These two areas of trading are very different, but similar at the same time.
If we were to characterise them both, they’re fast-paced (to the extent that traders are literally watching pips every second) and very lucrative. They’re also relatively new in the world of trading. Forex has been around for much longer (but has exploded with online trading), while Crypto is still a baby.
Both areas have an incredible buzz around them at the moment. And the excitement doesn’t look to be lessening any time soon.
What is Forex trading?
Put simply, it’s a decentralised market where foreign currencies are freely traded. The ‘forex’ part stands for foreign exchange. It is also known as ‘FX’. It has a long lustrous history, read about it here.
On a daily basis, an immense amount of money is traded. According to Reuters, a record $7.3 billion was trade in the Forex market in February 2018. That’s a lot of money, and that money goes some way towards explaining why the experience is so fast.
Watch: What Is Forex: We Explain in This Video
An easy process
On top of that, it’s incredibly easy to do. With currencies being traded almost on a 24-hour basis. A trader can follow the news and make a decision to sell their Swiss Francs at 9pm, for example, and wait until four am to buy Euros. The ability to trade at any point in the day makes Forex very attractive to traders.
When it comes down to it, forex trading involves a very simple process. You buy one currency and sell another currency at the same time. The forex trader is essentially betting on the direction a currency will go in at some point the future.
And going back to that trading time window, you can trade for literally 24 hours a day, for the full five days of the business week. That means from Monday in Australia to Friday night in New York. Because of the time difference this means that you can trade into the weekend in some parts of the world.
Check Out: Who Are The Best Forex Traders in the World?
Low point of entry
One key reason why Forex trading is so popular is the easy point of entry. For a long time, trading has been seen as the playground of the wealthy, or the very brave speculators who happen to be able to drum up substantial capital.
Forex changed all of that when it went online. With online forex trading, it soon became apparent that anyone could pull together the minimal fee to open up trades and use the vast amount of information online to build a successful career.
However, it’s the liquidity that makes forex so attractive to people.
Currencies are traded around the clock, and the high volume of trades that take place means that your position with a currency pair can go up and down very rapidly. With online brokers becoming so commonplace, this means that there are many more brokers competing for your business. And that means lower prices.
The Forex community also has a large part to play in the popularity of the arena. There are many online communities and sites that include whole groups of people who are trading on Forex. They are able to offer advice or even just some company for anyone who has just started out. With such a huge community, it is even easier to glean important information about forex trading opportunities.
Facebook has a number of forex groups that offer a real community experience. One of the most popular UK groups is Forex Signals. Another one worth investigating is US based Forex Trading Group. We also have our own community at My Trading Skills.
24 hour access
The good thing about forex, as we’ve already mentioned, is the 24-hour access to markets. But this wouldn’t be possible without the technology aspect. Having software and other platforms at your fingertips means that you can monitor your investments around the clock, and even have some aspects of technology to make sure you take a profit when you’re sleeping.
On top of all of that, forex has many fans, and it’s a market that moves trillions of dollars every day. But the stress of it all is lessened for the investor. Apps and websites that offer all the tools you need to effectively manage a forex portfolio without having to work too hard, mean that you have complete control over your trades.
Forex is such a huge and complex area, it’s’ no surprise that it enjoys protection through significant regulation. This has made forex one of the most professional and safest trading experiences.
What is crypto trading?
This is an intriguing new area of trading that has come about due to the invention of a new currency. Bitcoin was the first major cryptocurrency, and after that was released to the world, a number of ‘altcoins’ sprung up.
They do have to be mined to be called ‘coins’, but this is not a problem for many people, who have the computer setups to do this job. Then, the currencies are released to the public. Because they are digital currency units, they are easily traded by most brokers.
The one thing you need to know about crypto is that it has a huge amount of volatility to it, and there are many reasons for the volatility. People who bought Bitcoin when it was first released, for example, now have a currency that can be worth millions. Even allowing for a conservative growth in value, Bitcoin has been the one currency that has shot up in the last few years.
Crypto has enjoyed a real buzz since it arrived on the market. A number of online brokers offer leverage trading, which means that traders can borrow funds to place larger trades.
It is common for online brokers to offer highly attractive leverage options. Some brokers offer a 10:1 ratio, for example.
Watch: is Leverage a Trader’s Friend?
The volatility thing
The most successful traders don’t sit there hoping a currency or security will move up and make them money. If you’re looking at a trade that is basically not moving anywhere, you’re just wasting your time. The best traders look for volatile markets before they even put a single trade down.
Volatile markets are those that have numerous changes in prices every day. Where a share of Apple would take days to move beyond just a few points, a currency pair can easily swing up and down every hour. This means that forex traders have a great opportunity to make a profit. The market provides that opportunity.
However, one way to beat the general panic when you see an investment rise then plummet, is to ensure that you think long-term. If you’re able to focus on the results that you will get in a few days rather than during that time, then you’re more likely to enjoy the experience.
Volatile instruments mean that you can hit your preferred profit earlier.
Sharp moves up and down may look a little intimidating at first, especially to the new trader. But those sharp changes can go up as well as down. So as long as you’re patient and able to focus on being ready at the point where there is a sharp upswing, you should find that forex volatility is working in your favour.
You simply won’t see that kind of volatility on the vast majority of instruments and securities that are available to trade. So forex offers something unique in that respect.
Learn: What is Day Trading?
Flip this over for a moment, and take a look at what Crypto trading has to offer in the way of safety. It still needs a significant amount of work before it becomes both lucrative and safe.
Crypto currencies can still be hijacked. It’s often exchanges themselves that face this kind of threat. The currencies themselves are generally safe if kept on a hardware wallet, but with the number of exchanges out there, there has been increased vulnerability among exchanges to hacking.
Crypto: not out of the woods yet
The whole concept of crypto settles upon it being decentralised. It’s currency in the hands of the people. This comes with advantages and disadvantages.
While trading person to person on a truly decentralised exchange can cut out middlemen costs of that from current centralised exchanges it also means if something goes wrong, such as sending crypocurrency to the wrong account there may not be somebody there to help you recover the cryptocurrency.
This is where Forex has the edge as it’s traded through centralised exchanges in a regulated market so if there are issues, it can usually be sorted. Crypto has the technology and infrastructure to bring security to trading, but a regulations system that is still growing, and a need for institutions to show confidence through investing, mean that there are still some challenges to be faced.
In other words, it’s in need of further regulation and some stability through large investment.
How to trade
Trading Bitcoin, for example, is out of the reach of many people. This is because the instrument has grown so fast and so aggressively, it’s sometimes hard to find the capital to buy into it now. But that’s only one of the problems the currency presents with. Finding a broker that is able to provide a good spread, for example, can also prove to be difficult
However, it is possible, and to trade Bitcoin or any other altcoin, all you have to do is go online, prove your identity, and then get started. We recommend opening a dummy account first, so you’re able to gain an understanding of how crypto works.
The same goes for forex trading. The one thing you need to do is buy a high quality laptop that you can rely on in the heat of the moment. You’ll be using a lot of software and this may include technical analysis software, so invest in a computer that won’t let you down.
So, which one?
Both are very similar and potentially lucrative trading options. Most people know that Bitcoin is tradable, but many don’t know how to get started. While trading bitcoin can be great fun, the lack of regulation means that you could be open to a cyber attack or volatile swings in price action.
Consider trading a much smaller part of your funds on crypto until the market stabilises somewhat and apply my most of your funds to Forex to learn to trade more volatile markets in future.