Crypto trading has increased to a great extent in the last few years. As the elevation occurs in digital currency investment, it increases crypto’s total market valuation up to $3 trillion. The significant increase in blockchain technology and specific cryptocurrencies attracts many traders, particularly those suffering in fear of losing notable gains.
It is considered a massive difference compared to Forex trading, where the currency exchange rate moves. This blog will elaborate on the differences between crypto and forex markets.
The Number of Assets
The significant difference between Crypto and Forex trading is the number of assets. In the case of Forex trading, you can have a few currencies for trading, including Euro, Chinese Yuan, United States Dollar, Pound Sterling (GBP), and Japanese.
Moreover, up to 14000 different cryptocurrencies are found, including MXR, BCH, USDT, LINK, DOT, MXR, LTC, ETH, and many others. But in the case of market dominance, market capitalization, and popular user base, the top and most known cryptocurrency are Bitcoin.
After Bitcoin, the other trading cryptocurrencies involve Ethereum, Solana, Binance Coin, and Cardano in the world of trade.
Forex trading involves buying one currency and selling another simultaneously (to profit through the rate change). Crypto trading involves buying one or more cryptocurrencies, each independent of all others.
Crypto exchanges have much-reduced liquidity compared to forex markets, but the upside is that they can quickly fill more small orders. The downside is a higher chance of slippage, where your order doesn’t get filled at the price you expected.
The increase in liquidity is directly proportional to the decrease of a bid-ask spread. Consequently, it becomes straightforward for the trader to craft their shares at fair prices.
On the other hand, this point is proving a little different in the case of cryptocurrency because certain assets increase liquidity.
Forex markets are much more liquid, but the downside is that they usually have larger minimum trade sizes and require you to verify your account before participating.
Costs in cryptos are usually much lower than in forex markets. Fees for buying and selling cryptos are generally less than 1%, while typical fees on forex platforms are around 0.5%. However, there are no fees per se for holding positions overnight with forex trading.
Forex markets tend to be more stable and less volatile, but exceptions exist. During the financial crisis of 2008, the biggest forex market – USD/JPY – had a one-day drop of more than 11%. Crypto markets tend to be more volatile. In April 2018, the price of bitcoin on some exchanges was as much as 64% higher than the price on others.
The forex markets trade 24 hours per day, 365 days per year, although some significant events (such as the US non-farm payrolls report) each month tend to trigger sharp price movements in a short space of time.
Crypto markets, in contrast, tend to be less liquid and have higher volatility during “off hours.” Since the time zone will not bound the cryptos, it is possible to trade different markets at any given hour of the day.
You can trade currencies, of course. But you can also trade indices (e.g., SPX500 ) and commodities (e.g., gold, oil) in forex markets. You can trade most major currency pairs and a wide range of cryptocurrencies in cryptos.
You can lose more than your initial deposit in forex if you hold a losing position and the market moves against you (i.e., this would be called “liquidated”) in crypto-speak.
This is much less likely to happen in cryptos due to smaller margin requirements. You won’t lose more than your deposit as long as you have enough funds to pay for transaction fees.
Market Vs. Limit Orders
Forex traders can place markets and limit orders. Market orders execute immediately at a price available. At the same time, limit orders enter the order book and become active when the price gets ‘touched.’ Limit orders also allow you to set the price to execute the order.
Crypto traders can place markets and limit orders. The main difference is that all limit orders in cryptos are ‘post only. It means they cannot be filled beyond the maximum buy/sell order size – and the exchange usually sets this.
Forex markets allow you to trade almost any two currencies, while cryptos only will enable you to trade one cryptocurrency against another (e.g., BTC/ETH). Crypto trading also allows you to trade one cryptocurrency against fiat or stablecoin (e.g., BTC/USDT).
Forex traders can use margin to increase their buying power and maximize profits. Crypto traders Cannot trade on margin.
Forex trading offers greater liquidity, more trading instruments, and margin trading. Crypto trading is cheaper and more straightforward but has less liquidity.
Even though cryptos and forex offer 24/7 trading, they differ in key areas. All these differences are given above to trade according to your choice.