In recent years, cryptocurrency trading has experienced some rapid growth, becoming more popular and famous as it is becoming a masterpiece topic about new technology and innovation. The cryptocurrency’s total market capitalization is valued to be above $3 billion. Many individuals are afraid of missing out on the big profits in the crypto space therefore they are concerned about the growth of blockchain technology and cryptocurrencies.
Well with respect to the forex market, the currency exchange prices are less volatile, this is an important difference when compared to crypto. Both cryptocurrency and forex operate in different markets, times, and have specific properties.
In the content of this article, we will be elaborating on the differences between cryptocurrency and forex.
The Nature Of Cryptocurrency And Forex
Market demand and supply are the two major factors that determine the worth of cryptocurrencies and currency pairs. Although, the particular factor behind demand and supply is entirely different for forex and cryptocurrency.
Using cryptocurrency as a case study, it operates in a distributed and decentralized ledger through the help of a technology called blockchain. As time goes on, several investments are being deployed into this innovation therefore the demand for cryptocurrency called for increments.
On the other hand, forex trading involves trading currencies by putting one against another, in anticipation that the intrinsic value of the currency you have purchased will grow with time. The factor driving demand and supply in forex are potent, and any major discrepancies can hurt the global economy.
In both forex and crypto, the basic tool that is used to analyze the price of the currencies is known as “technical analysis”. The peculiar difference between forex and crypto is their market volatility. The market volatility of cryptocurrency is much when compared to that of forex.
Liquidity
In forex trading, there is a slow price movement which permits traders to offer a high level of liquidity. As a result of this, the forex market is worth about $6.6 trillion monthly when compared to the daily market value of cryptocurrency which is around the range of $100 billion to $200 billion, and as of May 2021, it reaches $516 billion. Using the estimated value above, the crypto market is lesser when compared to that of forex.
However, both are big financial markets. When you are in a large position, it is simple to enter and exit when there is more liquidity.
Trading Time
From Monday morning in Wellington, New Zealand till Friday afternoon in New York City, the forex market traded for 24hrs. In some circumstance, you can trade on weekends, but then such trading is against your broker and not the real market trades.
This is not the same with the cryptocurrency market, trading in the crypto market is open every time of the week every 24hrs. You can trade, buy, sell, and even make investments via your crypto exchange.
Volatility
In terms of volatility, cryptocurrencies are highly volatile when compared to forex. If the currency is highly volatile, it is advisable to use a bigger margin. Due to that, forex trading frequently offers more leveraged values than crypto trading.
Market Structure
The interbank market mechanism is used to determine the forex rate. Price feeds are being provided by inflating through brokers. On the other hand, depending on the amount of liquidity to be offered by traders triggered the creation of cryptocurrency. As a result of that, the exchange you use to trade the crypto market can run out of crypto coins when you want to transact from that particular exchange.
Trading Pairs
In the forex market, when trading you are exchanging one currency for the other. For instance, when trading $Gold, you are swapping it with your US dollar for $Gold. As a forex trader, it is expected you have a fundamental knowledge about how swapping of currencies is done while trading the forex market.
The adoption and acceptance of cryptocurrency is still at its early stage. The majority of cryptocurrency pairs use Tender (USDT), $BTC, $ETH, or an exchange coin such as $BNB. The total available cryptocurrencies are over 11,500 currently. To exchange small crypto coins is relatively too laborious, due to that an intermediary coin such as Bitcoin, Ethereum, or even USDT is used. For example, your first trade into USDT before purchasing or buying any coin of your choice.
Summary
The crypto and forex market has different kinds of differences existing between the both. Some of these differences can be in their market structure, the level of their volatility, liquidity, time of trading, etc.
Forex has the largest market value which is estimated to be $6.6 trillion than crypto which has a $100 – $200 billion market value. The factors that drive the market movement of both crypto and forex are demand and supply. One of the district features of cryptocurrency from forex is the adoption of a technology known as blockchain.
