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Forex vs. Crypto Trading • Understand the Differences • Benzinga – Benzinga


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At its core, any comparison between the forex market and the cryptocurrencies market boils down to old and new ways of thinking about money. It may seem difficult to correlate currencies backed by countries with those by coding. But, people are creating real buying power in their day-to-day lives learning both types. 

If you’ve ever had forex vs. crypto thoughts rolling around in your head, read on for some context that could help inform your decision.

Similarities Between Crypto Trading and Forex Trading

Before we move into the differences between crypto and forex, let’s see why these markets may not be so different after all.

Forex and Crypto Play Together

The most important similarity between crypto and forex is that they now hold value relative to each other. You may not believe in Bitcoin or Ripple as a legitimate currency, but forex exchanges do. The Chicago Board Options Exchange (CBOE) also believes in crypto enough to offer options contracts on them. 

Although the CBOE only offered crypto futures contracts from December 2017 until March 2019, the Chicago Mercantile Exchange (CME) currently offers bitcoin futures. You can also trade contracts-for-differences (CFDs) of reputable cryptocurrencies on platforms like eToro just like CFDs of forex currency pairs.

Decentralization

If you’ve read anything about crypto, you’ve heard about the concept of “decentralization.” All that means is there is no central regulation on the market. Here’s a little secret: The forex market is also decentralized. No, FOREX.com is not a central regulatory body for forex, just a well-named exchange! (Click here for a FOREX.com Review to learn more about it.) 

On its own, decentralization does not mean that a market is less stable. It does mean you need to watch your back when investing, but that should go without saying.

Similar Market Physics

The same basic money physics that regulates movement in forex also regulates crypto. The notion of basic supply and demand is in effect: If there are more buyers than sellers for a cryptocoin, the price of that coin generally goes up. More sellers than buyers means a crypto bear market, just like in forex. 

Efficient market absorption of news means that both forex and crypto respond instantly to market shocks. For example, if a BTC whale converts $30 million BTC into Japanese yen, it affects the crypto market just as talk of war in the White House would change the value of certain U.S.-based forex currency pairs.

Differences Between Crypto Trading and Forex Trading

Market Size

The forex market is the No. 1 market in the world for trading volume by a large margin. The Bank for International Settlements reported an average of $6.6 trillion daily trading value in the 2019 forex market, a 29.4% increase since its last report in April 2016. As of May 2020, the cumulative market cap for the crypto market totaled around $256 billion. 

The larger size of the forex market also gives it different levels of volatility and liquidity (concepts that will be discussed below). Forex beginners can start out trading currency pairs from stable countries with more protection from large losses before moving on to more speculative trades.

Volatility and Liquidity

Crypto is a smaller market than forex, so smaller amounts of money can move crypto more substantially than forex. If another $256 billion entered the crypto market, we could ideally expect the prices of all crypto to double. That same $256 billion represents a change of about 4% in the forex market. As a result, the crypto market is much more volatile than the forex market. 

A higher volatility means more risk for investors — a greater chance of an exponential upside as well as huge, financially crippling losses. Higher volatility also means less liquidity (ease of trading), because more people are naturally attracted to a smooth marketplace. Low volatility and high liquidity means the forex market can better absorb economic shocks. This benefits the average person — both investor and noninvestor — with relatively stable currencies even in bad economic times.

Anonymity

Cryptocurrency first took off primarily because of its ability to foster anonymous transactions. Government intervention has limited the ability of top coins like Bitcoin and Ethereum to hide identities, but smaller coins like Monero, Zcash and Verge retain this characteristic. 

Forex transactions, on the other hand, are regulated by a tight web of forex brokers and financial professionals known as the interbank market. Since 2014, the interbank market has incorporated a “know your customer” (KYC) standard that requires traders to provide personal information to access an exchange. Perhaps spurred on by crypto’s anonymous structure, companies like EagleFX that subvert or ignore KYC rules are popping up for forex traders. 

Pros and Cons of Crypto Trading

Before making a decision to invest in this quickly changing environment, consider some of the following pros and cons.

Pros Cons
Anonymity
High growth potential
Low barriers to entry
Low fees
Increasing acceptance into mainstream society
No government insurance for accounts
Less secure marketplace
Probability of total currency default
Lower levels of liquidity
Errors in underlying technology can drastically affect markets

Pros and Cons of Forex Trading

Although on the surface forex is safer than crypto, you still need to know what you’re getting into.

Pros Cons
Stability
High liquidity
Measure of centralized protection against fraud and theft
Less potential for massive losses
KYC standards protect traders and brokers from fraud
Less potential for huge, short-term gains
Gains easily tracked and taxed
Higher barriers to entry
High fees and middleman costs depending on your chosen broker
Unexpected political events can shock the market and cause major losses

Best Brokers for Forex Trading

The broker you use for trading forex can make a huge difference in your success. Here are some of the best forex platforms to consider.

FOREX.com



Commissions

Spreads start as low as $1
But vary based on trading volume

Account Min

$250

Commissions

Spreads start as low as $1
But vary based on trading volume

Account Min

$250

1 Minute Review

FOREX.com is a one-stop-shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker. You can’t invest in the stock or bond market through your FOREX.com and you cannot open an account with tax advantages. The confusing pricing and margin structures may also be overwhelming for new forex traders.

Best For
  • Forex traders located in the United States
  • MetaTrader 4 users
  • Beginner forex traders
  • Active forex traders
Pros
  • Impressive, easy-to-navigate platform
  • Wide range of education and research tools
  • Access to over 80 currencies to buy and sell
  • Leverage available up to 50:1
Cons
  • Cannot buy and sell other securities (like stocks and bonds)
  • Confusing margin requirements that vary by currency
  • Limited customer support options
  • Cannot open an IRA or other retirement account

IG Group



Commissions

$10 value per pip

Account Min

$0

Commissions

$10 value per pip

Account Min

$0

1 Minute Review

IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.  

Best For
  • New forex traders who are still learning the ropes
  • Traders who prefer a simple, clean interface
  • Forex traders who trade primarily on a tablet
Pros
  • Easy-to-navigate platform is easy for beginners to master
  • Mobile and tablet platforms offer full functionality of the desktop version
  • Margin rates are easy to understand and affordable
  • Access to over 80 currency pairs
Cons
  • U.S. traders can currently only trade forex
  • Customer service options are lacking
  • No 2-factor authentication on mobile

eToro



Commissions

0.09% spread cost

Account Min

$50

Commissions

0.09% spread cost

Account Min

$50

1 Minute Review

Best Brokers for Crypto Trading

You can divert quite a bit of risk trading crypto with the right broker. Take a look at some of the more reputable and popular choices. 

Coinbase



Commissions

Account Min

$0

Commissions

Account Min

$0

1 Minute Review

Best For
  • All levels of traders

eToro



Commissions

Depends on location of trader

Account Min

Between $500-$1,000 depending on account

Commissions

Depends on location of trader

Account Min

Between $500-$1,000 depending on account

1 Minute Review

eToro, headquartered in Cyprus, England and Israel, has provided forex products and other CFD derivatives to retail clients since 2007. A major eToro plus is its social trading operations, including OpenBook, which allows new clients to copy trade the platform’s best performers. Its social trading features are top notch, but eToro loses points for its lack of tradable currency pairs and underwhelming research and customer service features

Best For
  • U.S.-based cryptocurrency traders
  • Derivatives traders outside the U.S.
  • Social and copy traders
  • Traders new to derivatives
Pros
  • Expansive network of social trading features
  • Wide range of CFD products
  • Large client base for new traders to imitate
Cons
  • Can only trade CFDs
  • U.S. traders can only buy and sell cryptocurrencies
  • Only 47 cryptocurrency pairs available

TradeStation



Commissions

$0

Account Min

$0

Commissions

$0

Account Min

$0

1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be

Which Market is Right for You?

The forex and crypto markets share characteristics but they couldn’t have a more different risk-reward dynamic. If you want a smooth, liquid market that rewards patience, forex may be your game. If you’re looking for pure growth, then you may want to look into cryptocurrencies. Consider talking to a financial advisor about forex versus crypto, and never speculate in any market with money that you are not willing to lose.

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