Is Trading Cryptocurrency the Same as Forex? Know the Facts

A large number of people actively engage in forex and cryptocurrency market for better opportunities. Long term investment, day trading, arbitrage and liquidity may take place in both. But, both the markets are very different and have its own advantage and disadvantage to its traders or investors.

Market Capitalization

Before choosing to trade in cryptocurrency or forex, it is important to know the size of every market. The bigger the market, the higher liquidity, stability and depth it has.

The forex till date is the biggest marketplace of the world and people across the globe engage in forex trading on a daily basis, with assured liquidity and price stability.

The high trading volumes have caused higher degree of forex expansion. And, its average daily turnover has increased to USD 5trillion in 2019. A major part of this volume is attributed to public interest facing the 7 important world currencies. (USD, EUD, JPY, GBP, AUD, CAD, CHF)

On the other hand, cryptocurrencies are traded on a smaller scale and they have a limited supply with BTC having the maximum supply of 21 million.

In terms of value, the coin market capital was valued at USD 700 billion in 2017 while today, it is limited to USD 189 billion. Daily cryptocurrency market turnover is USD 60 to 70 billion.

The pros and cons of trading cryptocurrency

Seeing from the point of market liquidity and depth, cryptocurrency is not match for forex. But you do have some advantages:

1. Volatility: Digital currency is highly volatile and sometimes the fluctuations range from 0.2% to 50%.
2. Easy entry and exit: All you need to enter a cryptocurrency market is capital and cryptocurrency broker or market access.
3. Low transaction costs: As the transactions are less, the cost is limited. When you use a broker, you need to pay fees for the buy and sell of the cryptocurrency.
4. Insulation: Cryptocurrency isn’t subjected to change created by traditional currency stimuli, economic performance of political issues.

However, cryptocurrency trading does have some negative points too:

1. Hacking: There are instances of hacking of cryptocurrencies.
2. Glitches: There may occur some disruption in blockchain or some computer glitch which can affect your trading.
3. Limited leverage availability: No matter what brokerage platform you choose, you get a low degree of leverage.

Pros of Forex trading

1. Liquidity: The size of the forex offers great depth the traders.
2. Diversity: You have big, small and exotic pairs to trade in.
3. Stability: The exchange rates of foreign currency are comparatively stable.
4. Leverage: You get extensive leverage in forex, 50:1, to 200:1

The cons of Forex trading:

1. Cost: it has a substantial bid/ask fee.
2. Government involvement: It is under the scrutiny of the government.
3. Lack of volatility: As the volatility is very low, traders are likely to make low profits.

Verdict:

Hence, cryptocurrency and forex are apple to orange analogy. Both are the assets that are electronically traded over platforms like TradeFred and Duxa Capital but they both have different size, structure and behavior. So do your proper analysis and know your trading nature before you get started with it.