Forex vs crypto: Similarities, differences, and which you should trade

Forex trading has historically dominated the trading landscape, but cryptocurrencies have emerged as a new challenger, aiming to revolutionize the market and secure their position. With the growth of blockchain technology and the introduction of numerous cryptocurrencies, the crypto market has drawn the attention of traders worldwide. Both forex and cryptocurrency markets offer unique opportunities and challenges, attracting diverse participants seeking to capitalize on price movements. This article explores the similarities and differences between crypto and forex trading, providing insights into what sets these dynamic markets apart.

Content

1. Forex vs crypto: An overview
2. Which is the bigger market – forex or crypto?
3. Key factors: Liquidity, volatility, and regulation
4. Market participants
5. How trading is done
6. Is it easier to trade forex or crypto?
7. Comparison of forex and crypto trading
8. Common questions about forex trading vs crypto trading
9. Key takeaways
10. Final thoughts

Forex vs crypto: An overview

What is forex trading?

Forex trading involves buying and selling one currency against another at an agreed-upon price in a global market. This market operates 24 hours a day, five days a week (Monday to Friday).

What is crypto trading?

Cryptocurrencies are digital currencies that exist exclusively in the digital space and are stored on a blockchain. Cryptocurrency trading involves buying and selling digital assets, including coins, tokens, and non-fungible tokens (NFTs), in centralized or decentralized markets that operate 24/7.

Similarities in forex and crypto trading

• Speculation: Traders in both markets speculate on price movements without owning the underlying assets.
• Supply and demand: Both markets rely on supply and demand dynamics, though the factors influencing these forces differ.
• Global accessibility: Both forex and crypto markets are accessible around the clock to accommodate global traders.

Differences in market dynamics

While forex has been a well-established market since the 1970s, cryptocurrencies are a relatively new asset class. For instance:

Which is the bigger market – forex or crypto?

The forex market and cryptocurrency market differ significantly in size and scope, offering traders distinct opportunities. The foreign exchange market, which revolves around buying and selling currencies, is the largest financial market in the world, primarily dealing with fiat currencies. In contrast, the cryptocurrency market focuses on selling digital currencies, representing a smaller but rapidly growing sector with unique dynamics. Understanding the scale and composition of these markets can help traders choose where to invest their efforts.

Forex market

• Size: The forex market is the world's largest financial market, with an average daily trading volume of approximately 7 trillion USD.
• Major pairs: Seven major currency pairs, including the USD, account for 75%-80% of all forex trades.

Crypto market

• Size: The total cryptocurrency market capitalization is about 950 billion USD (as of October 2022), with a 24-hour trading volume in the tens of billions of USD.
• Dominance: BTC and ETH account for more than 60% of the total crypto market cap, with the top 10 cryptocurrencies making up 88% of the market.

Key factors: Liquidity, volatility, and regulation

When comparing forex and cryptocurrency markets, several critical factors influence trading dynamics: liquidity, volatility, and regulation. Foreign exchange trading is known for being a highly liquid financial market, with forex trading’s high liquidity making it easier for traders to execute large transactions quickly. On the other hand, crypto trading involves navigating a market with varying liquidity levels, heightened volatility, and less regulatory oversight. These factors significantly impact currency trading in the forex market and the trading of digital assets in the crypto space.

Liquidity

• Forex: The forex market's high liquidity allows traders to buy and sell quickly, even in large volumes. Major pairs like EURUSD and GBPUSD have significant liquidity.
• Crypto: Cryptocurrency liquidity varies widely. While bitcoin's daily volume surpassed $20 billion in 2020, smaller tokens often face liquidity challenges.

Volatility

• Forex: Forex market volatility typically ranges between 0.5% and 2% monthly.
• Crypto: Cryptocurrency volatility is significantly higher, with prices sometimes changing by up to 50% in a single day, making it a high-risk, high-reward market.

Regulation

• Forex: The forex market is highly regulated by central banks and financial authorities, ensuring stability.
• Crypto: Cryptocurrencies are largely unregulated in many countries, leading to price fluctuations and increased risk. Upcoming regulations like MiCA (Markets in Crypto Assets) aim to provide more consumer protection.

Market participants

Forex market participants

The forex market comprises central banks, commercial banks, investment funds, institutional investors, brokers, and traders. Large banks have historically dominated this market.

Crypto market participants

In its early days, the crypto market was driven by crypto miners and retail traders. Today, it includes institutional investors and large banks, although retail traders still play a significant role.

How trading is done

Trading forex and cryptocurrencies is increasingly conducted through Contracts for difference (CFDs), a flexible and efficient way to speculate on price movements without owning the underlying assets. Most online brokers offer both forex and crypto trading in CFDs, providing a one-stop solution for traders looking to access diverse markets. This approach is widely used due to its accessibility and convenience.

Forex trading

CFD trading in the forex market involves speculating on the price movements of currency pairs through an online broker. Traders open accounts with brokers that provide access to forex CFDs, typically offering leverage to amplify potential gains or losses. This allows traders to engage in the forex market without directly owning the actual currencies. Brokers also require identity verification to meet regulatory standards, ensuring a secure and reliable trading environment.

Crypto trading

Crypto CFD trading follows a similar model, enabling traders to speculate on cryptocurrency price movements without owning the digital assets. Through brokers offering crypto CFDs, traders bypass the need for digital wallets or direct blockchain transactions. This approach provides access to the highly volatile crypto market within a regulated broker platform. Many brokers offer crypto CFDs alongside forex CFDs, allowing traders to diversify their strategies and explore both markets on the same platform.

By trading CFDs, traders gain the flexibility to engage in both forex and cryptocurrency markets through online brokers, leveraging the benefits of modern, user-friendly trading platforms and diversifying their portfolios.

Is it easier to trade forex or crypto?

When deciding between forex and cryptocurrency trading, it's essential to consider the unique characteristics of these financial markets. Forex transactions typically occur in a highly regulated environment, offering greater stability and reduced volatility, which makes forex trading risk lower for beginners. In contrast, cryptocurrency trading often involves significant price swings and less oversight, presenting both high-profit potential and higher risks. Regardless of the market chosen, traders must practice proper risk management to navigate these dynamic environments effectively and minimize potential losses.

Trading currency pairs in forex

Forex is generally safer for beginners due to its regulated environment and relatively stable market dynamics.

Crypto

Crypto trading offers more volatility, presenting opportunities for high profits but also higher risks. Beginners may find it more challenging due to extreme price swings and a lack of regulation.

(H2) Comparison of forex and crypto trading

Common questions about forex trading vs crypto trading

Which is better, crypto trading or forex trading?

The choice between crypto and forex trading largely depends on an individual trader's goals, risk tolerance, and experience. Forex offers a more stable and regulated trading environment with high liquidity, making it a safer option for beginners and those looking for more predictable market conditions. On the other hand, crypto trading presents opportunities for higher returns due to its extreme volatility and a vast array of tradable assets. However, the lack of regulation and greater risks associated with the crypto market may not suit every trader. Ultimately, neither is inherently "better"; the decision comes down to what aligns best with the trader's strategy and risk appetite.

Is the forex market or crypto market more predictable?

Forex is generally more predictable than crypto due to its lower volatility and the regulatory frameworks in place. The forex market's price movements are influenced by macroeconomic factors, such as interest rates and geopolitical events, which can often be analyzed with established methods. In contrast, crypto markets experience extreme price swings—sometimes as high as 50% in a single day—driven by speculative behavior, adoption trends, and regulatory news. The high volatility and lack of centralized control make crypto less predictable compared to forex, making it a riskier choice for traders seeking stability.

Key takeaways

1. Forex is the world's largest financial market, with an average daily trading volume of 7 trillion USD. The crypto market has a smaller but rapidly growing market capitalization of approximately 950 billion USD.
2. Forex offers high liquidity and stability, making it ideal for conservative traders, whereas cryptocurrencies are less liquid and more volatile, offering higher risk but potentially greater rewards.
3. Forex trading operates 24/5, accommodating global traders during weekdays, while crypto trading is available 24/7, providing uninterrupted market access.
4. Forex markets are highly regulated, ensuring stability and protection for traders, whereas the crypto market is largely unregulated, leading to significant price swings and increased risk.
5. Forex has fewer tradable assets, typically involving fiat currencies classified as majors, minors, and exotics. The crypto market includes over 21,000 tokens and a growing array of digital assets.
6. Volatility differs significantly: Forex markets experience modest price movements (0.5% to 2% monthly), while crypto markets often see extreme price swings, sometimes exceeding 50% in a single day.
7. Market participants differ: Forex markets are dominated by banks, institutional investors, and brokers, while the crypto market initially revolved around miners and retail traders, with growing institutional involvement.
8. Both markets rely on supply and demand to drive price movements, but the factors influencing these dynamics differ significantly between forex and crypto.
9. Forex is generally more predictable due to regulation and established trading patterns, while crypto’s high volatility and lack of centralized control make it less predictable and riskier.
10. Beginners might find forex easier to start with, given its stability and regulation, while crypto trading demands a higher risk tolerance and understanding of volatile markets.

Final thoughts

Forex and crypto trading each have unique advantages and challenges. Forex offers a well-regulated, liquid, and stable trading environment, making it ideal for conservative traders seeking predictability and lower risk. Cryptocurrencies, on the other hand, present higher volatility and potential for substantial returns, catering to traders who are comfortable with greater risk and rapid market changes. Novice traders should carefully evaluate their risk tolerance, trading knowledge, and goals before choosing a market. To explore these exciting opportunities risk-free, consider testing your forex trading strategies or crypto strategies on the Exness demo trading account, where you can practice in a realistic trading environment without financial risk. Start honing your skills and discovering which market suits you best today.