Forex or Crypto Trading, Which Is Better?

Sep 30, 2021 09:06 PM ET
Forex or Crypto Trading, Which Is Better?

Forex or crypto trading, is either market marginally better than another? This article will cover both markets and highlight the advantages and disadvantages of each.

The scope of online trading has grown immensely since the 2000s as new markets have been introduced for people to trade. Instruments such as forex haven’t necessarily evolved, but we’ve seen the addition of less-traded markets like exotic pairs being offered by the ever-increasing number of brokerages.

If we speak of a brand-new market that’s entered the online trading space, it would have to be cryptocurrencies, which have undoubtedly taken the world by storm. Despite cryptocurrencies only existing for about a decade and only being immensely popular in the last five years or so, it doesn’t mean they are necessarily less formidable. 

Interestingly, both markets are a lot more similar than what some may believe. Ultimately, they are both based on currency forms, with one being fiat and the other cryptographic. By the same token, each market is unique regarding volume, liquidity, leverage, volatility, availability, perception, etc.

Is there an objective winner between forex and crypto trading; is one marginally better than the other? Let’s briefly compare the two.

The landscapes of forex and crypto trading

The practice of trading currencies has existed for centuries. Forex, though, as we know it only truly began in the mid-70s after the end of the gold standard as more countries transitioned from a fixed to a floating rate exchange rate system.

As you would imagine, the technology was still quite limited. The trading that occurred at the time was only reserved for financial institutions and the select few clients who maintained relationships with them. 

Arguably, the mid-90s was when online retail trading began taking shape with the introduction of charting software, the gradual advancement of computers, and the growth of decentralized liquidity providers or market makers. 

Over the years, interesting variants of forex like futures, swaps, and forwards have become available, along with managed accounts and social trading. As we all know, the first official cryptocurrency, Bitcoin, was released in 2009. 

Since this period, a lot has happened as you would expect. It has only been in the last five years or so where brokers started offering CFDs (contracts for differences) for crypto. Previously, one could really only buy and sell through crypto exchanges. 

Exchanges themselves have increasingly started offering more CFDs and other variants like perpetual swaps, futures.

Similarities between forex and crypto trading

Forex and crypto are similar in both being currencies. They are often priced against the US dollar, similarly to the euro and British pound. It means that, generally, when the forex markets are losing value, crypto goes up, and vice versa. This distinction exemplifies the perception of investors against the two.

When they lose faith in the inflationary fiat currencies (forex), they buy crypto, which is considered less inflationary and a disruptive technology. This similarity is essential to consider for you not to double up on your risk.

For instance, buying EUR/USD and BTC/USD (Bitcoin) simultaneously increases your chances of losing as both pairs have the USD as the quote currency, even though it may seem these markets share no correlation.

Therefore, in many cases, taking a position in forex might be similar to taking one in crypto, especially when either is priced against USD, EUR, or GBP. It is not to say there aren’t non-correlated opportunities available in both markets. However, each instrument does frequently exhibit a solid directional relationship. 

Technical differences between forex and crypto trading

Below is a summary of the technical differences between forex and crypto trading:

                                                                          Forex                                             Crypto

Liquidity  +$5 trillion $1 trillion
Leverage up to 1:2000 Usually not above 1:200 presently
Lower Higher
Number of markets
Less than 200 Much more than 200
A bit more regulated  (decentralized)  Less regulated (decentralized)
Market hours
24/5 24/7
Trading fees
Spreads, commissions, swaps Spreads, commissions, swaps

Reasons to support (and not to) forex trading

Forex trading is considered more stable in terms of price movements and just purely because it’s existed for a lot longer. Although there is relatively high volatility in the markets, it pales in comparison to cryptocurrencies. 

It’s rare to witness 3-5% moves with currencies in one day, unlike the cryptos that frequently fluctuate this much within the same span. More risk-averse traders prefer forex for this reason. 

Another advantage with currencies is the higher leverage, allowing you to invest with far less capital than you would with crypto. The liquidity is also much higher in forex, meaning we rarely experience slippage and other price issues, unlike the latter. 

Moreover, it’s easier to specialize in a defined basket of pairs since there are fewer markets to trade. On the downside, the forex market is closed on weekends, which doesn’t suit short-term speculators who would desire to trade as often as possible. 

So, overall, forex is superior in leverage, liquidity, and stability. A trader prioritizing these qualities may like foreign exchange more than cryptocurrencies.

Reasons to support (and not to) crypto trading

The one big advantage of cryptocurrencies is their 24/7 nature. The markets never stop moving, which isn’t the case with forex. This distinction particularly favors short-term traders who are presented with more opportunities even during the weekend.

The significantly higher volatility is superior compared to forex, meaning you can realize more profit in a shorter timespan. There are more than 5000 cryptocurrencies presently. 

We might consider this expansive range advantage or disadvantage: an advantage in offering unique opportunities and a drawback as it becomes difficult to specialize in a manageable portfolio.

Ultimately, cryptocurrencies are still a relatively new market. So, although liquidity and leverage are the biggest drawbacks with this instrument, it’s logical to expect this will gradually increase over time. 

All in all, if you desire more volatility, a market with no closing hours, and prefer experimenting with a larger selection of pairs, cryptocurrencies may be a better option to consider.

Final word

Despite the distinctions, forex and cryptocurrencies are two of the most speculated instruments worldwide. Currencies, whether in the physical or digital form, have and will continue to play a major role in our lives. Like with most things, there isn’t necessarily a perfect or easier market.

This article aims to highlight the notable differences between the two. Based on someone’s experience, skill level, risk tolerance, and preference, these comparisons should help them make a more informed decision. 


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