Introduction

Is it better to trade Forex or Crypto? This is a question on many traders' minds. Both are among the largest financial markets in the world.

The Forex market is the largest of all the financial markets, where traders worldwide flock to trade currency pairs.

Meanwhile, the crypto market is less established and has been around for about 15 years. The Forex Market, as we know it, began forming in the 1970s.

In this article, we will explore the difference between the Forex and Crypto markets and why Forex Trading remains the best option for most people looking to start trading the financial markets.

Understanding Forex and Cryptocurrency

What is Forex Trading?

Forex Trading involves the simultaneous buying of one currency and selling of another.

Forex traders make money when their predictions are correct.

Unlike Crypto, Forex is only traded in currency pairs where there is both a base and a quote currency.

For example, traders who trade the USD/EUR currency pair place a ‘bet’ on the movement of these two currencies relative to each other.

The first currency in a currency pair is the base currency, and the second is the quote currency.

If traders expect the UDS exchange rate to increase against the EUR, they will buy the currency pair.

Conversely, if traders expect the USD exchange rate to decrease against the EUR, they will sell the currency pair.

What is Cryptocurrency Trading?

In simple terms, cryptocurrency is a digital currency. Crypto trading is similar to Forex in certain respects. However, it also has some distinct characteristics.

Crypto can be traded in pairs, just as in Forex. I.e., the BTC/USD pair can be traded against one another.

However, another common way to trade crypto is to buy a specific crypto using fiat (regular) money.

For example, buying Bitcoin using USD and selling it once a profit has been realized or exiting the position once a loss has been realized.

While it’s possible to trade Forex on a longer time frame, called position or swing trading, it’s much more common to day-trade Forex.

However, the crypto market attracts both traders and investors.

Investors in the crypto market buy a specific cryptocurrency – or several- and hold it for an extended period, hoping for price appreciation.

Market Comparison

Market Size and Liquidity

The Forex Market is substantially larger than the crypto market, with a daily trading volume of approximately $6 Trillion. Meanwhile, the total market cap of the entire crypto market is approximately $2.5 Trillion.

Due to the massive trading volume in the Forex market, it is also substantially more liquid than the crypto market.

The leading cryptocurrencies, such as Bitcoin and Ethereum, are highly liquid. However, other smaller cryptocurrencies are far less liquid.

Volatility

Volatility measures how quickly a price can change in an underlying asset or trading instrument.

Highly volatile assets can move dramatically in a very short time, increasing both the risks and potential rewards.

Because the Forex Market is highly liquid, it is less volatile than other financial markets.

Crypto markets, on the other hand, can be highly volatile. Not only is the liquidity much less than in the Forex Market, but the price of cryptocurrencies can swing dramatically as the crypto market is much more speculative.

There are estimated to be more than 20,000 cryptocurrencies currently.

Therefore, crypto markets are much more susceptible to ‘pump and dump’ scams than Forex.

The Forex Market is typically impacted by ‘real world’ events such as interest rates, economic indicators, and economic data.

Regulatory Environment

Forex Regulations

Due to its size and how long it has been around, the Forex Market is heavily regulated.

Some of the regulatory bodies include the following:

• The U.S. Commodity Futures Trading Commission (CFTC)

• National Futures Association (NFA)

• The European Securities and Markets Authority (ESMA)

These regulatory bodies exist to ensure fair and ethical practices for all market participants. They are in place to protect against manipulation, fraud, and abuse and ensure transparency in The Forex Market.

Crypto Regulations

Unlike the Forex Market, Cryptocurrency regulations are still being implemented, as governments and institutions are still clarifying them.

This lack of regulatory clarity poses several risks for crypto traders, including the following:

• Increased Market Volatility

• Scams and Frauds

• Security Risks

• Lack of Institutional Participation

Pros and Cons of Forex Trading

Pros:

1. Excellent Liquidity

Due to the massive daily trading volume, trades can be easily entered and exited. Furthermore, price is not easily manipulated by any market participants.

2. Regulation and Security

With the Forex Market being so well-established, traders can operate with greater peace of mind, as several regulatory bodies oversee the Market.

3. The Use of Leverage

Leverage is a powerful tool in the Forex Market that enables traders to significantly amplify their returns. Many Forex Brokers offer leverage as high as 100:1, which enables traders to control a $100,000 investment with only $1,000.

Cons:

1. Leverage is a Double-Edged Sword

Although leverage can significantly enhance profits, it also magnifies risk. Therefore, traders must understand the risks before using leverage.

2. Market Complexity

The Forex Market can be fairly complex, especially since currencies are traded in pairs. This means that news and economic indicators from 2 different countries can potentially affect your trade.

Furthermore, knowledge of both technical and fundamental analysis is crucial for successful trading.

Pros and Cons of Cryptocurrency Trading

Pros:

1. Market Availability

The crypto market operates 24/7, unlike the Forex Market, which is closed on the weekends.

2. Potential for Big Returns

The crypto market has substantial growth potential and is likely to continue growing as it becomes more regulated.

Cons:

1. Security Risks

Crypto wallets and exchanges are frequent targets for hackers. Furthermore, the lack of safety measures in terms of regulations exacerbates the risks.

2. No Regulatory Clarity

The Crypto space lacks regulatory clarity, exposing traders and investors to risks and uncertainties without legal recourse.

Forex or Crypto: Who Should Consider Each Option?

Having explored the differences between the Forex and crypto markets, is Forex or Crypto the better option for traders?

It ultimately comes down to individual preference. However, Forex Trading is the better option for the majority of people.

While the crypto market is open 24/7 and presents the potential for significant gains, the lack of legal clarity and the ever-present security risks remain a concern.

Traders who can only trade on the weekend may consider trading crypto.

The Forex Market, on the other hand, is a well-established financial market governed by many regulatory bodies.

Furthermore, the ability to use considerable leverage makes it an attractive option for traders with less capital.

Lastly, the higher liquidity and reduced volatility in the Forex Market offer a more stable trading environment.

Therefore, Forex Trading is the better option for most traders looking to build another income or even eventually replace their full-time jobs.