Forex vs crypto

What is forex and what is crypto?

Forex is an abbreviation for foreign exchange – a financial market that enables you to get exposure to international currency pairs. Essentially, it’s the market in which one currency is converted into another.

When trading forex, you’d buy and sell one currency against another at an agreed price. If you’ve ever bought an item from an international online vendor in a currency that’s different to your native lender, you’ve had exposure to forex.

Crypto is short for cryptocurrency – digital currencies where a record of the transactions is verified and recorded on a decentralised system instead of a centralised or single authority. In other words, it’s a non-physical currency, but it can be used similarly to traditional lender.

Most cryptocurrencies store their transactions on blockchains to increase transparency. This aids in lowering risk and removing the ‘middle man’ that often results in additional transaction fees.

Forex vs crypto: what are the differences?

Even though the forex and crypto markets have similarities, such as being driven by supply and demand, they do have some significant differences. We discuss these differences in detail below:

1. Market participants
2. Size
3. Structure
4. Accessibility of assets
5. Volatility

Market participants

There are more market participants involved in the forex market, which is more developed compared to cryptocurrencies. The forex market participants range from central and commercial banks, investment funds, companies, retail brokers and traders.

Different foreign exchange participants have a role that they play in the market. For instance, commercial banks are the main hub or cornerstone that facilitate an exchange of currency pairs being traded on an international level. Central banks enter this market not to make profits, but to stabilise the national currency exchange rate, which impacts the country’s economy.¹

In the cryptocurrency market, there are three types of participants – exchanges, miners and traders. Exchanges are digital marketplaces where you can buy and sell cryptocurrencies. Crypto miners are people or companies that complete blocks used verify transactions within the blockchain network. Cryptocurrency traders, on the other hand, speculate on the rise and fall of the price movement and don’t take ownership of the underlying crypto coins.

Size

The forex market is large, mainly since it’s composed of transactions from international entities such as companies, banks, investors, funds and individuals, who depend on this system to exchange foreign currencies in real time.

While still in its teen years, the cryptocurrency market has made huge strides as blockchain networks have expanded. In 2021, the global cryptocurrency market was valued at US$1.5 billion and is expected to reach US$2.3 billion by 2028.²

Structure

The forex and cryptocurrency market structures are mostly dependent on demand and supply, which have a bearing on how traders can negotiate on the price without the approval of government agencies. Trading forex and cryptos can be done over the counter (OTC) and or through an exchange or brokerage.

The market structure for both forex and crypto are also decentralised, meaning they’re not issued by a central authority like the government, therefore no single party controls the market. Some consider this transparency to be the strength of the market, especially in the case of cryptos.

Compared to traditional currencies traded on the FX market, cryptocurrencies mainly exist only in the digital space and are stored on a blockchain. Cryptocurrency transactions only take place via digital wallets and are verified once they have been mined.

The forex structure is mostly within the formalised markets and regulated. On the other hand, cryptocurrencies have a less formal structure, making them more susceptible to criminal activity and or fraudulent transactions.

Accessibility of assets

The forex market provides more accessibility as compared to digital assets like cryptocurrency. With us, you can trade over 80 exchange currency pairs available globally with CFDs. These include major pairs like AUD/USD, EUR/CHF and EUR/GBP. The minor pairs are CAD/CHF, CAD/JPY and CHF/JPY, while the exotic currency pairs include CHF/HUF, EUR/CZK and EUR/HUF.

Cryptos have less liquidity. They also require a wallet and an exchange account to trade, which have deposit limitations and can be expensive to maintain.

Unlike the limited number of foreign exchange currency pairs available worldwide, there are over 11,000 cryptocurrencies, and counting, that’re actively traded on the blockchain, in addition to the well-known ones like bitcoin and ether. This also makes it hard, if not impossible, to track the cryptocurrency market in its entirity.³

Volatility

Both markets are volatile, however cryptocurrencies tend to experience more volatility than forex pairs. This means crypto prices are highly likely to be affected by even the smallest of market movements, leading to significant fluctuations in a single trading session.

Forex pairs, on the other hand, have high daily trade volumes with frequent movements within narrow bands. This high volatility rate, as compared to other asset classes, aside from cryptos, is what attracts a lot of traders.

How do you trade or invest in forex and cryptos?

With us, you can also trade forex, forwards and futures. When trading forex with us you can do this using CFDs, which are contract agreements to exchange the currency pair price difference from when you open and close a position.

On the other hand, when trading cryptocurrencies, you’ll be speculating on the price movements using a CFD trading account. When trading crypto CFDs, you’ll go long (‘buy’) if you think a cryptocurrency will appreciate or short (‘sell’) if you think it’ll fall.

With us, you can trade CFDs on 11 major cryptocurrencies, two crypto crosses, and a crypto index – an index which tracks the price of the top ten cryptocurrencies, weighted by market capitalisation. It's important to remember that when trading forex and cryptocurrencies on CFDs, you don’t own the underlying asset.

CFDs are leveraged derivatives. Leverage enables you to increase your exposure to the forex or cryptocurrency market by paying an initial deposit – called margin - that’s a fraction of the full value of the underlying market.

Your profit or loss is still calculated according to the full size of your position, so leverage will magnify both profits and losses. Note that losses can exceed deposits – manage your risks carefully.

Make sure you understand the risks and benefits associated with trading leveraged products before you embark on this journey. Only trade or invest an amount of money you’re comfortable losing.

Alternatively, you can invest in cryptocurrency coins by buying them through a crypto broker. This will enable you to take ownership of crypto tokens and hold them in your digital wallet until they appreciate, then sell them at a profit. Note that we don’t offer this.

Trading exchange traded funds (ETFs) provides an alternative to investing in thousands of individual cryptocurrencies available on the market. With us, you can trade ETFs and increase your exposure to a basket of cryptocurrency coins and the underlying blockchain technology.

Trading or investing in forex or cryptocurrency

Forex vs crypto: which one is safer from a regulatory perspective?

It’s important to note that both the forex and cryptocurrency market aren’t regulated in a similar manner. The forex market is over the counter (OTC), which involves numerous transactions among several market participants such as central banks and investment funds and is heavily regulated.⁴

The cryptocurrency market, on the other hand, is more liquid or less regulated. Cryptos also tend to lend itself to some criminal activities such as fraud and the hacking of vulnerable codes in the blockchain system.

However, there’s been a global increase in the number of government agencies that provide some guidance, tightening security for those trading or investing in cryptos. This as government agencies recognise the rise in prominence of the blockchain ecosystem over recent years, which is likely to continue into the future.

When trading or investing in forex and cryptos, its best to use a regulated brokerage company. With us, you’ll be trading or investing with a broker that’s authorised and regulated by the Dubai Financial Services Authority (DFSA), and fully invested in the security of clients funds.

Forex vs cryptos summed up

• Forex is the market in which one currency is converted into another, enabling you to get exposure to international currency pairs
• Crypto is a digital currency that records and verifies transactions on a decentralised system that can be used similar to a traditional lender
• There are a several differences between forex and cryptos from markets participants to size, structure, accessibility to assets and volatility
• Both markets are volatile, however cryptocurrencies tend to experience more volatility than forex pairs
• The forex and cryptocurrency market aren’t regulated in a similar manner

Footnotes:

¹ IFC Markets, 2021
² GlobeNewsWire, 2022
³ Yahoo!finance, 2021
⁴ Bybit Learn, 2021