For many years, forex was the thing to invest in. Edgy Millennials looking for opportunities beyond the stock market found unprecedented freedom, flexibility, and opportunity in FX when retail trading exploded in the Aughts.
Forex trading is still a big deal, but over recent years, cryptocurrency trading has taken over the spotlight.
You might be wondering which is better—investing in crypto or investing in forex.
Keep in mind that on some platforms, you can trade both cryptocurrencies and fiat currencies.
There is certainly a lot of overlap in both of these activities, and either gives you the chance to take part in a decentralized market.
We have made a video for you to digest:
Below, we go over some of the differences between the crypto market and the regular forex market.
1. Forex is less volatile and more liquid than crypto.
You can sometimes run into a fair amount of volatility in the forex market—but it is nothing compared to the type of volatility you will find in cryptocurrencies.
Because cryptos are more volatile than fiat currencies, there is also less liquidity in the crypto market.
That means when you invest in cryptos:
- Huge swings up or down in value are possible in very short spans of time.
- There is less buffer to smooth the market out in response to individual orders.
In other words, your risk exposure with crypto is very high at all times compared to what it is with forex fiat currencies.
As an example of crypto volatility, consider what happened in January 2021. Bitcoin was up above $40,000. Within 24 hours, it had plunged to $32,000. $3,000 of that drop took place in under 2 hours.
Can you blow your account overnight as a forex trader? If you do not set your stop losses and follow proper money management, sure. But the ups and downs of fiat currencies are not nearly as violent or hard to predict as those of cryptocurrencies.
2. Holding fiat currencies is less risky than holding cryptocurrencies.
Interested in long-term trades? Position trades can go sour in any market, but you will typically see a lot less day-to-day fluctuation in the value of fiat currencies you are holding than the cryptocurrencies you are holding.
Indeed, a well-executed carry trade in forex can sometimes provide years of income with relatively little instability.
But when you hold a cryptocurrency, you are likely to feel like you are on a rollercoaster each day.
3. FX brokers are more likely to be regulated and have policies in place to protect you.
By their very nature and purpose, cryptos are not well-regulated. Governments are taking steps to crack down, but many crypto websites operate without any licensing or regulatory oversight.
There are also plenty of unregulated FX brokers out there, but you will also find lots of regulated, licensed forex companies abiding by strict laws.
Those laws exist to protect you, as do the policies of forex brokers that follow them. That includes Know Your Customer (KYC) identity verification, rules about how customer funds are stored, and more.
4. You never know what legal issues to expect with crypto.
Because crypto exists in an ever-changing regulatory climate, it is hard to predict what is going to happen with crypto exchanges.
As an example of a recent news story, consider Binance’s decision to stop supporting stock tokens.
You never know when a product you have been investing in could no longer be available to trade, or when a crypto exchange may stop accepting customers from your country.
This type of unpredictability is something you do not need to concern yourself with if you are trading forex fiat currencies through a regulated and established broker.
5. It is faster and easier to get started with forex trading.
If you want to start trading crypto, here are the steps you have to take:
- Choose a crypto exchange.
- Pick a wallet (and a type of wallet).
- Learn all about crypto and how it works.
- Complete KYC if you need to.
- Come up with a strategy.
- Make a deposit.
With forex trading, you can skip steps 2 and 3. You do not need to worry about learning all the ins and outs of something new and unfamiliar—you are just going to be trading regular fiat currencies. You also do not need to worry about getting a crypto wallet.
Here are the steps to start trading forex:
- Choose a broker.
- Make your deposit.
- Complete KYC.
- Choose a strategy.
As you can see, it is simple and straightforward. Coming up with a strategy takes time and effort, as does practicing it—but that is a necessary step for any type of investment, regardless of the nature of the asset.
6. Crypto is currently the get-rich-quick du jour.
One more difference that we would cite as a potential disadvantage with crypto is its present status as the get-rich-quick scheme of choice for desperate people around the globe.
Each day, we hear stories about someone getting rich with crypto. Burdened with Fear Of Missing Out (FOMO), we feel like we have to get in on the action.
This is not really a drawback that is intrinsic to crypto, but it is a drawback with respect to the mindset that often goes with investing in crypto.
There was a time when we saw a lot of that with forex as well—and to some extent, it is still out there—but the intensity is not nearly as over-the-top as it is with crypto right now.
Basically, we think it can be harder to manage expectations and regulate emotions when there is so much pressure.
For that reason, forex arguably presents a better environment for trading right now than crypto.
You are less likely to get caught up in the FOMO fervor and may have an easier time focusing on managing your money wisely and fine-tuning your trading strategies.
Forex Trading Offers Lower Risk Than Crypto and Plenty of Opportunity for Profit
Now you know more about how crypto and forex compare. While both of these decentralized markets allow you to buy and sell currencies, forex’s higher liquidity, lower volatility, established regulation, and easier onboarding makes it the superior option for investors who want to avoid huge risks while embracing the opportunities of retail trading.
If you are new to forex trading, we welcome you to get a free $50 XM no deposit bonus to start your trading journey today.