Forex vs Crypto – Which One is Better?
Thursday, November 19, 2020, 6:00 PM | Leave Comment
Both Forex and cryptocurrencies offer excellent business prospects with the potential to deliver great results.
Still, both have some pitfalls and also the potential for high losses.
The Forex, or Foreign Currency Exchange, is established as one of the most prominent markets in the world with around $5 trillion traded daily. The Forex market trades in the 180 world currencies, these are all legal tender currencies supported by a centralized government.
On the other hand, cryptocurrency, aka “digital currency”, is a newcomer. It’s quickly making its mark with the increasing number of investors. Cryptocurrencies are purely “virtual” currency, and although often described as coins, there is no physical element.
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Trade Payouts and Losses
Forex offers an unparalleled opportunity to enter the world of trading with very moderate investment and the possibility of unlimited tax-free payments. But we can say the same of the potential for sustaining high losses, especially if proper precautions are not in place to avoid them.
With cryptocurrencies, there are many ways to trade, but the most common option is to buy the asset itself. Simply put, the goal is to buy at a low price, and then hold until there is a higher selling potential for maximum payout.
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The costs of each trade
Trading Forex and Cryptocurrency will incur expenses in addition to your investment. The two are very different markets, and it is essential to understand the differences between a Forex broker and a cryptocurrency exchange; not only in terms of functionality but also in calculating your overall costs.
Forex trading is not taxable. However, trading fees are inevitable, and the actual cost of each trade remains unknown until it is completed. A broker can offer you a fixed rate per trade or may take a fee as a percentage of commission based on the value of each trade. Also, long term positions may incur “overnight fees”, and there will be the cost of the spread, which will vary depending on the final price.
When it comes to crypto, you will also have to pay for using an exchange platform, which will inevitably charge a fee per transaction, but can also take a small percentage when depositing or withdrawing funds.
Finally, you will need to store your cryptocurrency in a digital wallet or in “cold storage” with a specialist provider. Both options have one-time or ongoing periodic fees to be added to the overall cost of trading.
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What type of trading fits you the best?
Forex is undoubtedly a volatile market, greatly affected by political and economic events. It requires a good level of understanding, and there is the potential for large losses, especially if you use too high leverage.
Crypto trading is the complete opposite since there is no government backing. You have to trust the integrity of the blockchain network responsible for creating the currency.
Overall, crypto trading is easier to understand, but it is also extremely volatile. It’s more sensitive to market trends than to world events, which makes it much more difficult to formulate a solid business plan.
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What type of trading is the right fit for you
Both Forex and crypto market will require you to learn specific skills. You will also have to acquire the right mindset to make the most of the opportunities.
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Forex market
The Forex market disposes of continuous liquid supply of many currencies. Entry fees are low, and there is a wide variety of trading options. Eventually, most of the forex brokers also give traders the opportunity to trade crypto.
There is a level of complexity in the Forex market and therefore, more to learn. The improper use of leverage increases the possibility of high losses.
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Cryptocurrency market
Cryptocurrency is a finite commodity based on low supply and high demand. The market is open to everyone through anonymous transactions. Trading costs are low, and there is the potential for high returns.
Cryptocurrency trading is taxable, which means you need to keep extended records (per trade). Crypto wallets are essential. It is your responsibility to keep the security keys safe. Failure to do so will lead you to complete loss of the assets.
Although you can ultimately choose between these two forms of trading, it is just as plausible to use both in your quest for a well-balanced, enjoyable and hopefully profitable investment portfolio!
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