Introduction
Forex vs Crypto trading in the financial world constantly evolves, and new ways of transacting, investing, trading, and managing your money come. One of the leading changes in the financial world in the past decade is the rise of cryptocurrencies. In a financial system, cryptocurrencies are a frictionless way of transacting without the indulgence of any third party.
This comes in comparison with the conventional fiat system, which relies on central authorities and the government to issue and regulate the money supply. Along with this, the central authority facilitates payments in an orderly pattern and performs other responsibilities. Almost all countries have their fiat currency or the pegged one to an international currency like Euro or the US dollar.
When a country exchanges their fiat money for another currency on the decentralised market, it is known as Foreign Exchange or Forex. The same goes with investing in forex trading. However, forex trading and cryptocurrency trading share certain similarities, while certain features make them distinct from one another.
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Comparison Between Forex Trading And Crypto Trading
Nature Of The Assets
The nature of forex trading and crypto trading relies on demand and supply. The demand and supply chain is responsible for the price movements in both the trading areas. Depending on how the trades derive their values, their risk profiles differ. Cryptocurrencies are completely speculative, while fiat currencies have a measurable value.
The forex currency comes with legal tender and a common medium of exchange. It is controlled and regulated by the government. But the crypto coins offer special exceptions. They do not act as legal tenders; instead, it is shared on the belief of value between the two parties. However, trading cryptocurrencies does not involve the intervention of any third party. Let us now check some other differences based on different grounds.
Participants Of The Market
The nature of cryptocurrency and forex is not the only difference between them. The participants of these markets are also an area of concern. With the rise in the acceptance of crypto assets, it is seen that not only single investors but governments and other institutions are becoming a part of it. Some other participants are:
- Governments have played a minor role in the crypto market to ensure sufficient liquidity. But, their interests have a steady rise toward state-controlled cryptocurrencies.
- The investment funds can use their extra funds or leverage to invest in forex trading.
- Corporations that operate different geographical markets use forex trading to safeguard currency fluctuations from expected changes in foreign valuations.
Size Of The Market
The forex market witnesses the highest volume of any market across the world. In the most recent triennial bank survey of 2019, it is clear that more than $6 trillion forexes were raided daily on the over-the-counter markets.
However, in comparison, cryptocurrencies have gained popularity in the past few years. But, at present, their active trading and market volume is less than the forex market volume. As of September 2021, the daily trade of cryptocurrencies with combined market volume was around $.3 trillion only.
Accessibility Of Assets
Cryptocurrencies and forex reside in different markets. Hence, to access these assets, you might require different brokerage systems. For example, Coinbase is a cryptocurrency exchange platform where a crypto trader can only purchase, sell, hold or stake a crypto coin. Furthermore, the platform does not support the trading of forex or stocks.
On the other hand, Interactive Brokers and TradeStation enable the users to trade crypto coins, stocks and forex. Certain crypto exchanges also allow the withdrawal of virtual currencies in the form of cash from ATMs. While withdrawing one from forex accounts can be done through ACH transfers from bank accounts, wire transfers, online checks and credit cards.
Trading Pairs
The use of trading pairs is another point of distinction between
trading. In the case of forex trading, the purchase of a second currency is known as the quote currency. At the same time, the currency through which it has been brought is regarded as the base currency. Forex trading on currency pairs means purchasing the base currency and selling the quote currency.
The same logic applies to trading cryptocurrency pairs. However, unlike forex trading pairs, not all crypto coins support trading for another currency, whether fiat or virtual. For cryptocurrencies, it is a matter of grave concern as some of the crypto coins can be only brought with other cryptocurrencies. Hence, gaining knowledge about these crypto pairs is important for enhancing the crypto holdings.
The Bottom Line
Years back, cryptocurrencies were only a part of general conversation in chat rooms and Internet forums. Instead, it was discussed as a solution to privacy, centralized command, theft and fraud. But the emergence of new crypto coins has certainly addressed many of these issues and is an excellent alternative to fiat currencies. As a result, we might see fewer differences between forex and crypto trading in the upcoming years.
