market whether they are through a network of computers and brokers from around the world. Forex brokers act as market makers and provide bid and ask price for a currency pair within the market.
The forex market has two levels; the interbank market and the over-the-counter (OTC) market. The interbank market is the combination of massive banks’ who perform trading activities as functions like hedging, record changes, and on behalf of traders. The over-the-counter market is wherever people trade through on-line platforms and brokers.
On the other hand, the influence of retail traders in the forex market is very little. Therefore, the main aim of retail traders is to follow the big players within the forex market.
What is the Cryptocurrency Market?
Cryptocurrency trading is the act of speculating on cryptocurrency value movements via a CFD trading, or buying and selling cryptocurrencies via an exchange.
The cryptocurrency market is a decentralized market, which means they're not backed by any central authority like a government. Instead, they run through a network of computers. However, traders can buy and sell cryptocurrencies via exchanges and stored in wallets.
Cryptocurrencies exist solely as a shared digital record of the transfer, keep on a blockchain. Once a user desires to send cryptocurrency units to a user, they send it through a user’s digital case. The dealings complete through verification of transfer and added to the blockchain through a method referred to as mining.
Forex vs Cryptocurrency: Which One You Should Choose for Trading
If you have gone through the above section, you probably know the difference between the forex and cryptocurrency markets and how they operate. Now we will see factors that you should consider to choose the forex market over the cryptocurrency market for trading.
#1 Liquidity and Market Stability
As we know the forex market is the world’s most liquid market, therefore, you will always find a seller when you want to buy or you will find buyers when you want to sell. Moreover, the forex market is well established in the world and most of the big financial institutes involved in forex trading. Because of higher liquidy, all your technical analysis and fundamental analysis will work well in the forex market.
On the other hand, Cryptocurrency is very new in the world and there are many people who don't even know about it. The question still exists whether Cryptocurrency will sustain the world or not. In this situation, there is a certain amount of risk associated with the cryptocurrency market that you cannot ignore.
However, cryptocurrency trading is suitable for you, if you are enthusiastic about the emerging market and you have very deep knowledge about the cryptocurrency and its impact on the overall economy.
#2 Security and Regulation
The forex market is a decentralized market but regulated by many authorities like CFTC, FCA. and CySEC. On the other hand, the cryptocurrency market is decentralized and unregulated. Moreover, there is no way to regulate the cryptocurrency market as it is not maintained by any 3rd party.
Therefore, if you face any problem that arises a legal issue you may get help from regulators if you are in forex trading. On the other hand, if you lost your private key and you have a $10 million worth of Bitcoin in your wallet, there is no way to recover it.
On the other hand, as the cryptocurrency market is not regulated by any central authority there is no one that can affect the cryptocurrency value. Therefore, in any financial uncertainty, the money in your pocket may be lost its value but no one can decrease the value of cryptocurrency.
#3 Technical and Fundamental Analysis
If you are a forex trader you may anticipate the market movement with the help of technical or fundamental analysis. Therefore, you probably know the market context consists of impulse, correction, volatility, and non-volatility.
The technical and fundamental analysis works well in the forex market but does not work well in the cryptocurrency market. You may see a lot of volatility in the price movement in the cryptocurrency market that may shock you for a while.
In this image, you can see the price of Zcash moved down from $797 to $124 within a month.
#4 Transparency in Market Structure
The cryptocurrency market is more transparent compared to the Forex market. Therefore, there are no middlemen to make a lot of money from you. Transactions are also pretty direct, thus making it easy for a retail trader to trade cryptos and make their money.
However, the single challenge is that cryptocurrency trading has the perception that it may disappear, ceasing to exist. Therefore, this risk of default is a real issue but it is not slowing down the growth of the market.
On the other hand, you may see a manipulated price from your forex broker that is much different from the OTC price. Moreover, despite the forex market is decentralized there is a group of banks that holds the price to move long towards one direction.
#5 You Can Trust Blockchain
Blockchain is basically a chain of blocks. It is a sophisticated and secure database management system that people did not see before the launching of Bitcoin. On the other hand, the price you take from your broker comes from the liquidity provider.
The liquidity provider is a small part of the overall forex market and your price and your profit are directly or indirectly dependent on the liquidity provider. Therefore, blockchain has a strong reason to trust compared to the traditional pricing in the forex market.
Conclusion: Make Your Decision
As per the above discussion, we can come to the conclusion that the Forex market is much suitable for trading. It has much liquidity and an opportunity to provide you an instant profit.
On the other hand, if you want to make an investment and you want to keep yourself at the first stage to make a maximum return you can invest in the cryptocurrency market.
Moreover, financial markets are always associated with some risks. Therefore, you should study and analyze the overall market before making any investment.