Forex vs. Crypto: What's Hot for Traders?

In the blue corner, we have the world’s largest and most liquid financial market, with trillions of dollars exchanged daily.

The digital darling stands in the red corner, showcasing explosive growth and immense volatility.

Both forex and crypto offer great potential, but which one is right for you?

In this article, we’ll explore the two markets, their similarities and differences, so you can determine which is best for you!

Did you know that the forex market is the largest financial market in the world, with a daily turnover of over $7 trillion? That's more than the GDP of some small countries! But what exactly is the forex market, and how does it work? 

At its core, the forex market is all about buying and selling currencies. Traders exchange one currency for another to profit from changes in exchange rates. For example, if you buy GBP/USD at an exchange rate of 1.2000. You will make a profit or loss when the exchange rate moves above or below 1.2000 respectively.

Participants in the market range from banks and financial institutions to individual traders like you and me. With trading taking place 24 hours a day, 5 days a week, the forex market may provide opportunities to both long or short-term traders.

What makes the forex market truly unique is the monetization of credit. Banks and financial institutions can borrow and lend money to each other, using currencies as collateral. This creates a vast network of credit relationships underpinning the global economy.

But don't let all that talk of credit and collateral scare you off! The forex market is also home to some fun and fascinating facts. 

Did you know that the British pound is the oldest currency still in use today, dating back to Anglo-Saxon times?

In the last few years, the world has been captivated by the rise of cryptocurrencies. Bitcoin, the first and most famous cryptocurrency, was created in 2009, and since then, thousands of other digital currencies have emerged. With a market cap of over $1 trillion, the crypto market has become a force to be reckoned with. But what exactly is the crypto market? 

It's a decentralized digital marketplace where people buy, sell, and trade cryptocurrencies. Unlike traditional financial markets, the crypto market operates 24/7 and is not regulated by any central authority. They are created through mining, where professional mining systems use complex calculations to verify transactions and add new coins to the market.     

Fun fact: In 2010, Laszlo Hanyecz famously spent 10,000 Bitcoins on buying two Papa John's pizzas.

First, let's see what both markets have in common. 

Trading hours   

Unlike traditional stock markets that only operate during certain hours, forex and crypto are open for business around the clock. The forex market is open 24/5, while the crypto market is available 24/7. This means you can take advantage of market movements anytime or at night.

USD main currency

In the forex and crypto markets, USD takes the central stage. All major forex pairs like EUR/USD, USD/JPY, and GBP/USD have USD, and they are the ones that get the most trading volume. Cryptos with USD as a pair get more trading volume in crypto markets like BTC/USD, ETH/USD, and others. 

Analysis 

Both forex and crypto traders rely on various types of analysis to identify trends and predict market movements.There are two types of analysis traders use; technical and fundamental.

Technical analysis is a popular tool both forex and crypto traders use to analyze price charts and identify patterns. RSI (relative strength index) is among the most popular indicators for forex and crypto traders. 

RSI on the chart

On the other hand, the fundamental analysis  examines macroeconomic and geopolitical factors that may affect the value of forex pairs or cryptocurrencies.

While forex and crypto markets share some similarities, the two have more differences. Here are some of the key dissimilarities:

Liquidity 

Forex is the world's largest financial market, with daily trading volume surpassing $7.5 trillion. This means that forex is highly liquid and allows traders to enter quickly and exit trades anytime, with low spreads and high leverage. 

On the flip side, crypto is a much smaller market with a daily trading volume of less than $380 billion. This means that crypto is less liquid and can be subject to sudden price swings,

especially in response to news or events. For instance, more than $115billion was recently wiped from the crypto market over the last 24 hours (2/10/2024, Coinmarketcap). 

Volatility 

Forex is generally considered a more stable market, with fluctuating currency values within a predictable range. This makes it easier for traders to make informed decisions based on technical and fundamental analysis.

The crypto market is highly volatile, with prices that can swing wildly within hours or minutes. For example, in 2021, the price of Bitcoin went from around $29,000 to nearly $65,000 before plummeting to $19000 in 2022.

BTC/USD price chart Source: mitrade

Regulation 

Forex is a highly regulated market, with rules and oversight from government agencies such as FCA (Financial Conduct Authority) and ASIC (Australian Securities and Investment Commission). This protects traders against fraud and manipulation and helps ensure a fair and transparent marketplace.

The crypto market is largely unregulated, with no central authority overseeing the market. While this may offer more freedom and flexibility, it exposes them to risk.

Market Size and Structure 

Forex has been around for centuries, and its structure is well-established. It has a hierarchy, with banks on top of the pyramid. Us retail traders come at the bottom. The major forex pairs dominate the market and capture the most attention. Here's a quick fact: EUR/USD is the most traded forex pair. This balanced structure makes it easy for traders to understand and predict market movements. 

On the other hand, crypto is a relatively new market constantly evolving, with new cryptocurrencies and tokens constantly being introduced. This makes it a more complex and challenging market, especially for new traders.

Participants 

As mentioned above, the forex market is dominated by institutional players such as banks, hedge funds, and large corporations. This means that retail traders may face challenges competing with these powerful players. 

Conversely, the crypto market is largely driven by retail traders, with a growing number of institutional players entering the sphere. 

Key drivers

The key drivers of the forex market include macroeconomic indicators such as GDP, interest rates, and inflation. For example, USD strengthened in 2022 because of Fed Reverse's aggressive rate hikes. 

In contrast, the crypto market is driven by various factors, including the adoption of cryptocurrencies, government regulation, and technological advancements. For instance, we saw a dramatic change in crypto prices in 2022 due to tight monetary policies from central banks around the world. 

Day trading can be thrilling and exciting but, at the same time, risky. So, you have to consider multiple factors when choosing which market is suitable. So, you have to look for the pros and cons of both markets. 

When talking about the forex market, 

• It has high liquidity and volume, which is good for day trading. 

• It offers a wide range of currency pairs and plenty of day trading opportunities. 

• The Forex market has high leverage as compared to the crypto market. 

• The forex market is more predictable than crypto because several economic indicators can drive the market. 

• It has lower volatility than the crypto market and may not provide frequent short-term opportunities. 

• Large players like banks and other financial institutions control the market, and retail traders can get the shorter end of the stick. 

Now let's see what crypto has to offer for day trading:

• It has high volatility, and you can have more winners quickly. 

• The blockchain technology many cryptocurrencies use has the potential for long-term growth. 

• However, crypto has lower daily volume and liquidity which can cause slippage and higher spreads. 

• Also, the crypto market isn't regulated, making it risky for day trading. 

As you see, both markets have pros and cons, and both can benefit day trading. Before jumping in, comparing the markets and seeing which suits you is important. 

Trends and Future Outlook:

The future of trading is poised for significant transformation driven by technological advancements.

Forex, traditionally the dominant trading market, is increasingly influenced by AI, machine learning, and algorithmic trading, which enhance predictive accuracy and trading efficiency.

Meanwhile, the rise of cryptocurrencies, fueled by blockchain technology, decentralized finance (DeFi), and non-fungible tokens (NFTs), is revolutionizing the trading landscape by offering new avenues for investment and financial innovation.

As these technologies mature, the potential for cryptocurrencies to overtake Forex becomes more plausible, especially if regulatory frameworks evolve to support broader adoption.

Additionally, there is a growing possibility for convergence between Forex and crypto markets, as traders seek to diversify portfolios and leverage the unique benefits of both asset classes. This convergence could lead to a more integrated and dynamic trading environment, reshaping the future of global finance.

The decision of which market is better depends on your preferences and goals.

Forex trading may be ideal if you do not prefer extreme price swing and are looking in longer-term investments. This is because the FX market is more predictable when you look at it through technical and fundamental analysis. 

Conversely, the crypto market is highly speculative, and fundamental analysis does little here. But you can combine technical and fundamental analysis to reduce speculative risks in the crypto market.  If you prefer short-term trading strategies and are comfortable taking higher risks, crypto may be your better choice.     

You can also trade both markets at the same time. Hey, who said anything about not trading both markets? 

• The forex market is massive, offers high liquidity, has a larger trading volume, and is highly regulated. 

• The crypto market offers high volatility, and blockchain technology is constantly evolving and has good long-term potential. 

• For short-term strategies, crypto can be a good choice. For the long term, forex is a suitable option. 

• If you compare both markets, forex stands out due to its well-established structure. Also, it is less risky than crypto markets. 

#What is the main difference between forex and cryptocurrency trading?

Forex trading involves exchanging national currencies in a highly liquid market, whereas cryptocurrency trading focuses on digital currencies that often have higher volatility and less regulation.

#Can I earn profits from both forex and crypto markets?

Yes, it is possible to earn profits from both markets, but they require different strategies and risk management approaches. Forex tends to be more stable, while crypto can offer higher returns with greater risk.

#What factors should I consider when choosing between forex and crypto trading?

Consider your risk tolerance, investment goals, trading style (short-term vs. long-term), and market understanding. Forex may be better for those seeking stability, while crypto may suit those willing to take on higher risks for potentially higher rewards.

#Is leverage used in both forex and crypto trading?

Yes, leverage is commonly used in forex trading to amplify profits, but it also increases the risk of losses. Some crypto exchanges also offer leverage, but it is generally less regulated and can be riskier.

#How can I start trading in forex or cryptocurrency?

To start trading, you need to choose a reputable broker or exchange, create an account, deposit funds, and develop a trading strategy. It’s also recommended to educate yourself about market analysis and risk management before trading.