The Foreign Exchange Market is one of the biggest centers for currency exchange. Various traders opt for Forex for the profit it brings along. The idea is simple: traders conjecture the health of currencies and attempt to exploit their volatility in terms of exchange rates for making a big profit. The idea behind cryptocurrencies is quite similar, as traders are constantly exchanging one cryptocurrency in lieu of another to make big gains. While the principle of both these trades is relatively same, there is a major difference in their working mechanism. Cryptocurrencies’ unpredictability in terms of volatility and ever-changing price-driving factors are essentially different from forex. In case you’re still looking to find out more about these differences, read on for a better insight about cryptocurrency vs. forex.
What Are Cryptocurrencies?
Cryptocurrencies are the digital assets that implement cryptography as a kind of data security for hassle-free transaction and operation. Although they are widely touted as digital currencies, cryptos are relatively closer to commodities like gold. Their exchange takes place in a P-2-P (peer-to-peer) environment without any intermediaries like central governments or financial institutions. Due to the lack of any central control, they are the currencies that are controlled by the masses.
Although different cryptocurrencies have different working mechanisms, most of them use the blockchain technology for storing data. This data is stored in public ledgers in a block-like form. These blocks are interlinked and can’t be modified under any circumstances. Due to this reason alone, they are much more secure than any other form of currency.
What Is Forex Trading?
Like we already mentioned, forex refers to the foreign exchange market where different kinds of foreign currencies are traded on a global level. Like cryptocurrencies, Forex too has rapidly flourished due to significant technological advancements. In fact, such is the popularity of Forex, that it is now traded online.
The idea behind forex trading is quite simple. All you need to do is compare the overall value of a certain currency, against another one. You assess them in pairs to find which among them should be bought or sold. Since forex is traded on a global market, it isn’t connected to a specific place either. As of now, there are three major versions of Forex trading, namely- the spot market, the forwards market, and the futures market. The former is the most popular of these three.
What Are The Differences Between Forex And Cryptocurrencies?
Forex and cryptocurrencies may follow the same principle, but they come with some major differences. In the next few sections, we are going to learn all about them.
Cryptocurrency trading takes places 24X7. However, such is not the case with Forex. Unlike the former, Forex trading is closed during the weekend, and you cannot trade it before Monday. This brief break doesn’t have any major impact on the outcome of Forex trades. However, for cryptos, a short difference in time can lead you to lose the entire sum you had invested. Alternatively, the amount can also quadruple, leading you to enjoy a big fortune. This usually happens because of the difference in the volatility of these two currencies.
For forex trading, the price of a single currency pair will be measured in pennies. Their difference isn’t that big. Therefore, you will need bigger amount for making profitable trades. Due to this forex trading involves higher leverages between 50:1 and 200:1 depending on your location. Cryptocurrencies, on the other hand, are extremely volatile in nature. Due to this reason, their overall price is always in a state of flux throughout a single day, and it might also change quite fast. Cryptocurrencies are widely sought for because of this instability. This is because higher volatility often results in more money.
While you need the necessary skills for trading in both these currencies, Forex trading requires you to have slightly more knowledge than trading in cryptos. Unlike cryptos, Forex trading requires you to have significant insight into the currencies, their operation and track record.
Since Forex trading deals with physical currencies, inflation has a significant impact on it. However, since digital currencies aren’t associated with a particular country, inflation has little to no impact on them.
Well, now that you know everything about both Forex and cryptocurrency trading, explore your options and choose the one that perfectly meets your requirements.