Difference One: Trading Hours in Forex vs Crypto
For stock (equity) traders, forex offers more favorable hours with 24-hour trading from Monday to Friday. On the other hand, cryptocurrencies can be traded every day of the year, at any time, without regard to weekends, holidays, or specific hours.
Dakle, crypto trading offers far more flexibility when it comes to trading hours. However, some might view this as a longer period of time to stay alert, and the extended hours could require frequent position adjustments.
Difference Two: Trading Cycle Durations
In August 2022, Coinbase’s CEO mentioned that he did not expect the current crypto bear market to last beyond 18 months. However, many analysts predict it could stretch from 290 days to as much as 2.5 years.
The average bear market in U.S. stocks lasts around 16 months, but it could extend to 20 months in case of a recession this winter. While crypto bear markets tend to be shorter than those in traditional stocks, both markets often mirror each other closely due to macroeconomic influences. However, crypto-specific challenges and regulations could also impact the duration of crypto cycles.
Difference Three: High Return Potential with Minimal Investment
In forex trading, you often need to commit substantial amounts of capital to begin. In crypto, you can start with a modest investment, and if you’re fortunate with timing, the returns can be extraordinary. In contrast, forex trading typically requires significant leverage to generate decent returns in a slower market. However, leveraging comes with its own set of risks. Simply holding cryptocurrency can provide great potential for profits with a minimal investment. However, it’s crucial to time your buy-in correctly, even though it’s impossible to predict the exact bottom of any market.
Difference Four: HODLing vs Day Trading
In crypto, long-term investors often use the term HODL (an acronym for “Hold On for Dear Life”), which means they hold their assets through market fluctuations, regardless of market dips. In forex, however, most traders are short-term players, often day traders who hold positions for just a few days or weeks. Forex traders typically respond to news such as central bank announcements or changes in government policies, which impact currency movements.
While crypto traders don’t usually focus as much on central bank decisions as forex traders do, they may still watch for regulations and legal developments, which can be beneficial to digital assets. The common saying in crypto communities is “HODL” and never sell, as crypto typically appreciates over the long term. In forex, however, short-term trades capitalize on frequent price movements, as daily price fluctuations tend to be smaller than those in crypto.
Difference Five: The Role of Whales vs Central Banks
In forex, traders closely monitor central banks as they aim to strengthen their respective currencies. Central banks can influence this by either selling large quantities of their reserve currencies or buying on the open market.
In the crypto world, the focus is on whales—large investors whose market moves can dramatically shift the market direction. For example, a few crypto whales selling Bitcoin can trigger widespread panic and cause others to sell as well. Similarly, when prominent figures like Elon Musk announce purchases of Dogecoin (DOGE), the market can react strongly.
Difference Six: Lower Costs in Forex Trading
The transaction fees for trading highly liquid forex pairs, such as EUR/USD, are usually very low, typically only a few pips (0.001%). While exotic forex pairs can have higher costs due to wider spreads, the overall costs and fees for trading in forex are often lower compared to those in crypto.
To minimize transaction costs and improve spreads, consider using a peer-to-peer (p2p) exchange. Some popular platforms for buying cryptocurrencies include Kraken (read review), Hodl Hodl (peer-to-peer Bitcoin exchange review), or LocalCryptos (a similar p2p exchange with a broader selection of digital assets).
Difference Seven: Dominance of Individual Traders in Crypto
While forex trading is predominantly conducted by businesses, banks, and central banks, crypto trading is still largely the domain of individual traders. However, this trend is slowly changing, and it is expected that more professional traders will shift their focus to crypto as volatility increases, providing more trading opportunities.
Difference Eight: Forex Market Size is 127 Times Larger
The forex market is massive, involving a wide array of players, including investment funds, major banks, and multinational corporations. According to the Bank for International Settlements (BIS), the daily forex turnover averages around $6.6 trillion (as of April 2019).
In comparison, the combined daily turnover of the top 10,000 cryptocurrencies is roughly $52 billion, meaning the forex market is almost 127 times larger. However, CryptoChipy anticipates that the gap will narrow as more investors enter the crypto space, especially during future bull markets.
Despite these differences, there are many commonalities between the two markets. Let’s explore the most significant similarities.
Similarity One: Candlestick Charts Are Universal
Both forex and crypto traders rely heavily on candlestick charts to track price movements. These charts are useful for identifying trends, both short-term and long-term. Traders can use the same charts and analysis tools, whether they’re trading crypto CFDs on platforms like Skilling or forex CFDs with the same broker.
Similarity Two: Macro Economic Factors Are Key
Just like forex, factors such as interest rates, economic growth, and inflation play a critical role in cryptocurrency pricing. When interest rates rise, traders may sell crypto to cover increased living expenses. In both markets, economic conditions and bear markets tend to reduce investor willingness to trade.
Similarity Three: Predictions Can Be Made, But They Aren’t Always Accurate
Many analysts try to predict the future prices of cryptocurrencies, but they’re not always right. CryptoChipy features price analysts who provide forecasts for popular cryptocurrencies like Dogecoin, Ethereum Classic, and Avalanche. However, most price predictions for Bitcoin (BTC) tend to be overly optimistic, though it’s possible that these predictions could come true by the end of the year.
Similarity Four: Ability to Go Long or Short
Both crypto and forex traders have the option to take long or short positions in any given pair. Shorting crypto has become increasingly popular, especially among individual traders during bearish market periods. Similarly, forex traders often go long or short on a currency pair, depending on their belief in its future value. When crypto traders short, they typically bet that the market will decline.
Which Is More Risky?
No trading is risk-free. Proper risk management, including setting stop-loss and take-profit orders, can help mitigate risk. In forex, daily price movements rarely exceed 2-3%, except for certain cases like the Turkish Lira and British Pound. Meanwhile, the crypto world is known for its volatility, although strong security measures like using a hardware wallet (e.g., Trezor) can significantly reduce the risk of theft.
Where is Volatility Most Likely?
Crypto markets are known for their volatility, especially for major trading pairs like BTC/USDT and ETH/USDT, which can fluctuate by up to 10% on a given day. In comparison, forex pairs like EUR/USD and USD/JPY typically see less than 1% daily volatility. Therefore, if you’re seeking high volatility, crypto is the better option, while forex may be more suitable for those who prefer stable market movements.
Fusnota: Markus Jalmerot has been covering forex markets for nearly two decades. He founded ForexTrading.se in 2004 and, in 2019, joined forces with Marcus E to create Valutahandel.se, the largest forex trading site in Sweden and the Nordic countries.
