Deciding to enter the financial markets? One question you’ll face is whether to trade digital or fiat currencies. However, there’s much more that separates Forex from crypto trading. Let’s dive into the core differences in this article.
Cryptocurrencies and Forex are both popular avenues for investors looking to earn returns and diversify their portfolios. In that sense, they share some similarities.
However, these markets differ drastically. It's not only about the nature of the assets but also about the technical, mental, and professional preparation required from the traders.
The Unique Aspects of the Crypto Market
Cryptocurrencies, even with the tireless efforts of government regulators, continue to function much like the Wild West. Volatility is high, decentralization prevails, and constant technological advancements are coupled with rampant hacking incidents.
New projects and assets emerge in the crypto world at breakneck speed. To keep up, one must stay highly involved, always monitoring developments closely.
Here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as thatThere’s a quote from Lewis Carroll’s Alice in Wonderland that sums it up perfectly:
This line might as well be the mantra for any newcomer to the crypto world.
However, Carroll lived long before cryptocurrencies, and couldn’t have imagined that sometimes, in this market, you can stand still and still end up rich. After all, the stories of overnight millionaires are no fairy tales.
Crypto Market Oversight
The regulation of the cryptocurrency market is still quite lax, giving it a sense of freedom that comes with a trade-off: less protection. Hacks, phishing attacks, rug pulls, and cyber breaches are almost daily events. Such incidents have become so normalized that thefts involving anything less than six figures no longer generate much interest in the media that cover the industry.
Yet, it is precisely this early stage of the crypto market that makes it so appealing: it provides massive earning potential and draws in more and more participants.
The volatility of digital currencies, cutting-edge technology, unconventional financial tools, and the constant hype make for a breeding ground for new trading strategies and groundbreaking approaches to profit-making.
The ultimate crypto trader’s dream? A shiny yellow Lamborghini. Source: Х
Another aspect of cryptocurrencies is their anonymity (or more accurately, pseudonymity), which appeals to those who want to keep certain parts of their income out of sight.
Furthermore, the taxation of crypto profits is still in the works in most countries, allowing some to avoid paying their dues to the state coffers.
However, with the European Union’s MiCA regulation on the horizon, this landscape is set to change dramatically.
The Players in the Crypto Market
Retail Investors
These are everyday individuals who buy and sell cryptocurrencies, hoping to turn a profit. They also include those who receive payments or salaries in crypto, creating a need for conversion. Retail investors currently make up a large percentage of cryptocurrency trading volumes.
Institutional Investors
Large-scale financial players such as pension funds, hedge funds, and venture capital firms. With their vast capital and long-term investment strategies, they hold significant influence over the market. To avoid moving the price of assets, these investors often use over-the-counter (OTC) platforms for their transactions.
Miners
Miners provide the computing power necessary for blockchain networks to solve cryptographic challenges, which are critical for validating transactions and adding new blocks. These individuals or companies are compensated in cryptocurrency, which they then sell, influencing market supply and demand.
Traders
These are professionals who engage in speculative trading of cryptocurrencies, aiming to profit from short-term price changes.
Developers
Developers are the driving force behind the crypto market’s evolution. They create new assets, platforms, and financial products, attracting capital and providing the infrastructure for market growth and scalability.
The crypto market’s supply and demand are heavily shaped by the emotions and psychology of its participants. The crypto community’s mindset can be swayed by breaking news, social media trends, and even intentional information leaks.
The Essentials of Forex
Forex (short for the Foreign Exchange Market) is a more stable and conservative market, often considered traditional. It is tightly regulated by central banks and financial authorities, ensuring transparency, stability, and a degree of investor protection.
“A degree” because even here you might fall victim to scams such as clone websites, shell companies, or “bucket shop” brokers who keep your funds rather than trading them on global exchanges.
In Forex, you trade fiat currencies like the US dollar, euro, or yen. The trading happens in pairs (for example, EUR/USD, GBP/USD), with traders profiting from fluctuations in the exchange rate between the two currencies.
Forex belongs to the traditional market category. Source: Medium
Imagine exchanging currency at an airport, but on a much larger scale. However, in Forex, there’s no need for a physical exchange — instead, you engage in contracts for difference (CFDs). If the trade goes your way, you pocket the profit (minus broker commissions); if not, the loss is covered by your margin (deposit).
The "blown accounts" you often read about on Forex forums usually happen to traders who suffer more losses than gains, depleting their margin to the point they can no longer open new trades. Failure to adhere to risk management principles can lead to the same outcome.
Forex is one of the world’s most liquid markets, enabling traders to quickly open and close positions with minimal slippage.
Taxes on Forex profits are well established in national legal frameworks and generally include income tax, capital gains tax, and social contributions, though rates vary by country.
Forex or Crypto: Which Path to Take?
Before you choose your market, it’s essential to consider your risk tolerance. The perception of risk is highly individual: for some, losing just 10% of their deposit feels overwhelming, while others might lose it all and start fresh without much emotional strain.
Different traders have different loss tolerance levels. Source: Х
Both Forex and the crypto market require a solid grasp of technical analysis. However, Forex also demands a strong foundation in fundamental analysis, taking into account economic indicators, political events, and geopolitical risks.
Cryptocurrencies are inherently more speculative and demand adaptable strategies as well as the mental toughness to weather sharp price swings. If you’re committed to digital currencies, you’ll need to learn how to read community sentiment and safeguard your assets from cyber threats.
Another key factor is trading hours.
The Forex market runs only on weekdays, with closures on holidays and weekends. Meanwhile, cryptocurrency exchanges never sleep, offering 24/7 access to trading opportunities.
