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Comparison of Forex and Cryptocurrency Markets


Every novice investor must decide for himself the main question - what exactly to do. After all, while there is neither experience nor knowledge, it is better to focus on one aspect of financial interactions. For many years, the Forex market has been such a "launch pad" with a low entry threshold. But more recently, numerous platforms have begun to compete with him, on which cryptocurrency and related financial instruments are traded. So what should a beginner focus on? Let's try to figure it out.

What is the Forex market?

The term "Forex" stands for "Foreign Exchange", that is - currency exchange. Indeed, there is an exchange of fiat assets issued by various states in a 24/5 mode through decentralized over-the-counter trading.

Forex is the largest trading market in the world with daily trading volumes of about $ 5 trillion. Banks, large financial enterprises, and retail investors work with him, who either want to make a profit purely in the exchange process, or try to get the national currency for their further work.

This interesting phenomenon arose in the 19th century in connection with the gradual abolition of the "gold standard", and developed and strengthened in the twentieth, after the US dollar became the world currency. But it was only in the seventies of the last century that the foreign exchange market turned out to be associated with various institutional and retail investments. And this situation continues to this day. And the nineties, with their automation and widespread use of the Internet, made it accessible to the general population.

Most of the trading carried out in the Forex market is over the counter. This means that traders interact with each other without any outside control. Negotiation of conditions and conclusion of transactions takes place either directly or through a broker who takes on the role of an intermediary and carries out transactions on behalf of their clients. Trades are conducted 24 hours a day, from Monday to Friday. However, they can be divided into 4 main "sessions", which depend on the main working hours in different parts of the world.

This market is famous for its high development rate and high volatility, which attracts so many investors to it. Everyone wants to take the opportunity to make money literally out of the blue - on exchange rate fluctuations relative to each other. There are many reasons for this - both economic and political. Therefore, for effective work, it is not enough to follow the graphs of price fluctuations - you need to track events in the world and in individual countries, follow economic calendars and GDP reports, and study the features of national economies.

What is the cryptocurrency market?

This is a rather young undertaking - it is about 11 years old, so we can say that it is just developing. Trading is carried out exclusively with digital assets, but in a 24/7 mode. Although there is a segment of over-the-counter trading, the bulk of trading goes through exchanges.

The beginning of the cryptocurrency economy was the launch of the Bitcoin blockchain with its own BTC token in 2009. But the first exchanges ready to work with him appeared only a couple of years later. And it turned out to be a pretty effective undertaking. New trading platforms were created, new altcoins appeared. So at the moment this market has a daily trading volume of $ 100 billion. Trades are held 24/7, 365 days a year. But the profit on different platforms can vary greatly, since different countries of the world have different attitudes towards cryptocurrency. And different laws regarding its regulation.

These markets are extremely volatile and poorly resistant to various manipulations. But many see it as a positive thing, making it easy to make money. In addition, although they depend on industry news, they are much less dependent on global events and traditional markets (on average, of course, the global pandemic brought down both forex and cryptocurrency markets). Therefore, traders can pay less attention to news and economic indicators, and more to technical and fundamental analysis.

What are the similarities?

They have quite a lot in common. The main ones are as follows:

  • Working with money, not real goods. Yes, numerous tokens can also be viewed as varieties of cash or currencies. With many amendments, of course, but you can. Especially when you consider that the same bitcoin has long become a means of accumulating capital, that is, it has caught up with fiat currencies in most parameters.

  • Lots of individuals and organizations looking for either profit or resources for a normal operation. Here the similarity is complete, including the fact that both there and there there is a low entry threshold, which allows private individuals to engage in trading without much capital.

  • Use of high technologies for work. Computers and the Internet are critical to the efficient operation of these markets. And although Forex emerged long before their appearance, it was able to fully appreciate the benefits that speed and automation provides. Cryptocurrencies, however, are one step ahead here, since in general they can exist only in the digital space and cannot do without networks and computers.

What is the difference?

Despite the great similarity, there are differences between these markets. Pretty global. They are as follows:

  • Forex works through brokers. Yes, you can get an account that guarantees direct access to the market, but this is difficult and not very convenient for ordinary users. Therefore, you have to interact with brokers and pay them a fee for services. The size of which depends on the current market conditions, selected currency pairs, trading participants and many other parameters. This is due to the fact that it is quite difficult to interact privately with a decentralized OTC market.

  • Cryptocurrencies are mainly traded on centralized exchanges. In fact - the same intermediary in the auction, but the only one. Plus, there is no need to bargain in the process of concluding a contract, since the commission is clearly spelled out. So no unnecessary movements - either an exchange for conditions satisfying both sides will take place, or not. Plus, all transactions are under the control of a central regulatory body, so nothing can be hidden. Yes, decentralized exchanges for cryptocurrency trading have begun to gain popularity lately, but their trading volumes are still relatively small compared to conventional exchanges.

  • Forex is more dependent on the economic and political environment. The value of a currency is determined by its interaction with other currencies, the value of goods produced by the issuing country, foreign policy interactions and internal stability. Such currencies are carefully regulated at the legislative level, therefore they are more stable and predictable. Plus, the interaction mechanisms have been worked out quite well, so that rate fluctuations can be predicted by analyzing the news feed.

  • Cryptocurrencies are self-sufficient. Their value is determined by the combination of their own usefulness and speculative faith. Yes, there are digital assets tied to real currencies or resources, but there aren't that many of them. In general, they behave in much the same way as regular currencies. Another problem is that crypto is still very poorly regulated. Some countries still cannot decide whether it is money, securities or something else. Therefore, in some places their use is officially prohibited, while in others you can pay with a crypt for anything you want - even pay taxes in it.

  • Fiat is more stable. It is difficult to imagine what would have to happen for a fiat currency to lose all its value. Maybe a global war and serious economic destruction. With crypt, this can happen in just a few days. As soon as investors lose faith in its usefulness, a rapid decline will begin. Which, in due time, happened to bitcoin.

What to choose?

To be honest, this is an extremely difficult question. The most adequate answer is not him - it all depends on which trading environment you like best.

Forex is an industry with a deep history and varied experience, a more developed infrastructure and clearer and clearer regulation. But the growth opportunities there are not as significant as in the crypto market. Plus, you have to make some efforts to find an adequate broker. By the way, many of them will also be ready to work with cryptocurrencies, but they will set the conditions for you on their own.

The cryptocurrency market is more like the “wild west market”. Fewer rules, less insurance, but more chance of huge profits. However, it is better to start with something big and more or less stable. That is, from exchanges like Coinbase, Binance and Gemini, which are quite loyal to newbies and provide more advanced tools for those who have already figured out how trading is going.

Whichever path you choose, remember that the key to success is studying the situation. It is not necessary to learn from your own mistakes - you can study someone else's experience, listen to recommendations, but the main thing is to think with your own head and carefully check the information. If you are unsure of your decisions, don't take risks. Keep this in mind and you will be able to succeed no matter what type of trading you choose initially. In addition, no one bothers you to try to change your occupation, if it becomes clear that this is not yours.