The financial trading sphere has never been so full of options for those wanting to grow their wealth. From stocks to bonds, Forex, and crypto, investors have the liberty to choose a market that suits their trading needs and goals.
Lately, however, the battle for popularity seems to be disputed between the cryptocurrency and Forex markets. Both options have numerous benefits, but they represent challenging environments as well.
The Forex market has been around for decades now, although technology brought some significant changes to it, which explains why it became such a popular option. The crypto market, on the other hand, has only been around for a little over a decade, but its unexpected success made traders want to venture into trading digital assets as well.
If you are a novice investor, choosing one of the two markets can be very difficult, as both bring benefits and challenges. But what if I told you, you can choose both?
A simple comparison of the two markets will show that, even though they are very different, they have a number of similarities as well. If you don’t know which one to choose, keep reading to find out what they are and how you can venture on both investment journeys.
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Forex – a short market description
By now, chances are you have been actively participating in the foreign exchange market to some degree. Have you ever traveled abroad and needed to exchange your money for the local currency? This is one form of currency trading. Fundamentally, this is what currency trading means, but the Forex market is a bit more complex than that. You don’t need to go to a brick-and-mortar exchange office to trade currencies; you do it all in a digital environment.
The Forex market is a global, decentralized marketplace, and to this date, it is the largest, most liquid financial market in the world. Every day, more than USD 5 trillion are traded on this market.
When currencies are traded, they are traded against each other in the form of exchange rate pairs (EUR/USD, GBP/USD).
The Forex market is open 24 hours a day, 5 and a half days a week, and because it is such as large market, there can’t be one single marketplace to support it. Currencies are traded every day, all over the world, and there are 9 major financial centers: London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. This helps cover almost every time zone, meaning that, for example, when trading day ends in London, it starts in New York and so on.
Trading happens on a platform that is made available by the Forex broker you choose, which is another important aspect to keep in mind. Not all brokers provide the same type of services, so you need to choose one that suits your trading style and financial needs.
Crypto – another short market description
If the Forex market has nearly 50 years of history, the crypto market is a very new one. Bitcoin, the first and most widely traded cryptocurrency, was released in 2009, and since then, over 6,000 altcoins have seen the light of day. Not all of these were successful, but the potential of this market is immense.
What differentiates the crypto market from any other financial market, is the fact that it is completely decentralized, making it immune, at least in theory, from government and central banks interference. The crypto market uses blockchain technology to provide immutability and transparency. Currencies can be directly traded between two parties, without third-party involvement.
The crypto market is known for its high volatility, which can represent massive wins, but also significant losses. Crypto prices can change significantly in a short period of time, so it is up to the trader to identity these open windows and buy or sell coins to make a profit.
Cryptocurrencies can be traded against each other, as well as against fiat currencies, providing a wide range of opportunities for traders. What’s more, traders can get access to crypto assets offered by Forex brokers as well.
A comparison of the two markets
Both markets have unique traits, but they are also quite similar in essence. In order to decide between the two, as well as understand why many traders choose both financial ventures, let’s have a look at the key similarities and differences between the two markets.
- Both markets involve trading currencies in the digital world
- Currency prices are determined by market demand and supply in both cases
- Both markets are known to have high volatility
- Trades are usually opened and closed within a short period of time, allowing traders multiple occasions to make a profit
- In both cases, the trader is required to have a good understanding of the market to be successful
- The crypto market is open 24/7, as opposed to 24/5 for the forex market
- 5% of the forex market is made out of institutional players, whereas the crypto market only includes retail traders
- The crypto market is still relatively new, which makes it much more volatile than the forex market
- The forex market involves smaller trading risks than the crypto market
- The crypto market is suited for long-term profits, whereas the forex market can be leveraged for short-term profits as well.
Final decision: crypto, Forex, or both?
While the crypto market can generate more long-term profits and usually involves fewer fees, the market is also less stable than the forex one. Ultimately, choosing which market to enter first is entirely up to you.
To decide, you need to be aware of your trading skills, personality, as well as financial goals. Certain investors like the challenges and uncharted territories provided by the crypto market, while others prefer a more stable environment.
However, the key to becoming a successful investor is to diversify your portfolio, so why not give both a chance? This will help minimize risks and has proven to be a good way to increase earnings.
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