Nowadays, investing is no longer the domain of only professional investors and wolves from Wall Street. More and more ordinary people are considering investments as a form of income. But what is more profitable – forex or cryptocurrency trading? In this article, we will look at the main features of these markets.
Forex or cryptocurrency exchange: where is it more profitable to trade?
The crypto market is highly volatile and relatively new, which means there are countless opportunities to make money. There are thousands of cryptocurrencies that are based on different technologies, so investors can successfully diversify their portfolios. All you have to do is buy low and sell high – and do it quickly.
The forex market shifts less and has longer cycles. A downturn or a stagnation period could last longer, and it would be harder to make money as there are no drastic reasons for the value of one currency to change so often. The market requires technical knowledge and complex analysis. An investor needs to have the skills necessary to consider global events, price charts, changes in legislation, etc.
Standard gains for a forex trader are 1%–5% per month; professional traders can earn 5%–10%. With cryptocurrencies, you can sometimes make 100% returns with price speculation and little technical knowledge.
The foreign exchange (forex) market was established in Amsterdam around 500 years ago; the online forex market we know today emerged in 1994. That is when currency trading became accessible to individuals, and not just big corporations.
The trading process occurs in currency pairs, where one needs to buy a certain currency and sell another, such as buying EUR and selling USD. The profit is calculated in pips (an acronym for ‘percentage in point’ or ‘price interest point’), with the pip in the fourth decimal point, equivalent to one-hundredth of one percent of a basis point. Considerable profits require large investments to make them worth the time.
The existing forex market has fast transactions, market transparency, and, most importantly, liquidity. Trading is dynamic, and transparency is required for investors to know the real value of their investments. Liquidity is crucial as it means the two currencies can be easily swapped without greatly affecting their exchange rate whenever it is required.
In 1983, an American cryptographer and computer scientist, David Chaum, introduced the idea of digital cash. The first internet money e-gold appeared in 1996. Bitcoin was created in 2009 as the world’s first cryptocurrency by an anonymous user/group called “Satoshi Nakamoto”. In 2014, the UK treasury started researching whether it could implement cryptocurrencies in business. And finally, in June 2021, El Salvador became the first country in the world to accept bitcoin as a legal tender.
The main features of crypto trading include a high level of security and low transaction fees. But most importantly, it requires no intermediaries and ensures anonymity when you invest in bitcoin and other cryptos.
In order to buy digital coins, you have to create an account on a trading platform. You also need a place to store your coins — an e-wallet or a physical hard wallet.
Compared to forex, the cryptocurrency market is quite new. Cryptocurrency trading is executed in exactly the coins that are used for trading. Traders do not bet, but actually swap coins, which they can transfer to a crypto-wallet at any time. It is similar to buying gold and waiting for the value to increase, except here one buys digital currencies.
Investing versus trading
Investing in cryptocurrencies means you buy and hold them for long periods of time so that they can potentially increase in value. You make an assumption that their value will increase in the future and have high-risk tolerance, or, simply put, you have money to set aside to generate income over time.
On the other hand, trading cryptocurrencies means that you use them as a tool to make a profit on a daily basis, which requires more analysis of short-term price trends. One would often need to drop coins when the value goes downward and set stop margins to protect the funds invested.
Who is the future for?
The cryptocurrency market is new, and with little money invested after a big decrease in the value of a currency, one can make large profits. Some traders also try to predict the next big crypto out of the pool of thousands of coins and tokens. This market is more volatile than the forex market, but this is exactly why it provides an opportunity to earn big money.
The market is also much smaller compared to the forex market, so there is potential for growth. Although these investments aren’t backed up by governments, the security and anonymity of crypto outweigh this fact. Plus, there are almost no barriers to entry.
The forex market has a larger trading volume and less volatility, especially in strong currencies such as EUR, USD, YEN, GBP and CHF. Therefore, it is suitable for beginners and for very large investments that can potentially generate a decent profit with a safe bet. However, this income is taxed. Moreover, forex depends on modern politics, which means an investor must constantly follow global news.