There are several markets in the world and thousands of financial instruments. Among the most robust markets are forex and cryptocurrencies. While the forex market has been around for decades, cryptocurrencies are one of the contemporary markets that have appeared due to technological advancement. But the market participants have one goal – to make profits. This begs the question, which market is more profitable, the forex market or the cryptocurrency market? To find out which market is more profitable, we shall start by looking at how the two markets differ.
About Forex Trading
Forex trading emerged in the 19th century, but retail traders adopted it in the 1970s. It has grown substantially with the entry of internet banking. The forex market is the biggest in the world, with a daily turnover of over $6 trillion. It is also highly volatile and greatly affected by political and economic news. For instance, a country’s GDP, inflation, and interest rates affect currency strength. There are numbers of brokers that pitch to that $6 trillion number, the biggest brokers have monthly trading volumes as high as $2 trillion.
Forex trading involves buying and selling currencies to make a profit. Essentially, you buy the currency of one country while simultaneously selling another. The major currency pairs are currencies of developing countries against the US dollar.
About Crypto trading
Cryptocurrency is a contemporary invention. The first crypto, Bitcoin (or BTC), was invented in 2009. In its slightly over a decade of existence, the crypto market has grown significantly to reach a market of 360$ billion at its peak. However, it fades in comparison with forex, which has over $6 trillion daily turnover.
The crypto market is popular because of the decentralized nature of its blockchain technology. Cryptocurrencies are decentralized and not managed by a centralized institution like central banks.
Which Should You Choose to Make Higher Profits?
Right off the bat, it is essential to mention that forex and crypto trading can be both profitable (if traded by an experienced trader). They are characterized by high volatility, which provides high-profit opportunities. For instance, it is not uncommon for crypto value to rise or drop by 50% daily. Currency pairs can also change tens or hundreds of pips daily. This means you can take advantage of these changes to rake in massive profits.
But the profitability of both markets will depend on your trader type. For short-term traders determining which market is more profitable can be a herculean task because both markets make substantial moves within a day. However, generally speaking, crypto tends to be more profitable for medium and long-term investments. For instance, the price of Shiba Inu has proliferated by over 46 million percent in over a year.
How to Determine Which Market is More Volatile
Forex Allows Leveraged Trading
Leveraged trading means using margin to control a bigger trading position with a small deposit. This means you make a bigger profit if the trade goes in your direction. Similarly, you lose more when it doesn’t.
Forex trading tends to be more profitable than crypto due to leveraged trading. On the other hand, virtual currency trading largely happens over crypto exchanges. However, many brokers are integrating forex trading into their platforms, which allows traders to use leverage to trade cryptos.
Forex Market is More Stable
Perhaps where the forex market gets the upper hand over cryptocurrency is the market’s stability and liquidity. The currency pairs are tied to specific countries and have a massive economic impact. Accordingly, various instructions monitor the currency to prevent manipulation or dealings that can topple a country. You can therefore expect moderate volatility within measured extents.
Liquidity means how easily you can exchange assets with other financial instruments. Some currency pairs like the majors (USD/EUR) and crypto such as bitcoin and Ethereum and highly liquid. Illiquid financial instruments attract high transaction costs.
Cryptos Have Higher Volatility
While both cryptos and currency pairs are volatile, volatility is relatively higher in cryptocurrencies. Cryptocurrencies are pegged on currencies, commodities, or other cryptos. Some, like meme coins, derive their value merely from speculation. This means they exhibit erratic price movement, which increases the risk significantly. For instance, Terra lost its peg recently US dollar. While the insanely high volatility means massive profits, the losses can also be massive.
Crypto Allows More Diversification
The profitability might also depend on the available assets, which give you a variation to allow you to diversify your portfolio. The number of currency pairs is quite limited, including the exotic pairs, compared to the cryptocurrencies, which are over 15000.
Crypto Market Allows You to Trade 24/7
While the forex market is viable for 24 hours, you can only trade during weekdays. The market closes on weekends. Crypto exchanges continue operations even on weekends allowing you to trade when other markets are sleeping and make more profits.
Crypto Carries More Risk Due to Loose Regulation
While many countries are still coming up with regulations to curb the risk of crypto, the foreign exchange market has solid trading regulations. For instance, the forex market has regulations that set the negative balance protection and leverage. The loose regulations mean that the crypto market has an inherently higher risk.
In addition, the risk of scams is rifer in the crypto market. However, forex traders also suffer scams from bots and unscrupulous brokers. The risk of losing money significantly reduces the chances of profitability.
Forces of Demand and Supply Affect Both Markets
The profitability of conventional currency and cryptocurrencies is affected by price movement and the demand and supply forces. When the demand is high, the bulls record more profits while bears book more profit when the value is nose-diving. The gigantic forces behind the demand and supply forces in the forex market can have a massive impact on the global economy.
The profitability of both markets in relation to each other is a moot point. Some traders find forex profitable, while others find cryptocurrency profitable. While cryptos are more volatile, you can trade them 24/7. On the other hand, the forex is in comparison to crypto more regulated, less prone to scams, and more stable. Generally, with proper strategy and analysis, you can profit from both.
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