When you first hear about Forex and Cryptocurrency trading you might think that there aren’t many fundamental differences between the two. To illustrate the core differences, it is helpful to point out the similarities first.
Supply and Demand
The main factor which affects the value of both fiat and cryptocurrencies is supply and demand. Forex and Crypto trading is completely dependent on the balance between supply and demand. For example, the recent trade tensions between the US and China had a significant effect on the demand for both the US dollar and the Chinese Yuan. Consequently, the value of the dollar dropped, which made this a suitable moment to buy the currency.
Similarly, international politics and regulations affect the price of cryptocurrencies. Bitcoin, the most popular crypto tokens, suffered a serious price drop when the media started publishing analyst opinions stating that bitcoin was overvalued and that the bubble could burst at any time.
As you can see commodity and currency trading is affected by the same main principle – supply and demand. The effect of outside forces on currencies and commodities is inescapable but the relationship between supply and demand will remain balanced.
While the supply and demand principle applies to both kinds of trading, the two markets are fundamentally different. Even though both Forex trading and Crypto trading are open to anyone who is interested, there are significant differences between the types of trading, and both require an unbiased thorough outlook of brokers who wish to be successful.
Forex trading was, of course, the first to surface on the international scene, which is why a big percentage of traders involved in fiat currency trading are in fact, institutional traders. This means that the Forex market is dominated by big companies and organizations with large investment capital.
On the other hand, Crypto trading is peer-to-peer, which means that you can get into the market and participate in trades with very little investment capital.
Another distinction between Forex and Crypto trading is the liquidity of the markets. The Crypto market is placed on the lower end of the liquidity spectrum, as prices shift very quickly. On the other hand, the Forex market is one of the markets with the highest liquidity. Because of the long history of the Forex market, and the fact that currencies are tied to a number of outside factors, the market is relatively stable and significant fluctuations in prices are not that common.
Based on liquidity, the volatility of these two markets differs greatly. The Big Crypto Crash of 2018 is a perfect example of how quickly the value of any given crypto coin can drop. Despite Bitcoin falling more than 50% during the crash, it is now slowly regaining its lost value. These significant shifts in price make cryptocurrencies extremely volatile. Of course, there are factors affecting the volatility of cryptocurrencies, however, they are rare compared to the factors affecting the Forex market.
In terms of volatility, the Forex market is ranked as a far more secure market than the Crypto market. Fiat currencies are tied to the economies of the countries using them, and one of the only ways a currency can suffer from a 50% devaluation is an unfavorable political climate. While political decisions have an effect on currencies, the value changes are not as significant or drastic, as with cryptocurrencies. Therefore, the Forex market is usually regarded as less volatile, because of its ties to the global economy and politics.
Last, but not least, is the daily traded volume of the two markets. This is the segment where the difference between Crypto and Forex trading is most visible. As Forex has been around for years a lot of investors have entered the trading market. Also, as mentioned above, the big money corporations are all on Forex exchanges, but Crypto trading is gaining traction with them as well. Currently, Forex trading has a daily traded volume that is about 99.9% more than that of Crypto.
So Are the Two Markets More Similar Than Different?
There is no conclusive answer to this question, as the basic principles of these two markets are relatively similar, but when examined in detail there are little to no similarities in their characteristics. In other words, if you’ve been a Forex trader for a while, you shouldn’t just assume that you can do as well with Cryptocurrency trading. Each of these markets has a very specific trading structure and you should make sure you’re well equipped with knowledge and information before making actual trades.