Both forex and cryptocurrency trading depend on the assumptions that the investors make. For example, you may take a long position in either currency pairing or both, depending on which seems to be more profitable. Thus, you could make a hefty profit whether the value of the underlying asset rises or falls, provided that your forecast is accurate.
On the other hand, you will incur some losses if the value of the chosen currency pair falls, but you can still enjoy some profits if you have short positions in either currency pairs. The two forex markets, namely the EUR/USD and USD/JPY, have daily turnover of about $3 trillion. Considering that about two thirds of this turnover takes place in the United States, the dollar/trading currency pairs are among the most liquid in the world.
This means that they trade more frequently than any other financial market. Also, due to the low cost of trading, liquidity is high. Hence, forex and cryptocurrency trading offers a good venue for small-scale investors to set up their investment portfolios. There are several reasons why investing in forex and Cryptocurrency could be attractive.
Forex trading is done electronically over the internet. This provides for higher trading volume due to the low costs. A high trading volume indicates an active market. The smaller the trading volume of a currency pair, the greater the potential for arbitrage opportunities. Arbitrage is the process of earning profit from the difference between the bid and ask prices in the same market.
In the cryptosphere, currencies are always bought or sold in the same way. This also creates liquidity, and allows the forex market to sustain high rates of volatility even during times of economic recession. Volatility is measured by the rate at which prices vary with time. High volatility means that currencies are rapidly changing in value, whereas low volatility indicates that they remain stable.
Both the forex and the cryptocamp ecosystem provide for high market capitalization. In the case of the latter, this means that there are many participants in the market. As there are many investors, the potential for arbitrage profit is high. Also, due to the potential for big purchases, the protocol used to operate the platform prevents large-scale manipulation of price.
This serves to reduce opportunities for dishonest brokers. One major similarity between the two markets is that both have low transaction costs. Because of the fast speed of the transactions, the costs are very low. However, this is where the similarities end. Cryptocurrency transaction costs are much higher than those of forex, because of the larger number of trades.
Another key difference is that while the cryptocamp has a system for settling disputes and for ensuring fair play, the forex usually uses its own internal arbitration system to resolve conflicts. The final key similarity is the use of brokers. Both cryptosporters and brokers facilitate trading on the marketplace, although the role of brokers varies between the two.
While some brokers may provide liquidity and settle disputes, others perform the roles of market makers and/or middlemen. This function is performed through the commission fees paid to the broker by the client, who pays for the services. The volatility experienced by forex and cryptocurrencies is different from the market functioning in real time.
Despite the similarities and differences, there are clear differences. Most notably, cryptosporters typically offer lower transaction costs and greater transaction liquidity. They are not, however, free from market risks and they are generally less reliable than the more mainstream forex trading brokers.
The biggest similarities between the two markets are the fact that both require a high degree of risk and most traders prefer the latter. However, due to the relative newcomership of cryptosporters to the market, the volatility experienced in forex trading does not compare well with that ofcrypto-exchange.