Are you trying to decide whether to invest in forex or the cryptocurrency exchange? Here’s what you need to know, with the pros and cons of both trades.
January 13, 2020 | AtoZ Markets – The foreign exchange market, or forex as it’s usually known, is enormous and offers traders the opportunity to speculate on currencies from all around the world. Cryptocurrency is the new kid on the block, and as a means of payment, it’s often lumped in with forex.
However, there are some very fundamental differences between forex and cryptocurrencies, with pros and cons of each. Here’s a closer look at the main factors, and how they both measure up.
Forex is the largest market globally, with everyone from private traders to larger government agencies exchanging currency every day. This means there is a tremendous amount of liquidity within forex and if you want to sell your pairs, you’ll have no problem making the sale. The sheer size of forex also means that it’s virtually impossible for anyone to unduly influence the price. One person selling off large quantities won’t trigger a meltdown because globally, it will only represent a drop in the ocean. For alternative markets and spread betting in particular, forex is ideal because it’s possible to open positions on virtually any currency in the world.
By contrast, cryptocurrency is much more limited. There’s only a finite amount of each cryptocurrency; once it’s all been mined there can be no more. This comparatively small size can make it vulnerable to sell-offs, even though there are typically limits in place to prevent a big sale from sending the value plunging.
Volatility and Stability
As a long-standing and established market, forex is very stable. Despite some volatility in the prices in response to world events, the exchange itself offers easy trades whatever the market conditions.
The stability and volatility of cryptocurrency isn’t quite so clearcut, because there are so many variables. The general consensus is that eventually, only a few cryptocurrencies will remain. So that if one appears to be performing poorly, there’s an outside risk that it will eventually be dropped entirely. Although there are lower fees and the market is straightforward to access, cryptocurrency doesn’t have the same level of stability as forex, and the volatility can be much more significant.
Security and Regulation
The cryptocurrency sector has worked hard to overcome an inherent distrust of new technology and to persuade investors that their digital wealth will be safe. Unfortunately, all this hard work is regularly undone by stories of hackers stealing cryptocurrency, and getting away with their haul.
Providing you use a regulated and authorized broker, forex is exceptionally secure with lots of protection in place. Providing you follow the basics of keeping your account safe, there’s no reason to think that your funds could be stolen.
This isn’t the case with cryptocurrency, and despite the security in place, many investors have lost their cash either because it’s been stolen, or because they have lost their pass code. There’s no way of getting to your money if you lose access, so it’s much riskier than forex trading, even without factoring in hackers.