Since 2010, cryptocurrency has been booming in popularity, and more people have switched from trading stocks to trading altcoins. The most popular and liquid cryptocurrencies, including Bitcoin, Ethereum, Tether, and Ripple, are now available for trading through numerous traditional Forex and CFD companies.
This article will let you know the difference between Forex & Cryptocurrency Trading, the advantages of using Forex or CFD trading, and how a Forex or CFD trading account differs from a cryptocurrency trading account.
What is Forex?
Forex, short for Foreign Exchange, is a market that allows traders to speculate on the value of different currencies. The primary currency pairs that are traded are the US Dollar (USD) and the Euro (EUR), as well as one of the 10 most liquid foreign currencies (USD, EUR, GBP, JPY, etc.)
In Forex trading, a trader can buy or sell currencies to buy or sell a different currency later. This means that when you buy/sell on Forex, you can move funds back and forth between different countries.
Forex pair trading often forms contracts for differences (CFDs). This implies that when you place a deal, you only agree to make a profit or loss according to the movement of the broker’s price feed, not that you acquire legal possession of any currencies.
Pros and Cons of Forex
Foreign exchange prices are extremely susceptible to economic data releases, changes in central bank policy, and macroeconomic and political events since the forex market is so sensitive to world events.
– High liquidity, 24 hours a day.
– Largest and most widely available market.
– Accessible through CFDs and Forex trading accounts.
– No leverage (just high margins, which are costly).
– Limited asset classes: currency pairs only. No commodities, stocks, or indices.
– Can be very volatile, especially in the short term.
– Client’s assets are subject to global economic factors (interest rates and inflation) risk.
The retail foreign exchange market is typically open in the United States from early on a Monday in the far east to late on a Friday. In essence, it is available 24 hours a day, five days a week, and some brokers are even starting to offer to trade on the weekends.
Cryptocurrency trading is an investment in which users buy or sell cryptocurrency on an exchange through a broker or self-directed accounts. Most cryptocurrencies, such as Bitcoin and Ethereum, are traded on exchanges, and most exchanges allow investors to place orders with leverage (also known as margin).
When you purchase and trade cryptocurrencies in the real world, your transactions are processed via a decentralized, encrypted system, which significantly increases your level of anonymity. The only thing you need to know is how to send and receive cryptocurrency in a safe, secure manner.
Because of blockchain technology, cryptocurrency is borderless and can be moved from one account to another in minutes. This means traders who have accounts on one exchange can quickly transfer their funds to exchanges in other countries or regions to take advantage of arbitrage opportunities, thereby increasing their trading profits.
– Fast and cheap trading.
– No fees.
– Low spreads on both the purchase and resale sides of the market.
– Accessible in several ways (including via online brokerage accounts). Traders can use their exchanged crypto balances against traditional currency accounts with leverage trading available.
– Easy payment methods, such as bank transfers, debit cards, credit cards, and PayPal.
– Leverage trading is offered on most exchanges (e.g., Bitfinex and Binance).
– Access to world markets.
– Open 24 hours a day, allowing trading on weekends and holidays.
– High-volume traders often use leverage trading. Leverage allows for higher returns on smaller trades (i.e., leverage).
– The primary risk is client funds being accessed by hackers or falling victim to market manipulation and scams. The second risk is in the cryptocurrency price itself, which can be subject to manipulation, extreme volatility, and uneven levels of liquidity.
– There are very few cryptocurrency exchanges that offer leverage trading, and of those that do, leverage amounts tend to be lower than forex and CFD platforms.
– The vast majority of cryptocurrency exchanges only accept cryptocurrencies for deposits and withdrawals (rather than fiat currency). This means that to deposit or withdraw currencies; investors need to have an account on a cryptocurrency exchange and an associated wallet.
Many forex brokers (cryptocurrencies + MT4 platform) only offer trading in fiat currency pairs, with limited to no leverage. Most cryptocurrency exchange platforms are not available in all countries, so if the trader wants to trade from home using a Forex broker, they will need to look for an FX broker that offers trading in cryptocurrencies and is available worldwide.
As Forex and cryptocurrency markets are still new, there are some differences between Forex and Cryptocurrency trading accounts, as well as the advantages of using a Forex or CFD brokerage account over other types of cryptocurrency accounts (i.e., the most popular cryptocurrency trading platforms).
Forex vs. Crypto: What is Best for Me?
You can decide whether to trade exclusively in Forex, only in cryptocurrency, or both. There are other important things on which you can decide.
Cost of Trading: The cost of trading in Forex is lower than that of Crypto, which is Higher.
Market Hours: Trading in Forex is available 24/7, whereas forex trading hours are limited in Cryptocurrency.
Leverage: Forex allows traders to trade with leverage, whereas Cryptocurrency trading does not allow for any margin trading.
Q. Is Forex better than Crypto?
A. Your strategy, ambitions, and needs will determine whether you should invest in Forex or cryptocurrencies. The forex market might be right for you if you wish to trade over the counter. Give cryptocurrencies a try if you wish to trade continuously and need more anonymity.
Q. Which is better, Bitcoin vs. Forex trading?
A. The forex market is global, whereas CFDs are dealer based. CFDs are, therefore, less transparent than forex trading and offer lesser liquidity. In forex trading, you can trade in a range of currency pairs, which is impossible in cryptocurrency trading.
Q. Is there any difference between Forex and Cryptocurrency accounts?
A. Forex and cryptocurrency trading accounts are very similar. Both trade currencies, but the type of currency you trade makes a difference. Through a Forex account, you can buy and sell stocks, commodities, indices and other financial instruments, such as currencies. Through a cryptocurrency account, you can buy cryptocurrencies.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.