Trading foreign exchange currencies (Forex) on the financial markets has been popular over the years. Trading crypto (cryptocurrencies) is just taking center stage as the world moves into the digital ‘gold rush’ thanks to technology and innovations. Is trading Forex the same as trading crypto? To trading experts, these terms are clear and different, but novices may be confused by the two. Below, we’ll explore how trading currency Forex differs from trading cryptocurrencies.
What Is Forex Trading?
Forex is an abbreviation for foreign currency and exchange. It’s a financial market that involves converting one currency to another for different reasons, such as trading, commerce, or tourism. Forex trading converts one currency to another for commerce and profit.
Forex vs Stocks
Forex and stocks are closely related, but differ in regulation and liquidity. Forex involves trading in currencies and their exchange, while stock involves trading on the value of blue chips or well-established and financially sound companies.
Most traders prefer the Forex market to stock because of its limited control, high liquidity, around-the-clock trading, and increased leverage afforded to participants. Forex trading and markets open 24 hours a day, five days a week. Compared to Forex, stock market trading is highly controlled and has set daily timetables for market trading hours, depending on the exchange and region. For example, most U.S. Stock exchanges open at 9:30 am EST and close at 4:00 pm EST.
What Is Crypto Trading?
Crypto is an abbreviation for cryptocurrency. Cryptocurrencies are digital currencies without centralized control, but can be used for frictionless transactions. It’s a non-physical currency, unlike fit or national currencies, but it can be used like traditional tender. Since they’re non-physical, cryptos and their transactions are stored on blockchains for increased transparency.
Crypto trading is speculating on the price movements of cryptocurrencies via a CFD (contract for difference) trading account or trading (selling and buying) the coins through an exchange. A CFD enables traders to speculate on future market movements of an underlying asset, such as shares, commodities, Forex, or crypto, without owning or taking its physical delivery. With CFDs or exchange platforms, crypto traders can speculate on cryptocurrency price movements without owning underlying coins. Like Forex, you can buy (go long) if you think a crypto’s value will rise or sell (short) if you think it may fall.
Crypto vs Stocks
The major difference between crypto vs stocks is in the modalities of ownership and trade. A stock is fractional ownership expressed as an interest in a business. Stocks belong to physical companies and are a share of ownership in percentage. Cryptos are digital assets with no intrinsic value, having few regulations, and backing or hard assets. Unlike cryptos, stock is highly regulated with pre-set trading hours and ownership models.
Is Forex Trading the Same As Crypto Trading?
Forex Trading and trading crypto have certain similarities and clear differences. The similarities between Forex and crypto are:
- Both involve trading on currencies (buying and selling of currencies). Forex involves physical currencies (fiat money), while crypto involves digital currency
- Both require CFD trading accounts or trading the underlying currencies via an exchange
- Both are driven by supply and demand
- Both markets are volatile, but cryptos experience more volatility than Forex
However, the differences between Forex vs. crypto are clear. Here is the difference between trading Forex and trading crypto:
The Forex trading market has several participants, including central and commercial banks, companies, investment funds, retail brokers, and individual traders. Each participant has a clear role. For instance, most commercial banks are the main hub of Forex exchange, while central banks stabilize the national currency exchange rates.
The cryptocurrency trading market has three participants: miners, exchanges, and traders. Like in Forex, crypto exchanges are digital marketplaces that facilitate buying and selling cryptocurrencies. Miners are people or companies that solve blocks to verify crypto transactions in a blockchain network and earn coins. Crypto traders are individuals or companies that speculate on crypto price movement and don’t own crypto coins.
The Forex trade and market is large, mainly composed of international entities such as banks, companies, investors, funds, and individuals. The crypto market is just beginning, but continues to expand. As of July 2022, there have been 20,268 cryptocurrencies, but not all are active or valuable.
Both Forex and crypto trading market structures depend on demand and supply. Both Forex and crypto trading can also be done over the counter (OTC) or through a brokerage or exchange. They both have decentralized market structures, giving them strength over stocks. However, crypto trading only occurs digitally, while Forex is structured through formalized markets and regulations.
Accessibility of Assets
The Forex markets are more accessible than crypto markets. Depending on your location, you can access as many Forex currencies as possible to use in trade. Cryptos require a wallet and an exchange account to trade. Some exchange platforms have deposit limitations and may be expensive to maintain. There are also only about 11,000 cryptocurrencies that can be traded worldwide, unlike the limited number of foreign exchange currency pairs available.
Forex and crypto trading have similarities but also have clear differences. Cryptos are digital, while Forex is a percentage representation of a company’s value. Both markets have defined structures and assets, but crypto is more difficult to access and trade. Crypto is still developing, and more is expected over the coming years.