Cryptocurrency vs. Forex Trading: Can You Do Both?

Dec 13, 2021 06:19 PM ET
Cryptocurrency vs. Forex Trading: Can You Do Both?

Digital currencies have gained increasing popularity in recent years, and many traders are debating whether to focus on crypto instead of FX or get the best of both worlds. Dealing in forex and cryptocurrency trades are believed to be two of the riskiest but lucrative industries for traders. However, due to the large profit potential, both markets receive a lot of attention in comparison to their other counterparts. Several forex traders have adopted cryptocurrency trading as a way to broaden their trading horizons. There are likenesses and contrasts between the two trades, and if you're new to trading, it's a good idea to be aware of them before getting started.

Cryptocurrency 

Cryptocurrency trading is speculation on cryptocurrency price movements via a CFD trading account or buying and selling the underlying coins via an exchange. Bitcoin, Solana, and Dogecoin are just a few examples of these cryptocurrencies. For speculating on digital assets, you'll need a digital wallet and a confirmed account.

Forex

Trading FX pairs involves speculating and exchanging currencies for profit. The currency market is usually an over-the-counter market with no central authority overseeing the players. To engage in the trades,  all you'll need is a trading account, some capital, and then you're ready to go.

Similarities 

Decentralization

The FX and cryptocurrency are both decentralized. This indicates that there is no central regulation. Decentralization does not imply that a market is less stable on its own. It does imply that you should keep an eye on your back when investing, but that should be obvious.

The forces are similar

Both markets operate similarly. Both are based on the fundamental supply and demand idea. The price will rise if there are more buyers than vendors. If there aren’t any buyers, the price will decrease. In addition, if there is any negative or favorable news, the price of cryptos and currency pairings will rise or fall.

Differences 

The number of instruments that are available

Traders in forex usually focus on the major currency pairs, for example, EURUSD.  Exotic currency pairs, which comprise a major and a legal tender from a developing country such as CADSGD, are preferred by specific traders. There are already over 10,000 distinct digital coins, and the number continues to expand. Like Bitcoin or Ethereum, some are frequently traded, but many cryptos are only known to crypto enthusiasts.

There are numerous instruments to pick from in crypto, whereas FX might have periods of quiet trading for days or even weeks at a time. Because it is hard to keep track of all cryptocurrencies, investors will have to limit themselves to a small number of coins. As a result, traders will continue to use a limited watchlist.

Volatility

Cryptocurrencies have a high level of volatility, whereas forex is more stable. The price of Bitcoin dropped by almost 30% in a single day in May 2021 before recovering, from being down about 12%. Smaller assets have the ability to make large swings in a short period of time. In forex, such changes are uncommon, and they primarily occur in exotic pairs. In this sense, while it is easier to manage risk in forex, the profit potential in crypto is more significant.

Potential for profit

Digital assets have grown in popularity as a means of making significant profits. Risk rises in parallel with profit possibilities in trading. Therefore the traders should expect to incur higher risks when trading cryptocurrency. If projects fail or capital moves into more established coins, the value of numerous coins may eventually fall to zero, as is the case in more mature stages of growing markets.

Traders can always use leverage to boost their earning potential in forex trading. Leverage is important in that it increases risks, but traders can minimize risks by selecting the optimum level of leverage for their transactions.

Operation hours

The cryptocurrency exchanges are open 24 hours a day, seven days a week, whereas the forex is open 24 hours a day, five days a week. From a lifestyle standpoint, this is a significant difference. Crypto traders should keep an eye on the markets at all times, as cryptos can make large moves on weekends.

While both markets are open 24 hours a day, forex trading follows a predictable pattern since it is driven by large institutions. In crypto markets, however, the situation is different because larger institutions have only lately begun to boost their engagement, and many coins are driven by individual traders or small crypto investing companies.

Security

Cryptocurrency marketplaces are still in the early phases of development, and relevant rules are being implemented in a number of nations. Crypto traders must contend with counterparty risks, scams, for example, imposter websites, as well as hacker concerns.

Forex traders, on the other hand, incur fewer dangers because the forex market is carefully regulated. Forex traders should still look into their broker's history as well as the relevant legislation in the country where the broker is based. Scams have largely been eliminated in the forex trading business due to their development.

Can you do both?

Because opportunity knows no bounds, many traders have switched to trading both cryptocurrency and foreign exchange markets to boost their profits and expand their trading options. In the sense that they are both electronic trading forms of currency, the two markets are remarkably comparable.

To begin trading, all you need is access to the Internet and a computing device, as previously stated. Because of the liquidity of the forex market and the volatility of the cryptocurrency market, traders must employ distinct trading tactics for the two markets. Finally, each marketplace has its own size, behavior, and structure. At the end of the day, whether you trade forex, cryptocurrency, or both is a personal decision based on your goals, resources, and risk tolerance.

Summary

The structures, tastes, and investment sizes of crypto and FX trading are all distinct. In terms of the available options, ease of access to exchanges, and ability to make even little investments, cryptocurrency varies from FX trading. However, your objectives, risk assessment abilities, and appropriate talents will largely determine whether or not you trade in either market. Keep in mind that you are not compelled to choose between crypto and forex trading, so you may benefit from both markets' potential.


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