Foreign exchange is one of the most popular spheres of trading. Within it, traders operate official currencies of different states issued by these countries’ governments. It has some of the largest trading volumes in all markets, with transactions worth approximately $5 trillion every day. The major forex players include individual traders, businesses, banks, financial institutions, and investors who utilize this sphere of trading either for serving business needs or for obtaining profits from the transactions.
The emergence of the forex market was directly linked to gold standard creation, which helped states better determine the value of their currency compared to those of other countries. Later, as the US dollar was selected as a designated currency for the world reserve, the rates of international currency flow increased even more. In the 1970s, the forex market was created in its proto-form. By the end of the century, it became accessible to a wider circle of traders, leading forex into the current era of trading.
One of the distinctive features that forex has is the fact that most of the operations occurring in this market are OTC. This status means that traders interact directly with each other, without any strict regulations limiting their actions and governing bodies overseeing the operations. Deals between traders are concluded through brokers who act as mediators ensuring smoothness and convenience of operations.
Forex is characterized by high liquidity and moderate volatility, which is just right to attract those traders who seek the opportunity to gain profits without taking excessive risks. The dynamics of currencies’ prices could be predicted through the examination of global political and economic processes. Therefore, forex trading largely relies on fundamental analysis while also utilizing technical analysis means.
The market in which cryptocurrency-related operations occur is much newer than forex. In fact, it is approximately eleven years old, which looks like a very short period in comparison to many decades throughout which foreign currencies have been exchanged. The first crypto exchange operations can be traced back to 2009 when Bitcoins were introduced to the world economy. After their emergence, crypto enthusiasts came up with a variety of other alternative coins, creating a separate ecosystem of digital payment means. The monetary volume of daily operations conducted in this market exceeds $100 billion.
A distinctive feature of the crypto market is the fact that it functions on a constant basis, being available 24/7, every day of the year. Another specific feature is the high volatility that characterizes crypto coins. Their price can change dramatically within as short as one trading day. Therefore, the crypto market offers its adherents a significantly less stable environment than forex, as well as most other trading segments. As a result of the aforementioned characteristics, crypto is prone to manipulations and fraud. However, this situation can also be caused by a novice character of this sphere, due to which it has not yet stabilized. Meanwhile, unlike many other trading spheres, the effect of global events on the crypto market is considerably weaker, making thorough fundamental analysis less significant for crypto traders.
Similarities between forex and cryptocurrencies.
The two trading fields under analysis are characterized by a set of similarities. In their essence, both of them deal with currencies, albeit those of different nature. Conventional and cryptocurrencies both are different varieties of payment means, even though there are plenty of skeptics who do not view Bitcoins and other crypto coins as currencies in the original meaning of this word. Nevertheless, as long as crypto coins can be used to pay for goods and services, they cannot but be identified as currencies. Therefore, forex and crypto markets are similar through the nature of the assets they deal with.
Besides, both spheres under discussion are volatile, and the operations in them are conducted with the use of modern technologies since both forex and crypto exchange mostly take place in a virtual space. To say more, you can even use the same platforms to trade both kinds of assets. For instance, MetaTrader 5 can be utilized for crypto operations as effectively as it is used for forex trading (if you’re not familiar with this platform, you can get acquainted with it through this link: MT5 platform for PC. Throughout its history, the crypto exchange has only been conducted online. Forex exchange went through different phases, including the one during which major players traded their assets in person. However, with the spread of digital technologies, forex did not hesitate to adopt them, and, in its current form, this sphere is mostly associated with virtual operations.
Differences between the two spheres.
Whether they have similarities or not, forex and crypto keep on being two highly distinctive markets. Therefore, there are several major differences that set them apart. In addition to many minor disparities, such as the different nature of assets traded on each market, the very models based on which forex and crypto markets function are dissimilar. Crypto operations are usually based on the exchange model. It involves an exchange (as an entity, not a process) that acts as a medium in the operations, providing a trader with an opportunity to buy or sell cryptocurrencies on fixed conditions, without negotiations and other elements typical of forex. Trading on exchange has fixed, established rules that counterparties need to follow, as well as the monitoring bodies overlooking the operations.
In turn, forex is most usually traded on an OTC basis. This model is much less regulated; in fact, it has no strict rules and authorities monitoring the processes developing based on it. OTC markets are composed of a bunch of players who interact with each other in a rather unsystematic manner. Therefore, in forex, the role of brokers is very high, as they play the role of mediums in the exchange operations, facilitating them and providing their smoothness.
So what to choose?
With major similarities and differences between the two markets explained, you can have a quite logical question about which of the two spheres is more advantageous than the other. However, the thing is that this question cannot be answered objectively. Forex provides you higher liquidity and lower volatility, making your risks smaller and, simultaneously, offering you less considerable volumes of profits. In turn, with cryptos, you may lose much more due to the volatility of this market; however, winning in this sphere can bring you more considerable benefits than forex can offer. There are also many other benefits and shortcomings of each sphere you need to consider. Therefore, there is no unambiguous answer to the question of which sphere is better than the other. In the end, this is the choice you need to make yourself.