Forex and Crypto: Key Differences

As a trader, you see many terms everywhere – the most common being forex and crypto. Both deal with some sort of currency, but they are not the same. To be a good trader, it is essential you know the key differences between the two. This article will bring you up to speed with the basics.

Defining Forex and Crypto

Forex is short for foreign exchange. This financial market allows you to obtain access to international pairs of currencies. To put it in simple terms, the forex market enables you to exchange one currency with the other, gaining profit from the price volatility. Some common exchanges are EUR/USD, EUR/JPY, or GBP/USD.

Cryptocurrency works similarly to forex. Still, unlike forex which is based on a centralized system (banks), crypto is decentralized. The cryptos are stored on a Blockchain, which helps improve the transparency of the process. Since no central authorities are used, the “middle man” is removed – and therefore, additional transaction fees are also taken out.

Key Differences between Forex and Crypto

When comparing crypto and forex, there are several factors to keep in mind. These are:

Market Size and Diversity

When it comes to forex and cryptocurrency, their market size and diversity factor are fairly similar. Most brokers offering crypto & currency trading allow you to trade any currency pair that you want. Crypto is pretty much the same, as you have thousands of projects to potentially invest in. However, you need to narrow down the trades to the most popular cryptos and currency pairs if you wish to have any success.

Liquidity

The forex market generally has much higher liquidity compared to cryptocurrency. While popular, regular currencies have been around for a much longer time. This means that there are more tokens in circulation as compared to cryptocurrency. The overall value of the cryptocurrency market is somewhere around $2 trillion. On the other hand, the forex market capped at $6.6 trillion. This gives it much higher liquidity as compared to the crypto counterpart.

Volatility