Forex trading is a popular choice for many traders around the world. However, the popularity of cryptocurrency in recent years has made many traders look into it. Moreover, many new technologies have recently been combined with cryptocurrencies.
However, the popularity of cryptocurrencies cannot be completely replaced by cryptocurrencies. Some traders even choose to trade forex and cryptocurrencies simultaneously to diversify the portfolio.
However, trading in more than one asset may not be an option for all traders as it has the potential to increase trading costs. For beginners or traders with limited capital, choosing to trade forex or cryptocurrency trading can be a dilemma in itself.
Understand the basics first
In order to solve the problem, the trader must first understand the basis of the two assets. After getting to know it, it will be easier for traders to know which assets are the most suitable.
Forex is sometimes referred to as a foreign exchange or foreign currency exchange. Since it involves buying and selling activities between two currencies, analyzing the forex market is almost the same as comparing one country’s economy to another.
The goal, of course, is to be able to take advantage of changes in currency values in order to make a profit. This activity has been going on for decades, has market players from all walks of life, and has a transaction value of trillions of dollars every day.
Trade forex against cryptocurrencies
Forex traders use technical and fundamental analysis to analyze price movements. Traders will use the broker’s services to be able to open positions in the currency pairs they want. Most of the brokers that offer forex trading have out-of-pocket regulation.
In Indonesia itself, forex trading is regulated and supervised by CoFTRA. Unfortunately, however, brokers sometimes have a variety of additional costs that can erode trading capital, such as spreads and trading commissions.
Cryptocurrency is a digital asset that runs on the blockchain network. Not just for transactions, cryptocurrency can have a variety of uses. Cryptocurrency trading itself is the activity of buying and selling digital assets such as cryptocurrencies, tokens, and NFT (non-fungible tokens).
Not much different from forex, the value of cryptocurrency also fluctuates according to supply and demand. But the price driver is very different from forex. For example, when a crypto project gets an injection of funds, the price of a coin can skyrocket.
There are countless cryptocurrencies and tokens on the market today, but not all of them last for long. Some cryptocurrency projects have even become a vehicle for pump-and-dump scheme scams. In fact, not a few crypto projects turn out to be fraud under the guise of MLM. The lack of regulation on crypto assets means that traders must be very careful when investing in new coins.
The difference between forex and cryptocurrency trading
Broadly speaking, both forex and cryptocurrency involve the trading of “currencies”. But the difference is that forex is trading in fiat currencies which are accepted as the main medium of exchange in the country, while cryptocurrencies are only accepted as the official medium of exchange in a number of certain countries. Apart from that, what are the differences between forex and cryptocurrency?
1. DEX vs. CEX
The basic difference between forex trading and cryptocurrency is decentralization and decentralization. Crypto has the concept of DEX or decentralized exchange. That is, traders have more control over their crypto assets because there is no single entity to regulate their trading. DEX also has lower transaction fees than CEX.
In contrast, the CEX or central exchange used in the forex market has the opposite concept. However, this type of transaction has higher liquidity. In addition, centralized exchanges could be supported by stronger regulations.
2. Market participants
At its inception, most of the participants in the cryptocurrency market were miners or retail traders. They usually buy these assets in small amounts. With the development of the cryptocurrency market, more traders and large companies are buying cryptocurrencies in bulk.
In contrast, in forex trading, there are many banks and multinational corporations that dominate this market. Governments and central banks are also among the big players in the forex market. While the technology is available to allow smaller traders to participate, institutional traders and hedge funds remain the most influential
So you can say, initially cryptocurrency was made for retail traders, while forex trading was specifically for big players. Over time, large companies began to be attracted to the world of cryptocurrencies, while small players were “welcome” to open positions in the forex market.
According to some studies, about 65% of forex traders suffer losses. Losses when trading forex can be caused by greater leverage and margin system that forex brokers offer to retail traders. Because of the risks, high leverage is not recommended for novice traders.
On the other hand, cryptocurrency trading allows traders to earn a lot of profit with a small amount of capital. Those who are successful are often referred to as Bitcoin Billionaires. The reason is that price movements are relatively fast, which allows traders to make quick profits. But what must be considered, it also means that prices can drop immediately in a short time and cause huge losses.
4. Liquidity and volatility
Although the cryptocurrency market and forex are highly liquid, forex is known to have 12 to 60 times higher liquidity than the cryptocurrency market.
This means that order execution in the forex market is much smoother than in the cryptocurrency market. Sellers do not have to wait long to find buyers, while buyers do not have to search for assets at the right price.
However, cryptocurrency fluctuations are much more than forex. This condition is ideal for traders who want to take advantage of price changes when looking for profits.
5. Business hours
Both forex and cryptocurrencies offer trading hours throughout the day to cater to traders around the world. However, they both have slightly different trading times from each other. Forex is traded 24 hours a day, 5 days a week. From Monday morning in Wellington, New Zealand, to Friday afternoon in New York City.
On the other hand, digital markets like cryptocurrencies never sleep. Cryptocurrency trading allows traders to trade assets 24 hours a day and 7 full days a week. This means that traders can buy and sell crypto assets at any time, even on weekends.
6. Market capitalization and trading volume
The total market capitalization of cryptocurrencies in 2022 is about $3 trillion. This number is staggering, but it took the cryptocurrency market 12 years to reach its first trillion dollars. Meanwhile, reaching the next $2 trillion will only take 11 months.
From this we can conclude that the market capitalization of cryptocurrencies is increasing faster. However, due to the decentralized nature of cryptocurrencies, it is very difficult to know the actual trading volume. Currently, the cryptocurrency transaction volume is estimated to be between $100 billion and $500 billion per day.
Unlike cryptocurrencies, it is difficult to know the market value of forex. However, the Bank for International Settlements (BIS) conducted a volume research and concluded that forex is traded at up to $6.6 trillion per day.