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Forex Trading vs. Cryptocurrency: Key Differences Between the Markets



While forex trading of international currencies has been an established industry for decades, the cryptocurrency market has grown from a fledgling idea to a multibillion-dollar market in less than a decade.

Today, many traders might be investing in both forex and crypto at the same time, hoping to leverage the profit opportunities that come with each distinct market. But while cryptocurrency earning potential has garnered a lot of media attention in recent years, this market also features key differences from forex trading that can increase your potential risk when investing money into these digital “currencies.”

Before forex traders dip their investments into cryptocurrency, it’s important to understand what these markets have in common as well as how they diverge from one another.

Comparing Forex and Crypto Markets

In a broad sense, forex and crypto markets share a lot of characteristics—especially when it comes to the earning potential that can be found in these markets.

Much of this earning potential can be attributed to the way market value is set by either traditional or digital currencies, which can fluctuate based on a wide range of market factors. They can also be heavily influenced by public statements made by influential leaders, including political leaders and tech investors, all of whom can shift public perceptions of these currencies through their commentary.

Meanwhile, forex and cryptocurrencies have benefited greatly from expanded access to online trading platforms. Cryptocurrencies wouldn’t be able to offer unregulated access without a decentralized digital solution to trade and manage these assets. Along with regulation by central banks around the world, forex market values are also connected, at least to some degree, by the economic strength and output of the country that currency represents. Cryptocurrency has no such relationship; its value is based on scarcity and demand.

Likewise, the rise of online forex exchanges has made forex much more accessible to everyday traders, not just larger funds and institutions.

Pros and Cons of Trading Forex

While forex trading offers a lot of earnings potential for traders, one of its greatest benefits is that its volatility tends to be low—especially when compared to cryptocurrencies. This low volatility can be attributed to the highly regulated nature of forex markets, where central banks are able to manage supply and demand in an effort to maintain stability for their currency.

Forex trading also comes with lower fees than other types of investments—even lower than cryptocurrencies, despite the lack of regulation of these digital assets. Another obvious advantage to serious forex traders is the ability to use margin when trading these assets, dramatically increasing your earning potential by allowing you to trade with borrowed money.

Depending on your trading goals, though, forex can still create limitations and disadvantages. While leveraged trades can maximize earning potential, for example, they can also cause you to lose significant amounts of money in a short period of time. Some traders may also find that the lack of volatility creates less profit potential than the wild market movements seen in the crypto market.

The forex market also operates on a more limited basis, revolving around three prime trading windows in the American, Asian, and European trading markets. This can create lulls in activity during certain windows of the day as well as over the weekends.

Pros and Cons of Trading Crypto

The high volatility and earning potential are the allure of trading cryptocurrencies. For some traders, crypto may be viewed as another way to diversify your portfolio beyond your standard forex holdings.

The high earning potential of cryptocurrencies is its primary draw for traders, but this opportunity for reward comes with several potential disadvantages and risks. For one, the high-risk, high-reward proposition offered by cryptocurrencies means that, while earning potential is high, it’s also possible that you could lose significant sums of money in short order.

And, since this market is unregulated, there’s no way to be certain that fraud or other types of manipulation might be causing crypto values to move, which also gives you no recourse if you’re victimized through these manipulations.

Security can also be an issue with cryptocurrencies. Because hackers may target cryptocurrencies and try to steal them from owners—in which case owners have little to no recourse to reclaim those assets—traders must have secure storage options available to keep this crypto safe. This may include the use of cold storage to keep crypto data completely inaccessible through an internet connection.

The more you trade with crypto, the greater the potential risk of getting hacked. This can turn heavy crypto trading into a very high-stakes financial venture.

Key Resources for Trading Crypto and Forex

To succeed at trading either crypto or forex over time, you’ll need access to resources that help you evaluate and execute trade opportunities for each type of asset.

While forex traders obviously need a trading platform that offers technical analysis capabilities, including chart pattern overlays to evaluate trade opportunities, it’s also helpful to utilize an economic event calendar to track potential government reports and other events that may affect trading in forex. 

Access to financial news services is also important to track market events, and traders may want to use both forex volatility calculators and a currency correlation matrix to assess both risk and potential reward with currency pairs.

Crypto traders will need a trading platform that offers access to these assets—and, in general, the more cryptocurrencies offered by that platform, the better. Serious traders should also acquire a crypto wallet, which can be app- or browser-based, to improve security for their held crypto assets.

In addition, crypto traders should reference global capitalization charts and real-time newswire services to make sure they’re kept up to date on crypto trends and news that may affect trade opportunities.

With the right trading tools in hand, you can better prepare yourself to identify prime trading opportunities that develop in both the crypto and forex markets.

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.