What is the difference between Forex and Cryptocurrency?

As a new investor, it is normal to consider your investment options and focus on the most profitable investments. Two of the most common investments that a new investor may consider are forex and crypto. Now, before you think of investing in any of them, it is important to know the difference between forex and cryptocurrency. Here’s something to guide you.

Forex vs crypto: what are the differences?

Although the crypto and forex markets are similar in some ways, since they are both pushed by demand and supply, they still have some major differences. Let’s discuss these differences extensively below: 

1. Market participants

The force market consists of numerous participants. These participants include investment funds, central and commercial banks, traders, companies, and retail brokers.

Each of these participants plays a different role in the forex market. For example, central banks help by stabilizing the currency exchange rate, which affects the economy of the country. Commercial banks, on the other hand, serve as the major hub that facilitates the exchange of currency pairs which are traded internationally. 

On the other end, the crypto market consists of only three kinds of participants – exchanges, traders, and miners. Exchanges serve as digital marketplaces where traders can purchase and sell cryptocurrencies. Crypto miners are the people or organizations that help to complete blocks used to verify transactions that occur within the blockchain network. Lastly, a Crypto trader’s function is to ponder on the rise and fall of crypto price movement and they don’t take any ownership of underlying crypto coins.

2. Size

The forex market is quite large, primarily because consists of numerous transactions from different international entities like banks, companies, investors, and individuals. These entities rely on the forex system to help exchange foreign currencies.

Since the crypto market is not as old as the forex market, its size is considerably smaller. Nevertheless, it is still making progress. 

In 2020, the size of the global cryptocurrency market was valued at $1.49 billion, and this estimate is projected to attain $4.94 billion by 2030

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3. Structure

The market structure of both forex and cryptocurrency depends mostly on demand and supply. This has a bearing on how the traders can adjust the prices without needing the approval of any government agency. You can trade forex and cryptos over the counter (OTC) and or via a brokerage or an exchange.

Also, they have decentralized market structures. This means no central authority or government issues or regulates them. Hence, no single party governs how the market operates. Some people consider this complete transparency to be the major strength of the market, particularly in regard to cryptos.

Unlike traditional currencies where exchanges are made on the FX market, cryptocurrencies primarily exist just in the digital space. Also, they are stored only on a blockchain. Hence, Cryptocurrency transactions can only occur through digital wallets and are validated after they have been mined.

The forex structure is primarily within formalised markets and is very regulated. Cryptocurrencies, on the other hand, have a much less formal structure. This makes them more liable for criminal activity and even fraudulent transactions.

4. Accessibility of assets

The forex market provides you with more accessibility, unlike digital assets like cryptocurrency. With the FX exchange, you can trade more than 80 exchange currency pairs which are available globally. 

On the other hand, Cryptos have far less liquidity. Also, they require traders to have an exchange account and a wallet to trade. These wallets can be costly to maintain and have deposit limitations. 

There are more than 11,000 cryptocurrencies that people actively trade on the blockchain globally. However, there is a limited amount of foreign exchange currency pairs. Hence, as an FX trader, trading limits you to these pairs. 

Due to the unlimited number of cryptocurrencies available, it is very difficult to track the crypto market in its entirety.

5. Volatility

Although both markets are very volatile, the crypto market experiences more volatility than the forex exchange market. Essentially, this means that even the smallest market movement is very likely to affect the prices of cryptocurrencies. This leads to substantial fluctuations in just a single trading session. 

On the other hand, the Forex exchange market has high volumes of daily trade that experience regular movements within narrow bands. This high volatility makes it a more attractive type of investment to traders. 

Crypto trading is naturally far more volatile than FX trading. Hence, you need a higher margin because the more volatile a product is, the higher the margin will be. So expect to see higher leveraged amounts readily available in FX trading than in cryptocurrency trading.

6. Market Operations

Both forex and crypto market trade around the clock to satisfy the demands of investors and traders globally. Because of this, both of them have offices in different locations around the world to help service local clients.

7. Operating Hours

The Forex market trades 24 hours every day, 5 days every week. Although some forex brokers offer trading services over the weekend, usually, you’re just trading against your broker in these situations.

On the other hand, the Crypto market never sleeps. It continually trades, 24 hours per day and a full seven days every week. You can trade crypto with your exchange at any time on any day which is why experts standby all day tracking crypto signals. 

From a regulatory perspective, is forex safer than crypto? 

Forex trading may be speculated to be a little safer than crypto trading. This is because the crypto market has no primary authority, and is extremely volatile, unlike the forex market. Therefore, it’s very prone to rough market swings.

Also, the crypto market is far less liquid and has much lower trading volumes. This makes it harder to get into and exit large trades. Because of this, forex traders are commonly offered more leverage, and this enables them to execute larger trades.

Bottom line

Now that you know the difference between forex and cryptocurrency, you should know what to expect when trading any of them. So we want you to relax and weigh your options between the two before making a final decision on which one to invest in. Also, don’t forget to trade only an amount of money you don’t mind losing.

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