For traders looking to future investment opportunities, cryptocurrency (crypto) trading may well be top of the agenda. It certainly has intrigued some traders recently, especially as the most popular digital currency, Bitcoin, hasreached an all-time high value of $61,000 in the past few months.
But with Forex (FX) trading still remaining as the largest financial market in the world, what can be learnt about the relationship between these two types of assets? As it’s fairly new to the scene, some may argue that crypto doesn’t even compare to the traditional FX trading, but in this articlewe will revealthat there are just as many similarities as there are differences.
Understandably, to trade in either of these assets, you must have a good understanding of the market, fully committing to doing your research before you open a position. From there, the concept of both crypto and forex trading is fairly similar, with investors looking to gain a profit from either market.
There are also some similarities to be drawn from the process of trading in both these assets. Each market is easily accessible due to the fact that all trading takes place online, and involves the digital trading of currencies.
You can also witness huge volatilely in both markets, which means that prices can fluctuate significantly on a daily basis. This is highly attractive to some traders, but like with any type of investment, does come with its risks.
The use of the underlying assets in both markets can now be used as a form of payment, as more and more companies have begun to accept crypto in this manner. This opens up the conversation surrounding the liquidity of crypto in the future, and its potential to match that of the FX market. This also poses the question of the ability to undertake trades between fiat currencies and crypto in the years to come, potentially enlarging the trading volumes of both types of instruments.
As previously mentioned, the main difference between the FX market, and that of cryptocurrency is how long it has been established for. FX trading is globally recognised as a reputable market and has a daily trading volume of around $6 trillion. Whereas crypto trading was only formed with the inception of Bitcoin back in 2009. This by no means degrades the validity of crypto, as it has risen from nothing to extraordinary levels over the past 12 years. However, this has come with extreme and sporadic rise and falls in its worth.
When forex trading you have access to a huge number of currencies, with extensive hours of trading, making it a huge market to trade in. As the crypto market is still developing, there are fewer variations of worthwhile digital currencies to invest in, although this range is increasing all the time.
Another difference between the two is the idea of decentralization. Although the FX market has no physical centralised exchange, and takes place over-the-counter through the interbank market, it does involve brokers and various institutions in the trading process. Crypto on the other hand is purely a digital asset, hosted completely online, and based on a decentralized peer-to-peer authentication and transactions.
Due to the nature of crypto compared to that of forex, the number of factors that can affect its price movement or value in the market is relatively minimal. When forex trading, fundamental aspects such as economic growth of various nations, the trade and relationships between countries, as well as changes in interest rates, to name a few, can all impact the value of a currency pair.
However, as crypto is specifically designed to be a decentralised asset, the market is practically free from the impact of government and banking factors that can affect the fiat currencies and the FX market. These include: rate changes, political events or uncertainty, or the release of relevant date or reports.
Whether you choose to trade in forex or crypto, its essential to understand that each come with a potential for loss as much as it does for profit. Remember that you should invest in the market that suits your trading style, depending on your personal goals, resources and risk management.