Trading has always been a part of the history of money. From trade by barter to exchange of foreign currencies, trading is here to stay. However, for some years now, trading seems to flutter between cryptocurrency trading and Forex trading. A lot of would-be traders will like to find answers as to which is more preferable, Forex or cryptocurrency trading.
Forex Trading Versus Cryptocurrency Trading
Before deciding to choose between cryptocurrency trading and forex trading, it is important to understand both. The first thing we need to understand is that foreign currency exchange (forex) is different from cryptocurrency trading. The Forex market is a decentralized global marketplace. It is the most liquid markets in the world and all the currencies in the world are traded on Forex. Since it’s a global market, about $5.3 trillion is traded on forex daily.
On the other hand, cryptocurrencies are also known as digital currencies. Unlike the Forex market, cryptocurrencies are not backed by a centralized government. Although we have cryptocurrencies that are pegged on fiat called stable coins, cryptocurrencies function differently from Forex. For instance,only 21million BTC can exist in the world, but the Forex market has a limitless supply of currency from the central government.
Merits and Demerits of Cryptocurrency Trading
Compared to the Forex market, the cryptocurrency market is small. However, if you are weighing your options then you know the pros and cons of cryptocurrency trading. Some of the merits cryptocurrency holds over Forex trading includes;
- It is easy to become a cryptocurrency trader. All you need is capital, a cryptocurrency exchange and wallet.
- Unlike the Forex market, the cryptocurrency market is not subjected to fluctuations created by regional issues, global news or earning reports.
- Cryptocurrency trading offers limited costs of the transaction. Fees can be accessed before you pay for any transaction and sometimes, fees are greatly reduced.
Cryptocurrency trading also has its demerits. They include the following;
- Cryptocurrency exchanges have been known to suffer from hacks, so keeping your funds on one can be risky.
- Regulations are a huge drawback on cryptocurrency trading as governments try to place regulatory boundaries.
- Cryptocurrency trading offers low opportunities for leverage. Cryptocurrency contract-for-difference (CFD) products usually offer extensive account leverage and low margin requirements. Very few exchanges offer margin trades and each broker has to choose from a set of unique leverage options.
Merits and Demerits of Forex Trading
Forex trading may have a larger market share than cryptocurrency, but it is not without its advantages and disadvantages. Here are some characteristics that differentiate Forex trading for cryptocurrency trading.
- The forex market offers diverse pairs for active trade. It has a basket of global currencies that can serve as pairs.
- Unlike cryptocurrencies, the forex market is relatively stable except when assailed by extraordinary circumstances. Large volumes are usually traded so fluctuations of large magnitude are infrequent.
- The forex market offers extensive leverage. Clients can get as high as 200:1 leverage from brokers.
- The forex market offers sufficient liquidity especially from its basket of popular currency pairs.
On the other hand, Forest trading faces the following drawbacks
- Small scale traders may be at a disadvantage as the big players such as banks, and other large financial institutions determine the price movement in the market.
- The forex market is not properly regulated and this means that a trader may not have any control over how his trade order gets filled. A trader may want to deal only with regulated brokers when trading forex.
- The price determination process of forex is quite complex. The rates are influenced by a couple of factors including global politics. It can be quite difficult to draw a conclusion to place a trade. This is why technical indicators are used when trading.
- The risk involved in trading forex is quite high. Unless you have a good idea of leverage, forex can be a loss nightmare.
The choice of trading Forex or cryptocurrency is largely dependent on the traders' objectives, resources and risk tolerance. The two markets are both volatile and while cryptocurrency is prone to wild fluctuations, the forex market also suffers from huge price variation once in a while.
All a potential investor needs to do is arm himself with risk management, equity planning and ample information of the market he is venturing into.
However, for cryptocurrency trading, the platform to get your first cryptocurrency from is Bitmama. The platform even offers fiat to crypto trading services.