Forex (foreign exchange/FX) and Cryptocurrency (Crypto) are both financial instruments used for trading, but they operate in different markets and have distinct characteristics. With the increasing popularity of cryptocurrencies in recent years, traders are contemplating whether to focus solely on the crypto markets instead of FX or strive to strike a balance between the two.

Similar to the stock markets, the supply-demand equation governs the FX & Crypto markets. The price rises when there are more buyers and it falls when sellers outnumber buyers. As a result, you can trade FX & Crypto using known indicators and chart patterns. Despite the two tradings appear to be very similar on the trading platforms, it’s important to note that there are significant differences.

Traders in FX often focus on major currency pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD). Whereas there are already over 11,000 distinct Crypto, and the number is growing. Some are regularly traded, such as Bitcoin and Ethereum, but many are only known to serious Crypto enthusiasts. In Crypto markets, there are numerous instruments to pick from, but FX markets might occasionally see periods of calm trading lasting days or even weeks. Because it is impossible to track all Crypto, traders will have to select a subset of coins to track. As a result, traders will continue to work with a limited watchlist.

On the other hand, the FX market is exceptionally liquid, with a global trading volume hitting $7.5 trillion a day in 2022. Thus, you will be able to effortlessly buy or sell your chosen instrument, regardless of position size, without substantial slippage. This is a significant advantage since you will always be able to exit the deal at a price that is equal to or very near to the price displayed on the screen. But it is different for the majority of Crypto. The whole Crypto market cap is less than $2 trillion, with Bitcoin accounting for more than 45% of this amount. Because trading in most Crypto is not nearly as active as it is in Bitcoin, traders may have difficulty exiting the trade at the targeted price.

Crypto are quite volatile while FX markets are far more stable. For instance, Bitcoin, the world’s leading Crypto once began at $29,000 and rose to $65,000 before falling back to $30,000 and then rebounded back to $45,000. Such movements are uncommon in FX markets and usually occur in exotic pairs. In this regard, whereas FX is easier to control risk, the return potential in Crypto markets is more significant.

In terms of market hours, Crypto market is open 24/7 while FX market is open 24/5. So FX traders can put down their computers and enjoy their weekends but Crypto traders should stay in contact with markets at all times, as cryptocurrencies can make large moves on weekends.

In terms of security, given Crypto’s brief history and unusual structure, they are novel innovations that do not fit easily under financial regulatory systems. However, the FX market is carefully regulated and thus its traders face fewer risks. Nevertheless, FX traders should still investigate their broker’s history as well as the relevant rules in the country where the broker is registered despite scams have largely been eliminated in the FX trading business due to its maturity.

To add, the US securities regulator has recently approved the first US-listed exchange traded funds (ETF) to track bitcoin, the leading Crypto with a current market cap of roughly US$900 billion. From its statement dated 10 January 2024, 11 ETFs for bitcoin were granted the green light, opening the door to Crypto to many new investors who don’t want to take the extra steps involved in buying actual bitcoin.

Lastly, when deciding between the FX & Crypto markets, you should consider your financial objectives, available capital, trading style, and lifestyle requirements. The best way to decide is to experiment with small accounts in both tradings.

If you are keen to learn more of FX & Crypto, join InvestNow for more in-depth analyses.

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