9 Differences between Forex and Crypto Trading

As a risky investment asset, cryptocurrencies are becoming increasingly popular and mainstream. The highly volatile price movements of cryptocurrencies make them attractive to traders.

This is in stark contrast to forex, or foreign currency exchange, which is also considered a risky investment asset. Forex prices exhibit much greater stability compared to cryptocurrencies, as currency exchange rates do not undergo significant fluctuations.

However, beyond the difference in price movements, forex and crypto have several other distinctions. In this article, we will delve further into the differences between forex and crypto.

  • 💰 Both forex and crypto are risky investment instruments, but they represent different assets. Forex involves the exchange of foreign currencies, while crypto refers to decentralized digital currencies.
  • ⚠️ The disparities between forex and crypto lie in the number of assets, volatility, profitability, risk, liquidity, trading hours, security, and regulation.
  • 🔀 In terms of investment and trading, both forex and crypto traders rely on the price movements of their respective assets. However, with cryptocurrencies, investors can also profit through means other than buying and selling. They can earn profits through mining, airdrops, staking, lending, among other methods.
  • 🔄 Forex and crypto also share a similarity, as their price movements are influenced by supply and demand conditions.

The Difference between Forex and Crypto

By definition and traded assets, Forex and Crypto have significant differences. Forex is an abbreviation for foreign currency exchange, which involves the trading of foreign currencies. On the other hand, crypto refers to decentralized digital currencies that can function as a store of value.

So, what are the differences between Forex and Crypto? Here are some key distinctions:

1. Fundamental Aspect

When assessing the fundamental aspect of Forex and Crypto, the analysis approaches differ. In Forex, fundamental analysis involves examining economic data of a country to understand its economic growth in comparison to the selected currency pair. Additionally, political sentiment plays a crucial role in influencing the exchange rate between currencies.

In contrast, fundamental analysis in the crypto market is conducted by considering aspects such as the underlying utility of the crypto asset, the number of users, and the team behind its development.

However, both Forex and Crypto are influenced by the principles of supply and demand. When there are more buyers than sellers, prices tend to rise. Conversely, when there are more sellers than buyers, prices tend to decline.

2. Asset Quantity

In forex trading, traders typically focus on major currency pairs. Please refer to the table below, where the bolded currency pairs represent the major currencies in the forex market. However, in addition to these 21 currency pairs, traders can also engage in trading exotic currencies, which involve pairs between major currencies and currencies from developing countries.

When it comes to cryptocurrencies, the number of traded assets is much larger. According to CoinMarketCap, there are currently at least 22,349 crypto assets. Among these numerous assets, some popular ones such as BTC, ETH, SOL, ADA, DOGE, and MATIC are the most actively traded. However, beyond these popular assets, there are still other altcoins that are known only to hardcore crypto enthusiasts.

Thus, the crypto market offers a variety of assets to trade, ranging from those with relatively stable movements to the most volatile ones. On the other hand, the forex market has a much smaller number of currency pairs that can be traded compared to the crypto market. In terms of price movements, forex tends to be more stable.

3. Volatility

Speaking of price movements, the differentiating factor between forex and crypto is volatility. It is widely known that crypto assets exhibit high volatility. For example, Bitcoin, after reaching an all-time high at $68,990, dropped to around $30,000. Shortly after, it fell further to $15,000. However, recently its price has risen again to $22,000. Moreover, cryptocurrencies other than Bitcoin can have even sharper price fluctuations.

Such extreme volatility is rare in the forex market. Even if it does occur, it usually happens with exotic currency pairs, and only under extraordinary economic sentiment shocks. Therefore, it can be said that price movements in the forex market are much more stable compared to the crypto market. This allows for more measured risk management in forex trading. However, in terms of profit potential, the crypto market offers greater opportunities.

4. Profit

In seeking profits, both forex and crypto rely on the price movements of their respective assets. However, the potential profits that can be obtained can vary significantly. In the world of crypto, gains of tens, hundreds, or even thousands of percent can be achieved. Whereas in the forex world, the profits are much smaller compared to crypto assets.

On one hand, crypto assets also differ in terms of generating profits compared to forex. With crypto, investors can earn profits not only through buying and selling actions but also through mining, airdrops, staking, and lending.

In forex, on the other hand, profits are obtained only from the difference between buying and selling. Nevertheless, the profits obtained from forex can actually be much more significant. This is because forex trading offers much larger leverage compared to crypto. However, the high level of leverage is directly proportional to the risks involved.

5. Risks

Speaking of risks, the higher the potential profits that can be obtained from an asset, the higher the risks involved. For example, in the case of crypto, prices are very likely to experience significant corrections in a short period of time. In fact, if a crypto asset has fundamental issues or problems with its project, its price can shrink by almost 100%.

So, does forex, which has a more stable price, have lower risks? The answer is not necessarily. Forex also carries risks and the potential for significant losses. However, the cause does not come from drastic price drops but rather from the factor of leverage. Leverage refers to borrowed funds used to amplify trading profits.

In the world of Forex, leverage ranges from 1:100 to 1:1,000. However, in the crypto market, the leverage provided is generally smaller. For example, when it comes to Bitcoin, leverage usually falls within the range of 1:2 to 1:20.

However, leverage is a double-edged sword. If you make the wrong decision while using leverage, the losses incurred can be much greater, proportional to the leverage ratio used. That's why in Forex trading, losses caused by leverage can be significantly larger compared to leverage in crypto trading.

6. Liquidity

Another difference between Forex and crypto is liquidity. Currently, the forex market has a higher level of liquidity compared to the crypto market. For instance, in 2022, based on data from the Bank for International Settlements, the daily forex trading volume reached $7.51 trillion. In terms of market capitalization, it was estimated that the forex market had a capitalization value of up to $2.409 quadrillion in 2021.

On the other hand, due to its decentralized nature, it is quite difficult to obtain absolute figures for the crypto market. However, typically, the daily trading volume in the crypto market is only around $100 billion to $200 billion. Even during the peak of the bull run in May 2021, the figure only reached $500 billion. In terms of market capitalization, during the previous bull run peak, the crypto market had a capitalization value of $2.91 trillion.

With the significantly larger liquidity of the forex market, executing large transactions becomes easier. Traders need not worry because the size of the market allows them to sell or buy at the desired prices. However, the case is somewhat different in the crypto market. For major and popular assets like Bitcoin and Ethereum, buying and selling actions tend to be relatively easier due to their sufficient liquidity. But for other assets, it can be more challenging to sell at the desired price.

7. Trading Hours

Trading hours also constitute one of the differences between forex and crypto. In the crypto market, transactions can be carried out at any time. This is because the crypto market operates 24 hours a day, without any breaks for holidays.

On the other hand, although forex trading can be conducted 24 hours a day, the market is only open from Monday to Friday. Some brokers may remain open over the weekend, but transactions are limited to interactions with those specific brokers, without the participation of other market participants.

8. Security

From a security perspective, forex and crypto have different positions. The risk in forex lies in losses due to price depreciation, while in crypto, in addition to price risks, there are also risks of scams and rug pulls. If you come across an irresponsible crypto token developer, it's possible that the purchased assets may lose their value.

In contrast, forex operates with each currency backed by its respective central bank. Consequently, it is not possible for a currency to end up in a scam or rug pull. However, both forex and crypto carry security risks in the form of irresponsible brokers or exchanges.

9. Regulation

Still related to security aspects, regulation is also what sets forex and crypto apart. In each country, forex trading is supervised and regulated by the authorities. In contrast, the stance of each country regarding the crypto market can vary. Some countries regulate crypto, some adopt a neutral stance, while others prohibit the existence of crypto.

Similarities between Forex and Crypto

Since the movement of their prices is influenced by supply and demand factors, traders and investors can also use the same technical analysis. Essentially, the chart patterns of both forex and crypto have similar mechanisms. Therefore, any crypto trader who is proficient in technical analysis can easily adapt and engage in forex trading, and vice versa.

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