Forex trading has always been a lucrative activity that attracts millions of participants whether for international business or speculative trading to draw in profits.
Since cryptocurrencies emerged and became popular, cryptocurrency trading has increased significantly in recent years.
While the forex market experiences more than $6 trillion in trading volume daily, crypto trading is not far behind in becoming a large financial market, which could even surpass forex trading.
This is especially the case if there is increased interest as digital assets are adopted by countries around the world in legal tenders to make them official currencies. The cryptocurrency market is rapidly increasing as more cryptocurrency projects introduce new digital assets.
However, when compared to other financial markets, cryptocurrency trading still has some drawbacks namely a lack of regulation, the threats of cyber-attacks, belief from central banks that cryptocurrencies are not sustainable options for investment, and the sheer number of scandals and scams that surround the crypto market.
Despite these factors, there are several reasons that many believe that cryptocurrency could surpass forex trading by 2023, and in this article, we will explore each of these reasons.
Market Liquidity
Market liquidity refers to the ease with which a financial instrument such as a currency pair, can be bought or sold and converted into cash, without changing the market price of that asset.
In the forex market, liquidity is determined by the demand of a currency pair while crypto assets may be liquid, but far less so than fiat currencies. However, this could change rapidly as blockchain technology becomes more widespread in everyday life such as the financial sectors, healthcare, supply chain, and others.
Market Volatility
Digital currencies are inherently known to be more volatile than forex pairs. They also move in narrower bands instead of experiencing large shifts in a single trading session or trading day.
However, forex major pairs move within these narrow bands in the same way because they are traded more frequently than other currencies. Cryptocurrencies can show significant moves of 100 pips, even more, in a trading session.
This bodes well for active traders who employ day trading strategies such as scalping.
Market Access
Forex has always been known as the easiest market to participate in, with hundreds of forex brokers that offer a wide range of currency pairs that can be traded through a trading platform. However, currency markets are facing competition as there are many crypto trading exchanges and platforms that offer a wide range of crypto assets.
This offers crypto traders the perfect avenue where they can buy and sell crypto assets at lower costs than they would have traded forex for.
Regulation
There is no central authority that rules over either cryptocurrencies or forex, and therefore regulation may be an issue in both markets. However, there are many well-regulated forex brokers and crypto exchanges that offer trading instruments across both markets.
Forex is an over-the-counter (OTC) market where central banks carry out a significant portion of daily forex trade, which means that this market must be regulated by various market regulators.
To combat the lack of regulation in the crypto market, crypto traders are urged to only use well-regulated brokers and exchanges when they trade crypto assets.
Why is it called “crypto” currency?
“Crypto” refers to the cryptography—i.e., the unique software code underpinning a virtual currency.
How does cryptocurrency work?
Cryptocurrencies are rooted in blockchain technology. A blockchain is an open-source database—essentially a public ledger—that is distributed across a decentralized computer network (in this case, the internet) and forms a permanent record of transactions between parties. Each transaction represents a “block” of data about who owns what at a given time, along with the hash (unique identifier) of the previous block. Together these blocks form a “chain” that can’t be altered or counterfeited.
Having a public ledger obviates the need for a central authority to confirm the database’s accuracy or to clear transactions, as each new transaction is recorded across the entire network.
So, you could think of a cryptocurrency transaction as a series of electronic messages that record information about the parties involved, the timing, and the quantity of currency being traded. Note that ownership of bitcoin or other cryptocurrencies is not an investment in blockchain, the technology, or its current or future uses.
While cryptocurrencies are perhaps the most famous application of this technology, blockchains have many potential uses beyond payments. They include “smart” contracts, which are executed automatically once the agreed terms and conditions are fulfilled. They can also be used to manage supply chains and provide financial services.
What is bitcoin?
Bitcoin is the first and the most well-known cryptocurrency. Its creation is credited to a founder who goes by the pseudonym Satoshi Nakamoto. Though it traces its roots to an individual, no person or agency currently regulates or manages bitcoin. As outlined above, bitcoin is instead governed by its cryptography and a decentralized network of computers that record and verify the blockchain transactions.
Bitcoin isn’t considered legal tender in most countries. Like physical gold, bitcoin’s value stems from supply and demand dynamics, and the perception that it can be a store of value, an anonymous means of payment, or a hedge against inflation—though none of these characteristics have yet to establish a long-term track record.
How do you buy cryptocurrencies?
To buy and sell cryptocurrencies, you’ll need to visit a cryptocurrency exchange, where you can swap dollars (or other currencies) for crypto. Then you’ll need to have a specialized “digital wallet” to store your crypto units.
You can also buy investment products linked to crypto. On that score, early 2024 marked a milestone for bitcoin specifically. On January 10, 2024, the Securities and Exchange Commission (SEC) approved trading in exchange-traded products (ETPs) that hold spot bitcoin. (The spot market, also known as the cash market, refers to forums where securities and other assets can be immediately exchanged between buyers and sellers.) That marked the first time a cryptocurrency had been authorized for use as an underlying asset in such a widely held, actively traded investment product.
To be clear: An investor who buys one of the new spot bitcoin ETPs isn’t purchasing bitcoin. The new ETPs are securities designed to track the price of the underlying cryptocurrency.
How are crypto transactions taxed?
The IRS treats cryptocurrencies as property, not as a currency, meaning any transactions that use crypto will be subject to the capital gains tax rules. Most people don’t think of shopping as a taxable event, but it can be if you use virtual currencies. When you buy something with cryptocurrency, you’re effectively selling a portion of your crypto holdings and using the proceeds to cover the cost of the purchase.
Whether the transaction results in a gain or a loss is calculated by taking the difference between the fair market value of the goods or services you purchased and your adjusted cost basis for the crypto used in the transaction—generally the amount you paid for your cryptocurrency, plus any fees.
If you make money on a cryptocurrency transaction and don’t report the capital gains or income, you could be in hot water.
What are some common risks and drawbacks of cryptocurrency?
As you might expect with a highly speculative investment, cryptocurrencies carry notable risks, including:
- Volatility: Cryptocurrency prices historically have been highly volatile, and fluctuations could result in significant financial losses.
- Fraud and scams: According to the Federal Trade Commission, “Many people have reported being lured to websites that look like opportunities for investing in or mining cryptocurrencies, but are bogus.”
- Lack of recoverability: You need login credentials to access a cryptocurrency exchange, but these can be stolen or lost. With conventional financial accounts, there’s normally a recovery process if you forget or misplace your login credentials. If you lose your cryptocurrency “key,” however, you cannot retrieve your cryptocurrency. Similarly, if you lose access to the place where you store your key, you will effectively lose possession of your cryptocurrency. Lastly, if you store your cryptocurrency in a cold (offline) wallet, it could be damaged or lost.
How many types of cryptocurrencies are there?
While Bitcoin is the best known and most widely held cryptocurrency, there are thousands of types of cryptocurrencies. Here are the most popular cryptocurrencies (based on market cap) that are available today:
- Bitcoin (BTC)
- Ethereum (ETH)
- Tether (USDT)
- XRP (Ripple)
- BNB (Binance Coin)
- Solana (SOL)
- Dogecoin (DOGE)
- USD Coin (USDC)
- Cardano (ADA)
- TRON (TRX)
Common cryptocurrency terms
Here are some common cryptocurrency terms and definitions that you might find helpful to know.
Address: Sort of like an e-mail address, you can share your coin-specific address so somebody can send coins to you. People can have many different addresses and it’s typically recommended that you generate a unique one for every transaction.
Altcoin: Short for alternative coin, the term may be used to refer to any cryptocurrency other than bitcoin.
Blockchain: A cryptographically protected distributed ledger made up of blocks that contain transaction history. As the blockchain grows longer and longer, it becomes increasingly difficult to alter older transactions.
Cryptocurrency exchange: A crypto exchange is a digital marketplace where users can buy, sell, and trade cryptocurrencies.
Digital assets: Electronically stored valuables, such as cryptocurrency, that rely on algorithms and computing power for secure transfer and ownership verification, without need for a brokerage or bank account.
Digital wallet: To use cryptocurrency, you’ll need a digital wallet. A digital wallet stores private and public keys, which are necessary to send and receive coins. There are hardware, software, and paper wallets. Hardware and paper wallets (also known as “cold wallets” since they are not connected to the internet) are typically considered more secure than software wallets, although there are pros and cons associated with each. If you lose your private key and can’t access your digital wallet through back-up methods, you will never be able to recover your coins and they are effectively removed from circulation.
Initial Coin Offering (ICO): An ICO, also known as a token sale, is a means of crowdfunding where a company offers a new coin in exchange for fiat currency (U.S. dollars for example) or a digital currency (Bitcoin, Ether, Litecoin, etc.). Typically, the funds they receive are used to develop the new concept, and the token they issue will be used to transact on their network once it is launched.
Smart Contract: An agreement that is written in computer code and automatically executes when certain conditions are met. Some networks, most notably Ethereum, support smart contracts while others do not.
What is forex trading?
Before we can make a proper forex vs crypto comparison, we need to understand each of these markets in more detail. The foreign exchange market, forex, or FX, is the global currency market where currency pairs are traded. When you trade the forex markets, you essentially buy one currency while selling another simultaneously. For example, EUR/USD or GBP/JPY pairs can be bought or sold immediately. In simple terms, the EUR/USD exchange rate (for example, EUR/USD price is 1.1010) simply means how many dollars you have to pay to buy just 1 EUR.
How the FX market works
Understanding how Forex markets work is essential for understanding Forex vs crypto trading differences. Prices move based on several key factors, including economic conditions, interest rates, inflation, and geopolitical events. Major natural disasters like the COVID pandemic can also profoundly affect forex markets. Major currencies like EUR/USD, USD/JPY, and GBP/USD are the most heavily traded pairs. The forex market itself is a giant market where trillions of dollars exchange hands daily. The biggest players in the forex markets are central banks, large commercial banks, large institutions, hedge funds, and retail traders. Retail traders make only a tiny percentage of forex daily trading volume, making their actions mostly insignificant. In other words, you can not affect forex currency pair movements with your trading activities, even if you traded tens of lots. When we discuss forex vs crypto differences, we should not forget that the forex market is very liquid because of how big it is, and price movements are generally smoother than those of cryptocurrencies. Crypto trading takes place mostly on centralized exchanges, but a significant portion is also traded on decentralized platforms (DEXes), where users trade wallet-to-wallet without intermediaries.
What is crypto trading?
Our forex vs crypto trading differences study continues with the explanation for crypto trading and its characteristics. Crypto trading is just buying and selling of digital currencies like Bitcoin (BTC), Ethereum (ETH), Solana (SOL), and many others. Instead of currencies backed by governments, crypto traders trade crypto coins that run on blockchain networks. However, a modern popular approach is to provide crypto pairs using CFDs (Contracts for Differences), which enable instant buy and sell trade execution, and traders do not have to wait for blockchain network approvals. Traditional crypto trading assets are spot cryptos and futures.
Key characteristics of crypto trading
The number one entry into the list of forex vs crypto trading differences is that crypto markets operate nonstop, 24/7, including weekends. Crypto price trends are heavily impacted by adoption trends, regulations, technology developments, and overall market sentiment. These markets are also heavily influenced by the S&P 500 and the USA stock market movements because there were BTC ETFs introduced, which exposed crypto markets to institutional investors, meaning that buying or selling those ETFs had the highest impact on crypto markets.
Forex vs crypto – Key differences
After discussing each market separately, it is time to compare them and define where they differ in practice.
The number difference between crypto and forex lies in trading hours: crypto operates 24/7, while Forex is active 24/5. Liquidity also differs between the two markets, making it important to understand forex vs crypto for beginners. Forex markets are extremely liquid, especially for major pairs. Crypto liquidity is different for each cryptocurrency. Bitcoin is highly liquid, while smaller coins are not. Ethereum and Solana are also more liquid than others, but less liquid than Bitcoin, which is the most liquid crypto due to ETFs and wide adoption.
Crypto and Forex trading correlation is also different when it comes to market volatility. Forex markets can not even come close to the crypto market’s volatility, where tens of percent movements are a daily reality. Forex markets are moderately volatile and only get very volatile during major news announcements or geopolitical shifts, but are still much less volatile when compared to crypto price swings.
Another key difference between forex vs crypto day trading lies in regulations. Forex markets have a decade of history and are heavily regulated, while crypto is still young and evolving. This makes cryptos more uncertain and difficult to predict because we do not know which regulations might be implemented, making them riskier in this regard. Another difference lies in fees and spreads. Forex spreads on major pairs are low due to huge trading volume. However, since their movements are tiny, these spreads still make them very expensive, especially on lower time frames. Cryptos, on the other hand, have higher spreads and often additional exchange fees are charged, but due to large price movements, these costs are not a big challenge for crypto traders.
In the end, these differences influence both trading style and risk exposure of traders, meaning these markets require a different approach when traded for profits.
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Crypto and Forex trading correlations
Crypto and forex markets do not move together, but they sometimes overlap as well. Knowing when they move in conjunction or in opposite directions can be a good information tool for traders to filter market noise even better.
When crypto moves independently
Bitcoin often moves based on internal events such as halving cycles, regulatory news, or tech developments. Halving cycles, which occur approximately every 4 years, make major price fluctuations for bitcoin, and it can move in completely different directions no matter of the forex markets. When major countries prohibit or accept Bitcoin or any cryptocurrency or token, the markets can react immediately, causing major price spikes.
When crypto behaves like a risk asset
When the global financial situation becomes uncertain, crypto usually drops alongside riskier assets. In cases like these, crypto and Forex trading correlation is negative. While crypto markets fall, investors often invest in safe-haven currencies like the dollar and yen, meaning these currencies become bullish. Both markets heavily revolve around the U.S. dollar. Bitcoin’s performance is often compared to the strength of the dollar through the Bitcoin-Dollar Index. Overall, the correlation between the dollar and Bitcoin is usually consistent, sometimes strong, sometimes weaker, due to the reasons described above.
Forex vs crypto trading strategies
Both markets can be used to trade with similar trading styles. However, trading conditions are very different. Since cryptos can be much more volatile than forex markets, risk management approaches and lot sizes must be drastically different. You can not open a BTC trade with 1 lot and have a low account balance like you would with FX pairs. One minor price swing can wipe out an entire trading account if not approached carefully. Below is a brief overview of different trading styles and how they differ from each other for the Forex and crypto markets.
Trend following
In forex, trends are rarer but last longer when they appear due to stable macroeconomic factors and geopolitical trends. In cryptos, trends are explosive and very frequent, accompanied by large price swings.
Breakout trading
Crypto breakouts move incredibly fast and far because the volatility is usually much more dramatic. Forex breakouts, on the other hand, usually require more confirmation as fakeouts are more frequent.
News scalping
This is one of the most risky but thrilling trading styles where traders scalp during major news releases like NFP, inflation, and so on. Forex news releases move pairs instantly, while crypto news can trigger huge sentiment-driven movements, especially regulatory or exchange-related news events.
Risk management
Forex vs crypto day trading risk management also differs considerably. Forex uses high leverage but with smaller price swings. These movements are usually a few pips and enable traders to operate with large leverage and high lot sizes while maintaining smaller risks. Crypto’s extreme volatility means stops and position sizing matter even more and can wipe out the account if the trader is not careful.
Forex vs crypto day trading
Day traders look for consistent intraday movements, and both markets offer that, but differently. Crypto is more volatile, meaning intraday movements are larger, and there are many trading opportunities throughout the trading day, but risks are also larger. Forex is smoother and easier for technical traders to control risks. Spreads are tighter on the forex major pairs, especially during London and New York trading sessions when liquidity is deepest, meaning there are many buyers and sellers. Crypto spreads are higher, and they usually get even wider during low liquidity hours.
Best timeframes
When we talk about day trading, the best timeframes depend on the trading session and trading style. For forex day trading, the most popular timeframes are 5-minute, 15-minute, and 1h during the London and New York trading sessions, due to these hours offering the largest volatility. For cryptos, any timeframes can be used, but the volatility is higher during the London NY sessions overlap.
Forex vs crypto for beginners
Both markets are easily accessible, but cryptos are hassle-free; you can just open a wallet to buy crypto, and all this with minimal personal information, while with forex brokers, it can sometimes be a complex process. The difference is not substantial, but beginners might find crypto markets easier to start. Both allow small accounts, and forex usually is less risky because prices are mostly moving slowly and cover a few pips, while cryptos can move tens of percent in mere hours.
Another advantage of forex trading is its low entry barriers due to low minimum deposit requirements and higher leverage, meaning you can trade with high lot sizes even if your account balance is low, and you won’t be exposed to many risks when approached wisely.
The learning curve is also slightly easier for forex because there are plenty of resources online. However, cryptos can be learnt faster as they are faster and more sentiment-driven markets.
In the end, it all depends on the trader’s preferences, and both cryptos and forex pairs are available for trading.
Forex vs crypto trading strategies analyzed
Advantages of forex trading are obvious; currency pairs offer very high liquidity, lower spreads and trading commissions, strong regulatory oversight, clear macroeconomic drivers for fundamental analysis, and well-established long-term trends. Cryptos, on the other hand, offer huge volatility and potential for large profits, markets are always open, thousands of tokens are offered, and new cycles and narratives create constant opportunities.
Forex vs crypto trading strategies – Risks
Both markets allow leverage, which makes trading risky because both potential profits and losses are greatly amplified. Crypto markets usually offer lower leverage, but are still risky. Small-cap coins are also easily manipulated, which makes them risky for beginners. Another risk is thin liquidity. When markets are in a calm period, thin liquidity can cause sudden price wicks or slippages, making it easier to get stopped out of profitable positions. Unexpected news is among the most critical risks as it can cause major price swings in both forex and crypto markets, and traders must use economic calendars to track important news events.
Which should you choose? Final verdict
In practice, both markets can be very attractive depending on your trading style, risk appetite, experience, and trading capital.
Choose forex if you:
- Prefer stability and low volatility with fewer pip movements
- Want a highly regulated environment
- Are new to trading
- Study macroeconomic fundamentals
Choose crypto if you:
- Want to trade higher volatility
- Prefer fast-moving markets
- Want a 24/7 trading experience
- Are comfortable with news and tech-driven assets
It is important to match your choice with your risk appetite, time availability, and trading personality.
