*OspreyFX would like to state that traders should research extensively before following any information given hereby. Please read our Risk Disclosure for more information.
Forex vs Crypto: Which One Will You Choose?
- A trade (r)evolution
- Tried and true: advantages of forex trading
- The thrill of a novelty that is here to stay
- Which one will you choose?
A Trade (R)Evolution
Even if you have a mild interest in trading, you’re probably still familiar with the new kid on the block: Bitcoin. If you’re new to the industry, you’re probably weighing the quintessential dilemma – what is the difference between currency trading and cryptocurrency trading, and which one is better for you. You may not realize this at first, but these two markets are completely separate. Each one is unique and has characteristics that make it appealing to different types of traders.
Forex vs Crypto
The more established and the one where you will find all of the world’s currencies is the forex market, the largest and most liquid. Keep your eyes peeled on our news section for our post to fully understand exchange rates and the factors that affect them.
On the other hand, you have the evolved version of the forex market, and that’s in the shape of digital currency trading. Cryptocurrencies aren’t the same as standard currencies such as the Yen or the US Dollar. Traditional currencies exist with the need for a middleman be it government authorities, banks, or other financial institutions. Whereas cryptos are not. Cryptocurrencies are digital assets meaning they exist online. They use peer-to-peer technology to allow the transfer of payments without the need for an intermediary. This process aims to prevent the use of a cryptocurrency repetitively. The digital currency represents a revolution in trading because it has created a sphere for traders that operates without regular influences. It is also much more volatile. For example, Bitcoin has a 5% to 15% volatility and therefore cryptos are more likely to be appealing to traders that can handle and assimilate risk.
We are witnessing an evolution in the trading world. The landscape provides endless opportunities, allowing traders to have access to instruments that were previously only reserved for the elites, . There are many options available: futures, options, normal equity markets, forex, and cryptocurrencies. However, everything seems to point in the direction that the market cap for crypto is getting higher.
Let’s explore together the differences between the two markets together with enough data to decide which one is best for you.
The decision on whether to trade forex or cryptocurrencies can depend on several factors and indicators
Subscribe to our newsletter to receive our weekly updates + more straight to your inbox!
Tried and True: Advantages of Forex Trading
Here are some parameters that you should look at when making your choice. Have a look at how forex differs from Bitcoin but also at the parallels between them. With forex, both long and short-term indicators need to be studied. Of course, staying up-to-date with trends and news before executing your trade will help you to make informed choices.
The forex market is made up of the global financial markets and encompasses an almost unlimited supply of currencies to trade.
Forex trading features a 50:1 leverage, meaning that you can take a forex trading position worth $100 for only $2. However, this also means that losses can escalate rapidly.
Very High Liquidity
The forex market has more participants than any other market, so it is quick and simple to trade even large volumes of currencies. Individual investors cannot massively influence the forex market like they can with the stock market.
Influenced by Global News, Announcements, Earnings Reports, etc
This can make it easier to find trading opportunities. Traders plan for these events ahead of time and can use techniques for fundamental analysis that are historically proven.
Forex’s volatility is around 1% for the extreme foreign currency couples and 0.5% for less.
One of the advantages of having a centralized currency is uniform demand. Since the government controls the particular currency, its application within the economy is indisputable.
The Thrill of the Novelty That Is Here to Stay
With cryptocurrencies, you do not need to conduct in-depth studies, but, you still need to be up-to-date with the cryptocurrency trends and their trading indicators. Bitcoin is not bound to any single nation, no single central bank or multinational compact. Instead, its value and integrity are determined by the millions of traders. Verification is conducted by the masses. A true democratic currency, if we may say so.
Not very different from forex, digital currencies have been met with some resistance when they first arrived on the scene. Rumors of it all being a scam abounded. Any novelty is liable to criticism. And in this particular case, forex and crypto have faced the same allegations. Of course, Bitcoin has since then been earning its credibility, and recent regulations in many markets mean that there is but one way forward: up.
Limited supply increases demand. Since there is a cap on how many cryptocurrencies can be created, the value often increases. This is the case with Bitcoin.
Quick, Permanent Transactions
As central banking and other third-party vendors don’t take on transaction fees, cryptocurrencies have low transaction costs.
Massive Potential Gains for Investors
Consider this: $1,000 invested in Bitcoin in 2013 would be worth over $400,000 less than 5 years later. The opportunity for higher rewards also means larger potential risks.
Available to Anyone
Levels the playing field by providing investment opportunities between parties anywhere in the world. This allows individuals even in developing countries with restricted access to banking institutions to use and trade cryptocurrencies.
At first glance, it may seem that Bitcoin is immune to inflation, due to its digital nature. But this is not true for price-related inflation. It is, however, somewhat protected from debasement as it has a limit of 21 million Bitcoins, which once depleted, can no longer be increased.
On the contrary, Bitcoin has a volatility of around 5% to 15% with a 10% volatility average. For this sole reason, Bitcoin attracts high-risk traders.
Bitcoin’s demand is determined through numerous factors including public adoption, marketplace emergence, and the public’s confidence in Bitcoin holding value. The more adoption expands, the higher the demand for Bitcoins. As emerging markets are introducing the digital currency, the outlook is moving towards a steady increase with demand.
What Will You Choose?
As with any decision, there are both negative and positive factors either way. Well, not exactly negatives in this situation – perhaps it’s more accurate to say the ability to absorb a certain degree of risk. Which is something you must be prepared for as a trader, right? Volatility exists in both the forex and cryptocurrency markets. But, the higher the risk, the higher the reward. This approach is something to include in your strategy and goals.
We can confirm that there is no definite answer to the question ‘what should I trade?’.
Forex is more established and may be simpler to understand, and Bitcoin is the wunderkind that holds fantastic potential. There is an opportunity in both and they may be considered as “The Last Free Markets.”
Instead of trying to pick one over the other, the best approach may still be to find the best fit for your lifestyle, your objectives, and your trading style.
Do yourself a favor and learn how to trade both forex and cryptos. Why limit yourself to trading one way and not the other? With a little bit of practice, you’ll be able to juggle forex trades and Bitcoin, competently.
Whatever you choose to trade, choosing the right broker is a key ingredient. OspreyFX provides a secure ECN trading environment that permits traders to trade exclusively online. Better yet we offer up to 1:500 leverage and are a true ECN broker. What are you waiting for? Start your trading journey today.