Trading Cryptocurrency Versus Forex

Crypto and Forex are both rather decentralized markets that always have constant demand. The main difference is that one deals with government-backed fiat currencies while the others are borderless and usually not tied to a single authority. While trading both currencies are basically the same concept, there are also distinct differences in each market.

Volatility

Volatility is likely what keeps the mainstream investor away from cryptocurrency. Just take a look at the price of any cryptocurrency in the past few years and it looks like a rollercoaster ride without any safety mechanisms.

Many people are skeptical about buying Bitcoin or any other cryptocurrency today since they expect it might crash later that week. Of course, those buying now would have to be hopeful in the long-term speculation rather than the long-term profit.

In the Forex market, many people rely on small bumps in the market to buy & sell for a slight profit. Most people will end up consolidating their money in arguably the most stable currency, the USD.

Market Capitalization

Comparing Bitcoin to the USD is like comparing David to Goliath. While we all want the crypto underdog to win, the average daily turnover of the USD in the Forex market is well over $5 trillion. Taking a quick look at the 24h volume of the entire crypto market, it struggles to remain over $33 billion.

Of course, new money can always flood into the market in the future crypto market, making the daily volume worth trillions. Until then, the USD and other fiat currencies have a track record of demand.

Transfer Fees

Transferring cryptocurrency can be either very expensive or cheap depending on the technology behind a certain currency. For example, before Bitcoin adopting the Lightning Network, people were actually losing money day trading BTC pairs due to the absurdly high miner fees. With currencies like Ripple or STEEM, it would be a non-issue

In the Forex market, you at least won’t find surprises like in the crypto market. The brokers and banks have their fees and are not reliant power-hogging miners to support the network.

Leverage

An advantage of trading through Forex brokers is the high amount of leverage available. Typical leverage amounts are between 50x to 200x the amount. This is a common way to make fast money with a smart trade while only having a tiny fraction of the capital.

Leverage in the crypto trading world is quite new and limited. BitMEX is the leading broker with Bitcoin leverage at up to 100x, but there are a few other cryptocurrency forex brokers to check out.

Of course, trading with leverage can always backfire. If your trade fails, you will owe the losses plus interest back to the broker. If you were trading with your own capital, you can just write it off as a loss without a debt hanging over you.

Conclusion

It will still take a while for cryptocurrency to catch up with the Forex market, but it is still relatively young to predict where it will go in the long-term. Exchanging foreign currencies is an old and necessary concept that likely won’t go away unless there is an official world currency.