At its core, a comparison between the forex vs. crypto markets boils down to old and new ways of thinking about money. How do currencies backed by countries — forex — compare to those created by coding — crypto? People create real buying power by trading in these markets.
If you’re curious about crypto vs. forex th, read on for context that could help inform your decision.
What Is Forex?
Forex, also known as foreign exchange or currency trading, is the global market in which currencies from different countries are traded against each other. The forex market is the largest and most liquid financial market in the world with a daily trading volume of more than $5 trillion. It operates 24 hours a day, 5 days a week and enables people to trade currencies from anywhere in the world.
Pros and Cons of Forex Trading
On the surface, forex is safer than crypto, but you still need to know what you’re getting into.
- Use of leverage
- High liquidity
- Measure of centralized protection against fraud and theft
- KYC standards protect traders and brokers from fraud
- Gains are easily tracked and taxed
- Higher barriers to entry
- Unexpected news events can shock the market and cause major losses
What Is Crypto?
Cryptocurrency, also known as digital or virtual currency, is a form of digital money that is secured by cryptography. Each cryptocurrency has its own blockchain, and no central authority controls it. Cryptocurrency transactions are recorded on the blockchain and validated by a process called mining. The transactions are secure, transparent and almost perfectly immutable, making them attractive to investors looking for an alternative to traditional banking systems.
Pros and Cons of Cryptocurrency Trading
Before deciding to invest in these quickly changing environments, consider the following pros and cons.
- Low barriers to entry
- Low fees
- Increasing acceptance into mainstream society
- No government insurance for accounts
- Less secure marketplace
- Probability of total currency default
- Lower levels of liquidity
- High volatility
- Errors in underlying technology can drastically affect markets
Similarities Between Forex vs. Cryptocurrency
Before moving into the differences between crypto and forex trading, take a look at why these markets may not be so different after all.
Forex and Crypto Play Together
The most important similarity between forex and cryptocurrency trading is how they hold value relative to each other. You might not consider Bitcoin (BTC) or Ripple to be legitimate currencies, but forex exchanges do. The CBOE also believes in crypto enough to offer options contracts on them.
Although CBOE only offered crypto futures contracts from December 2017 until March 2019, the Chicago Mercantile Exchange (CME) currently offers Bitcoin futures. Traders in countries to allow it can also trade contracts-for-differences (CFDs) of cryptocurrencies on platforms like eToro just like CFDs of forex currency pairs.
Decentralization means there is no central regulation on the market, and it’s a central attribute of the crypto market. Here’s a little secret: the forex market is also decentralized. FOREX.com is not a central regulatory body for forex, just a well-named exchange. Click here for a FOREX.com review to learn more about it.
Decentralization does not mean that a market is less stable, although you still need to do research and be aware of pitfalls.
Similar Market Physics
The same basic money concepts — such as supply and demand regulate movement in forex and crypto. If there are more buyers than sellers for a crypto coin, the price of that coin generally goes up. More sellers than buyers means a crypto bear market, like in forex.
Efficient market absorption of news means that forex and crypto respond instantly to market shocks. For example, if a BTC whale converts $30 million BTC into Japanese yen, it affects the cryptocurrency market just as talk of war in the White House would change the value of certain U.S.-based forex currency pairs.
Differences Between Forex vs. Crypto
Differences between the markets help you decide which you prefer to invest in. You might invest in both, but the average investor often chooses one or the other as a starting point. When you get your feet wet, you might get to know other markets that you did not fully understand when you started investing.
Keep your eyes open for these differences.
The forex market is the No. 1 market in the world for trading volume — by a wide margin. As of May 2020, the cumulative market cap for the crypto market totaled around $256 billion. The Bank for International Settlements also reported an average of $7.5 trillion daily trading value in the forex market as of April 2022.
The large size of the forex market also gives it different levels of volatility and liquidity. Forex beginners can start out trading currency pairs from stable countries with more protection from large losses before moving on to more speculative trades.
Keep in mind that currency pairs may seem simple when industry experts present them, but they are new to you. Because the market is so massive, you can comfortably start with a simple pairing, learn what to do and slowly expand your portfolio without encountering anything that feels too complex to manage.
Volatility and Liquidity
Crypto is a smaller market than forex. For example, if another $256 billion entered the crypto market, you could ideally expect the prices of all crypto to double. That same $256 billion represents a change of about 4% in the forex market. As a result, the crypto market is more volatile than the forex market.
A higher volatility means more risk for investors — and a greater chance of an exponential upside as well as huge, financially crippling losses. Higher volatility also means less liquidity (ease of trading) because more people are naturally attracted to a smooth marketplace. Low volatility and high liquidity mean the forex market can better absorb economic shocks. This characteristic benefits the average person — investor and noninvestor — with relatively stable currencies even in bad economic times.
At the same time, an experienced investor can do well for themselves on the crypto market — if they do their research and know when to buy and sell.
Cryptocurrency first took off primarily because of its ability to foster anonymous transactions. Government intervention has limited the ability of top coins like Bitcoin and Ethereum to hide identities, but smaller coins like Monero, Zcash and Verge retain this characteristic.
Forex transactions are regulated by a tight web of forex brokers and financial professionals known as the interbank market. Since 2014, the interbank market has incorporated a “know your customer” (KYC) standard that requires traders to provide personal information to access an exchange. Perhaps spurred on by crypto’s anonymous structure, companies like EagleFX that subvert or ignore KYC rules are popping up for forex traders.
Best Brokers for Forex Trading
The broker you use for trading forex can make a huge difference in your success. Here are some of the best forex platforms to consider.
- securely through eToro Forex's websiteBest For:Demo Accounts
CFD trading is not available to U.S. users. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
- securely through Forex.com's websiteBest For:Forex Trading in and Outside the U.S.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
- securely through IG Markets's websiteBest For:Forex Execution
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Best Brokers for Crypto Trading
You can divert quite a bit of risk trading crypto with the right broker. Take a look at some of the more reputable and popular choices.
- securely through eToro's websiteBest For:Demo Accounts
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
Which Market is Right for You?
The forex-crypto trading question comes down to different risk-reward dynamics. If you want a smooth, liquid market that rewards patience, forex may be your game. If you’re looking for pure growth, then you may want to look into cryptocurrencies. Consider talking to a financial adviser about forex vs. crypto and avoid speculating with money that you are not willing to lose.
Frequently Asked Questions
What is more profitable, crypto or forex?
It’s not a matter of profitability but rather liquidity and volatility when it comes to crypto vs forex. Forex can offer more liquidity while crypto is usually known for being more volatile, which can mean a higher reward with a higher risk.
Is crypto riskier than forex?
The short answer is that both forex and crypto come with their own risks. Forex trading involves the buying and selling of currencies, while crypto trading involves the buying and selling of digital tokens. Both types of trading involve speculation about the future value of a currency or token, so there is always some risk involved.
Is forex better than crypto?
When considering whether forex is better than crypto, it really depends on the individual investor’s goals and risk tolerance. While both can be highly profitable investments, they offer different benefits and drawbacks.
Can you trade crypto anonymously?
One of the biggest draws of cryptocurrency is its ability to foster anonymous transactions. Government intervention has limited the ability of top coins like Bitcoin and Ethereum to hide identities, but smaller coins like Monero, Zcash and Verge retain this characteristic.
Are the crypto and forex markets decentralized?
Markets that are not controlled by a centralized third-party entity are considered decentralized. Cryptocurrencies are decentralized as is forex.
How big is the forex market?
The forex market is the largest and most liquid financial market in the world with a daily trading volume of more than $5 trillion.
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About Rebekah Brately
Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.