Cryptocurrency is one of the latest additions to the financial markets, whereas the forex market has existed since the 1970s. The forex market has a global trading volume of $6.6 trillion, much more than that of the cryptocurrency market, standing at $360 million.
Both asset classes have their own set of advantages but differ significantly, but which one should you invest in? In this article, we discuss cryptocurrency vs the forex market.
What is the cryptocurrency market?
The cryptocurrency market is a decentralized market where individuals or groups of individuals can buy, trade, sell and exchange cryptocurrencies for traditional currencies or other digital currencies. The most popular way to do so is through Cryptocurrency Contract for Differences (CFD), which allows you to buy digital currencies without owning them.
What is the forex market?
The forex market is a globally decentralised market that enables trading currencies from across the globe. The supply and demand in the market determine the exchange rates, which keep on fluctuating every minute and provide traders with the opportunity to benefit from the same.
Cryptocurrency vs forex market – 7 significant differences
1. Market size and participants
As of 2021, the global cryptocurrency market stands at a valuation of $1542 million. Whereas the global market size of the forex market as of 2021 is $702 billion, with an expectation to cross the $1000 mark by 2027.
Market participation of both the markets also differs as the government has a significant role in the forex market but not so much in the cryptocurrency market. The three main participants in the cryptocurrency market are miners, traders and cryptocurrency exchanges.
Nearly 3.9% of the world’s population are cryptocurrency owners as of now. The major participants of the forex market are central banks, commercial banks and big firms, along with approximately 10 million individual traders.
2. Asset accessibility and quantity
Cryptocurrency CFDs provide access to the thousands of cryptocurrencies that exist in the market. Since you do not actually own any cryptocurrency, funds issues with respect to withdrawing cryptocurrencies to crypto wallets are avoided as everything happens through a CFD.
The forex market offers 180 currencies that can be traded on a foreign exchange at any time, on any day, and in any part of the world. Apart from trading currencies directly, a foreign exchange platform also offers futures contracts, options, swaps, forward contracts and spot contracts with easy access to suit all kinds of traders.
3. Liquidity
The cryptocurrency market is not very liquid due to the existing regulations and the product's newness. There are still some uncertainties involved as some instruments in the cryptocurrency market offer high liquidity, whereas some are near to non-liquid.
The forex market is not only the largest financial market in the world but also one of the most liquid. Trillions of forex currencies are traded every day, confirming that it is convenient to trade currencies at the desired exchange rates at any time. The high volume, 24*7 trading hours, high reliability, and many market participants ensure that it is never an issue to buy or sell a currency in the forex market.
4. Volatility
When compared to the forex market, the cryptocurrency market is extremely volatile. Past events have witnessed digital currencies losing their value drastically or skyrocketing within a few days of their launch. The main reason behind cryptocurrency’s volatility is that it is still in its price discovery stage, where the concept is taking some time to settle in.
On the other hand, forex market volatility is impacted by significant political, international, social, economic or financial events. The exchange rates fluctuate on a regular basis, providing traders with an opportunity to benefit from rising and falling markets. However, the forex market is in a stable position most of the time, and the highest volatility generally occurs during its opening hours only.
5. Market opening hours
The cryptocurrency CFD market can be traded from Sunday at 5 pm to Friday at 5 pm, according to the New York time zone. On the other hand, the forex market is open throughout the day and night, every day of the week. The market is operational from Sunday at 5 pm to Friday at 4 pm EST due to the multiple international time zones that forex traders belong to.
6. Security
Cryptocurrency CFDs are high-risk, high-return instruments with high volatility. However, as far as security is concerned, cryptocurrencies are backed by blockchain technology. When you trade cryptocurrencies through CFDs, you are in safer hands because you do not directly own the digital currencies in a digital wallet, and so the risks of theft and scams are cancelled out.
In contrast, the forex market is regulated by the National Futures Association and the Commodity Futures Trading Commission, which makes it an extremely secure option for investments. The currencies can be easily traded, and profits are readily available in the forex account, which can be transferred to your bank account without any hassle.
7. Taxation
Gains from cryptocurrency CFDs are taxed as capital gains. There are several regulations for the same in different countries, which include a straight 30% tax on all profits earned through the trade of cryptocurrency CFDs. Losses cannot be offset against gains when trading cryptocurrency CFDs.
On the contrary, gains through the purchase or sale of forex are taxed in slabs. 60% of the total capital gains earned are taxed at a rate of 15%, whereas the remaining part is taxed according to the trader’s current income tax slab. You can claim a loss of up to $3,000 when trading forex.
Which is the better instrument?
Both cryptocurrency CFDs and forex come with their own advantages and cannot be directly compared. If you are someone who is willing to invest in a fairly new instrument with high volatility, cryptocurrency CFDs are the right choice for you.
Start trading forex and cryptocurrency CFDs on our platform today to get access to various asset classes and begin your trading journey hassle-free!
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