Is There Any Relationship Between Crypto and Forex Trading?
The hype surrounding cryptocurrency is undeniable. It is understandable considering that bitcoin’s price has grown from $1,124 in 2013 to $46,624 by the end of February 2021. On the other hand, the forex market has a daily turnover of 6.6 trillion as per 2019 data. Cryptocurrency has no direct effect on fiat currency and the other way around. The only relationship is that the USD is the main quote currency for cryptocurrency.
To understand how the two relate, let us look at their similarities and differences.
The Similarities and Differences Between Crypto and Forex Trading.
- Both markets require knowledge of trading.
- The determining factor of the prices of forex and crypto is the market demand and supply.
- They have accessible markets, and trading time depends on an individual trader.
- The markets are highly volatile.
- A trader can trade multiple currencies.
- Both trades are risky.
Differences: Crypto Trading Versus Forex Trading
There are two main differences between crypto and forex trading. Forex is a centralised exchange, while crypto is decentralised. While forex trading can involve many brokers and middlemen, crypto trading has no middlemen and a trader trades directly on the available platforms.
The second main difference is that the forex market is highly liquid while there is little or no liquidity within the crypto market.
Cryptocurrencies have only been in the market for a relatively short time compared to forex trading with a long history. The first crypto was created in 2009 and has seen tremendous growth since.
Cryptocurrency has become an alternative investment for many traders who do not want to trade within centralised institutions’ confines. The popularity of crypto trading has attracted many traders, with an average of 68 million crypto wallets opened and over 4000 crypto coins.
Investing in cryptocurrency is mostly done in the long term. Most traders buy crypto and hold it speculatively, anticipating prices to go up over time and make a profit. Crypto traders are not under regulations that govern fiat currency. The crypto market is open 24/7 throughout the year.
The Forex market is the largest financial market globally, involving the buying and selling of fiat currency. Trading in the forex market is beneficial in many ways. There is a huge variety of currency pair to trade, in addition to the fact that the market is open 24 hours a day, all weekdays except for Christmas and New Year’s Day. The transaction fees are relatively low, and the market is exceptionally liquid.
The movements in the forex market are due to many factors involving major economies. Traders always keep up to date with world news are trade to their advantage when the market is most active and volatile. Forex trading requires adequate knowledge and understanding of trading sessions and hours and their effect on the money market. Choose the best forex trading platform to make profits.
Even though the price of crypto is primarily based on the US Dollar, there is no correlation with forex since they are different on many fronts. In case of distress selling of cryptocurrency by investors, the crypto price in USD will surge. It can result in many investors losing investment.
Both forex and crypto markets are volatile, but the forex market is well regulated and more liquid.