Forex and Crypto Trading, What’s the Difference
Crypto trading and Forex Trading are often confused by people as the same thing. Just like with crypto, Forex does involve trading currencies. There is however a critical difference between the two that future financial investors need to know. Forex is an established form of trading that has been around years. Crypto trading is a newcomer to the financial trading space.
Forex acts as a middle man, as a broker or as an institution that will take fees for specific steps of their trading process. It is the lack of a middle man that often draws people away from crypto trading and makes them stick to the conventional style of Forex. There is also one other significant difference between Forex and Crypto; it is that Forex is completed legalised by the government and has security backing the form of trading.
Bitcoin vs Swiss Francs
The average turnover rate on a day-to-day basis for Forex is often in the billions, with a total of USD 5 trillion being traded in 2016. In comparison, the most popular cryptocurrency “Bitcoin” had only ever had a turnover rate of USD 1 Billion.
Bitcoin trading is not as large as Forex Trading, which uses the Swiss Franc and is responsible for 5% of overall global trading volumes. They have a daily turnover rate of USD 243 billion. However, the critical difference between the two forms of trading is that with crypto trading you can have returns of up to 70%. This is unheard of with Forex Trading.
The middle man is everything when it comes to Forex trading. This is due to it being a regulated, matured and established market. There are hidden fees and costs everywhere when you use a broker or access the exchange. Forex trading can become costly, even before someone makes a trade. The rise of institutional involvement with Forex Trading has created an over-saturated market that has established banks, firms and traders all competing against each other. This makes it very difficult for anybody new to compete.
Volatility and Stability
Crypto trading also has better volatility than Forex Trading, making it hard for Forex traders to take advantage of the small differences in exchanges. However, Forex Traders get the benefit of having liquidity easily. In simple terms, this means that you can trade any currency with another. Such as the US Dollar with the South African RAN. Orders of that nature are filled instantly which is what created the high daily turnover for Forex. Liquidity with Forex also guarantees that large trades won’t change dramatically on the asking price. This is, however, the opposite for crypto traders.
That is the disadvantage to crypto trades; the price can shift immediately on big orders. This is especially the case when dealing with lesser-known tokens or ALT-Coins. None the less, Crypto trading is still growing as it is relatively easy to jump in and start trading immediately. The fees are usually considerably less than that of Forex, and there is no middle man, meaning no hidden costs. Indicating that it is much easier to buy and sell.
Regulation and Security
The significant difference between these two forms of trading that usually makes or breaks somebody’s decision on trying Crypto Trading is security. Cryptocurrency is an entirely new technology, just like with any technology there is risk associated with new tech. There have been countless stories of cryptocurrency exchanges being hacked, their funds being stolen and currencies being lost merely due to a software glitch. These issues can be reversed over time, but it’ll be a difficult challenge.
There aren’t any regulations or regulatory bodies for crypto trading. This leaves traders open to fraudulent behaviour, scams and malicious software that can collect private information from your desktop. Having any of these issues occur is an unpleasant experience and often results in people turning away. It is only the potential of the 70% return and millions that possibly can be made that drives people back into crypto trading.
Forex trading offers different levels of protection as they are governed by the US Government and can face federal prison time for committing any fraudulent behaviour or committing any scams.
Which Is Better?
Both Crypto Trading and Forex Trading have their pros and cons; they both have their rewards and risks. Overall, Forex trading is more stable and regulated. However, it is Crypto trading that carries the promise of making brand new trader millions in a few years time. Essentially, if you can become a skilled and smart trader who thrives on risk, then you will do amazingly with crypto trading. However, if you are somebody who likes to play it safe and doesn’t mind waiting, then Forex Trading is the name of the game for you.