Cryptocurrencies have seen massive growth in popularity in the last couple of years. If you’re not familiar with the term cryptocurrencies, you might have heard about Bitcoin. Bitcoin is the most well-known cryptocurrency around the world. Even though cryptocurrencies are digital assets and only exist in the digital form, many investors and traders compare the crypto market with the forex market.
Some people believe that the mechanics of foreign exchange trading are very similar to that of crypto trading. However, it is worth noting that in the foreign exchange (forex) market you can only trade fiat currencies such as AUD (Australian Dollar) or USD (US Dollar).
Even when we can’t deny that there are some areas of overlap, there are many areas where forex trading differs from cryptocurrency trading. We will now look at some of these similarities and differences between the two markets.
Unlike the forex markets, the crypto market never sleeps. It is open 24 hours a day and 7 days a week. The forex markets are only accessible 24 hours a day for 5 days a week. It doesn’t matter which cryptocurrency exchange platform you are using, you will always be able to place your trades. The forex markets are also accessible 24 hours a day and in those 5 days a week, you will be able to conduct your trades easily.
Many reports into crypto and forex and trading suggest that forex liquidity is still far greater than even the most famous cryptocurrencies, such as Bitcoin. Bitcoin was the first-ever cryptocurrency and it was launched in 2009. It has been a little over a decade and it wouldn’t be wrong to say that the crypto market is still in its infancy stage. On the other hand, the forex market is the biggest financial market in the world, and trades worth trillion dollars take place every day.
As mentioned above, the cryptocurrency markets are relatively much newer than traditional forex markets. Therefore, the crypto market tends to be much more volatile. A lot of investors are scared away from the crypto market because of the volatility. The traders, however, try to take advantage of everyday price changes in the market by buying when the price is low and then selling later when the price increases. Even though the crypto market will be heavily impacted, both the forex and the crypto markets can fluctuate based on economic or political events and news.
Both crypto and forex markets are driven by supply and demand
A similarity between the forex and the crypto markets is that the price value of the tradable assets is driven by supply and demand to a great extent. When there is an increase in the demand for Bitcoin or the Australian Dollar, the price will go up, and, similarly, when the supply exceeds the demand the price will fall.
Both types of trading can be made easy with the right trading platform
Both the markets are easily accessible and to start trading you do not need to have a huge amount of capital. However, if you want to make profits, it is better to invest in online trading platforms that can offer support and guidance at every step of the way. Moreover, many trading platforms offer automated trading as well. This means that very little human input is required and the processes of trading are completely automated.
Risk management is important to become successful in both markets
It is important to understand that there will always be some risk involved as no one can guarantee which way the forex or the crypto markets will move. You will need to learn how to minimize and manage risk if you want to maintain profitability. However, it is also worth noting that even the most successful and experienced traders sometimes lose money.
In simple words, there are advantages and disadvantages of trading in either market. Crypto trading is more volatile than forex, it also allows you to make huge amounts of profits. High risk and high reward are somewhat correlated in the world of trading.