The market is composed of millions of financial assets that are utilized by traders in the hopes of earning large profits. Both the forex market and the cryptocurrency market are very lucrative and great ways to make profits.
However, these incredible opportunities also come with the risks of losing money. While keeping track of graphs and charts and staying updated with the current news, traders can perform fundamental and technical analyses that can benefit their short-term or long-term investments.
However, a common question among most dedicated traders is: “Which one is more profitable?’ Is it traditional forex trading or the newly emerged cryptocurrency trading?
Below is an in-depth guide that comprehensively tackles these two markets to help you decide which is the most ideal for you.
What's Forex Trading?
The Forex market is a globally decentralized market for currency trading. Several trading platforms forecasts up-to-date forex rates for all currencies. These platforms provide multitudes of selling and buying aspects and currency exchange at specific determined prices.
Generally, the market encompasses financial institutions, businesses, banks, and retail investors. These bodies trade just about$5.3 trillion daily while hoping to make huge profits out of their short and long-term investment plans.
Forex is considered the most liquid and largest market globally. It emerged during the nineteenth century because of the gold standard creation and the ensuing USD establishment as the world's reserve currency.
The gold standard is a money system wherein the fiat of a country is linked directly to gold. During the 1970s, retail and institutional investing began to build momentum while creating the trading space we currently see now.
As more online platforms emerge during the 1990s, the market just became more accessible and convenient to traders, allowing it to grow as it has today. Forex trading is very volatile and it quickly attracts traders of all ages, genders, and nationalities to participate in multitudes of money-making opportunities.
Of course, it is the market's volatility that makes it incredibly profitable. When dealing with forex's volatility, you may need to keep track of political and economic news. Upon trading with the fluctuating prices of the market, local and international current news should be seen as a necessity rather than a privilege.
Current news should include global conflicts, economic updates, GDP reports, election updates, graphs and charts, and many more. The market's volatility builds up momentum among traders and, at the same time, causes fear and doubts.
What's Cryptocurrency Trading?
Unlike forex trading, the cryptocurrency market is considered new. Although it has already been rocking the financial industry for 11 years, it is still not as dominant and widely used as the forex trading space.
By definition, cryptocurrencies are digital financial assets; thus, their market deals are just exclusive for digital trading. This market quickly skyrocketed in the previous decades because of the several prominent marketplaces, establishment of exchanges, and various altcoins. Compared to the daily average of foreign exchange, which is $5.3 trillion, the cryptocurrency market only has an average volume of $100 billion daily which is a lot less than forex.
However, when we look at the bigger picture, $100 billion is undeniably a large amount of money. Most of these are traded through exchange rates. Even though OTC crypto trading exists, the utilization of exchanges can still be the most important method in trading bitcoin and other cryptocurrencies.
Crypto trading is open 24 hours a day, 7 days a week, and 365 days a year. Nevertheless, laws and regulations for trading these financial assets vary according to how various countries understand and perceive cryptocurrencies. Crypto trading, just like forex, is also known for being very volatile.
Thus, it can be very appealing when it comes to multitudes of investment opportunities. Factors that affect the crypto's price are media perception, demand and supply, and regulation. Although other factors affect the market's unpredictability, the aforementioned factors are the most common ones, at least.
Also, compared to foreign exchange traders, crypto traders do not always sit in front of a TV to listen to news updates. Instead, they are more inclined to pay attention to graphs and charts which will be utilized for technical analysis.
What are the Factors that Affect the Market's Profitability?
Although there is no simple and definite way of determining which of the two markets is "more profitable," there are factors that can be considered to come to a final decision. They include:
When it comes to volatility, both the forex and the cryptocurrency market experience high volatility.The forex market has high liquidity because it has a lot of participants and is one of the largest markets in the world.Besides, trading in this market can be quick and straightforward.
As for the cryptocurrency market, traders are more likely to get high reward opportunities. Nevertheless, the higher the expected returns, the higher the potential risk. Although crypto markets fluctuate a lot more than foreign exchange markets do, they both experience huge variations in costs over a very short time.
The profitability of either of these two markets can also be determined by their availability.
The foreign exchange market can be largely influenced by various global events including politics, weather, industrial, or economic events. For this reason, it offers more opportunities for trading.
Interested traders just need to use fundamental analysis to look back and use the aforementioned factors to plan. Since the market is more predictable, they can look back at historical happenings and utilize techniques that worked before.
On the other hand, the cryptocurrency market is available to almost anyone. Digital currencies such as bitcoin and ripple have been proven to function not merely as financial instruments but also as participation means for those who are "financially excluded." This real-time opportunity acts as an equalizer to the game field by giving equal trading opportunities to all people.
The trading leverage is another essential feature that can help you determine which market is more profitable to trade.
When it comes to forex trading, a 50:1 leverage for trading is allowed. Essentially, the trading leverage ratio means traders can position their $100 worth of investments for $2. Also, their losses can escalate quickly.
On the other hand, cryptocurrency gives way to more transactions that are cost-efficient. Crypto transactions are not hindered by traditional methods. This means that transactions may be finished within minutes, depending on what platform you're using. Plus, the transaction fees for this market are considerably lower.
Essentially, these two markets have different policies when it comes to the supply of currencies that are available to trade.
Forex knows no bounds when it comes to currency supply. It's just limitless. There is an unlimited currency supply that is available for trading since it encompasses several financial markets in the world.
Conversely, most cryptos have a limited currency supply. Cryptocurrencies' finite amount of supply might lead to a demand increase, which in turn increases the asset prices.
Even though forex had existed before the Internet came, we can't deny that technology is the case of its major explosion. The advancement in technology made it attract millions of traders around the globe. On the other hand, cryptocurrencies existed majorly because of technology. So, there are no other means of trading with crypto without the Internet.
The Range of players
Both markets' players can range from enthusiasts or aspiring traders to big-time companies and financial institutions. All of these players have a common goal: to gather large sums of money out of the market's volatility.
Frequently Asked Question.
Here are some quesitons that peole usually ask about forex and crypto trading.
Do I need a Broker for Crypto Trading ?
Yes, you need a broker or platform for crypto trading. There are some crypto - forex brokers who are proudly providing the service. Just be sure that the brokers you are trading with are regulated and reputed.
Is Crypto Trading Easier than forex
It is theoretically true that crypto trading is easier than forex, because there are fewer data points.
However, the actual process can be more difficult because of less available resources and the volatile nature of the cryptocurrency market.
Cryptocurrency has risen in popularity over recent years as an asset for investment purposes- using cryptos to hedge against inflation or investing in them with a view to make a profit from their volatility seems like an accessible way to make money on your money.
Is Bitcoin a Part of Forex ?
The consensus amongst analysts is that yes, Bitcoin is included in the broader category Forex. To answer this question with more precision, it would be helpful to clarify what metric you are using to measure Forex. Some people might think Forex deals exclusively with fiat currencies and commodities--such as the dollar, yen, euro or gold--but this definition excludes Bitcoin-related-activities because these currencies do not trade on a centralized platform like stocks. Other metrics also include "commodities" or any resource which can be traded for an equivalent amount of money such that when one unit of currency can buy many resources it's called 'strong' currency and vice versa ('weak')
Ultimately, both trading markets have their pros and cons. Both offer reward opportunities but one can be considered more profitable than the other and your decision will be based on your specific requirements. If you want a more liquid yet stable trading space, then forex trading might be ideal for you.
However, if you are seeking high reward opportunities and you don’t mind making higher risks, then you should choose cryptocurrency as your trading space. So, regardless of what market you choose to invest in, the profitability lies in how well you manage your risks and deal with the market's timing.