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Forex vs. cryptocurrencies - CFD trading in comparison

  • Post category:Bitcoin / Forex
  • Reading time:12 mins read

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In addition to the classic currencies, for example the euro or the US dollar, there have been so-called virtual currencies for over 13 years now. These are better known as cryptocurrencies. The best-known digital currency is still Bitcoin. Although cryptocurrencies were originally intended to be used primarily as a means of payment, nowadays they are primarily claimed by traders for speculation.

It is interesting to know that there are some similarities between classic currencies (Forex) and cryptocurrencies. In our article, we would like to discuss the similarities and differences. Furthermore, you will learn what the advantages and disadvantages of crypto trading are compared to forex trading and how you can trade currencies in both cases using CFD trading.


Similarities between Forex and Cryptocurrencies

When we talk about Forex in our article, we simply mean foreign currencies (Foreign Exchanges). In terms of their characteristics and trading, there are a number of similarities between Forex on the one hand and cryptocurrencies on the other, such as:

  • Means of payment
  • Trade in different pairings
  • 24/7 trading
  • Various factors influencing prices
  • Trading via special platforms / exchanges

One thing that forex and cryptocurrencies have in common is that both are currencies that can also serve as a means of payment. Central bank currencies such as the euro or the US dollar have been used as legally recognized means of payment by all citizens for many decades.

But cryptocurrencies such as bitcoin can also serve as a means of payment, although they are not yet widely accepted by local businesses or online stores. Nevertheless, the trend shows that even some larger companies are gradually enabling payment by means of digital currencies.

Another commonality is that both cryptocurrencies and forex can be traded in different pairs. For example, the most traded forex pair is Euro / US Dollar. But also when trading digital currencies, you can not only buy Bitcoin against Euro, for example, but alternatively exchange Bitcoins against Ethereum, for example.

A third similarity is that you can trade both foreign currencies on the forex market and cryptocurrencies effectively 24 hours a day. In the case of foreign exchange, this is done through the world's largest financial market, the foreign exchange market.

Trading takes place via special platforms, which are usually provided by a Forex broker. Trading works similarly for digital currencies such as bitcoin, namely via crypto exchanges or other, also special platforms.

However, you can trade both forex and cryptocurrencies not only directly on the respective market, but alternatively via a CFD broker. Most of the larger brokers now offer not only indices, commodities, stocks and foreign exchange as underlyings, but also cryptocurrencies. This is at least true for the major CFD brokers that offer Bitcoin and Ethereum CFDs, for example.


Differences between Forex and cryptocurrencies

Of course, there are not only similarities between forex and cryptocurrencies, but also various differences. The main differences between direct trading of forex and digital currencies include:

  • Forex markets extremely liquid, crypto markets not always so
  • Different influencing factors in forex and cryptos
  • Different volatility (range of fluctuation)
  • Regulated market for foreign exchange, little to none for cryptocurrencies

Let's go a little deeper into the corresponding differences between Forex and cryptocurrencies. One major difference is the liquidity of the respective markets. The forex market is not only the largest financial market in the world, but also the most liquid, so to speak.

This means that - at least with the Forex majors - you will almost never have problems that your order is executed immediately. Liquidity in this context means that there is always a counterpart to your order, so that the order can be executed immediately on the foreign exchange market.

The situation is somewhat different for cryptocurrencies. It is true that here, too, at least the top 10 digital currencies are now considered relatively liquid. However, there are more than 10,000 cryptocoins today, the vast majority of which are not liquid. Some of these coins are only traded once a month at times, so there are definitely differences between forex and cryptocurrencies in this respect.


Different factors influencing forex and digital currencies

A second difference between forex and digital currencies are the factors that have an influence on the price development. The forex market is mainly affected by the activities of central banks, such as changes in key interest rates or direct interventions in foreign exchange trading.

These interventions can take the form of central banks buying or selling a larger quantity of their own or a foreign currency. In addition, economic developments, political crises and other factors may also have a significant impact on the prices of individual currencies or the market as a whole.

With cryptocurrencies, the influencing factors are somewhat different. Central banks do not play a role here, as digital currencies function independently of the usual financial systems and certainly cannot be influenced by central banks.

Political crises and economic developments also have a maximum temporary effect on the prices of cryptocurrencies, as demonstrated, for example, by the Corona crisis. Instead, there are other influencing factors, some of which can have a significant impact on the price of digital currencies, in particular:

  • Demand
  • News
  • Statements of celebrities, keyword Elon Musk on Twitter

In the case of cryptocurrencies, it is therefore primarily not overriding influences such as political or economic developments, but often individual news. In this context, demand and the behavior of traders play a very important role, accordingly also psychological factors. In the recent past, for example, it has been shown several times that a single tweet of a celebrity, such as Elon Musk, can move the prices of individual cryptocurrencies or even the entire market in the double-digit percentage range.


Volatility significantly higher for cryptocurrencies

Another big difference between Forex and cryptocurrencies is that the volatility of digital currencies is much higher than in the forex market. In the forex market, the range of fluctuation is much smaller, especially for the so-called global currencies. Here, it is relatively rare for the foreign exchange rate to move by more than 30 percent on balance within a year.


Advantages Forex Trading vs Crypto Trading

Maybe you are also considering whether to trade foreign currencies like the dollar or the Swiss franc in the future or opt for crypto trading instead. Therefore, it makes sense to know both the advantages and disadvantages of these two trading options in direct comparison. First of all, we would like to mention below the main advantages that forex trading has in comparison with crypto trading.


Regulated Market:

Quite a few traders are concerned about safety, even though trading both forex and cryptos involves a higher risk. However, the advantage with forex trading is that trading takes place on regulated markets. For example, forex trading has official rates, while the prices and rates of individual cryptocurrencies arise freely and are not subject to any controls or regulations. Consequently, Forex trading has advantages for somewhat more security-oriented traders.


Higher liquidity:

Another advantage of forex trading over cryptocurrency trading is the generally much higher liquidity. This applies not only to the five world currencies, but also to most of the somewhat smaller forex. In crypto trading, on the other hand, there is sufficient liquidity in the market only for the most popular coins. Even after the top 10 cryptos, it is sometimes difficult to get an order executed promptly.


Lower volatility:

One advantage of forex trading compared to crypto trading is the significantly lower volatility of the currency pairs. While the prices of Bitcoin & Co. often fluctuate by more than 100 percent within a year, a volatility of more than 30 percent per year for the larger foreign currencies is rather a rarity. However, some traders naturally want to achieve the highest possible profits in a short period of time, so that the lower fluctuation range in forex trading can also become a disadvantage.


Influencing factors easier to calculate:

Another advantage of trading foreign exchange compared to trading cryptocurrencies is that the influencing factors in foreign exchange trading are easier to assess. In particular, measures taken by central banks as well as political and economic developments have an impact on foreign exchange rates. In crypto trading, on the other hand, spontaneous statements by celebrities, spontaneous news or even the psychology of the traders often have a major impact on the price, which is, however, difficult or impossible to calculate.


Disadvantages Forex Trading vs Crypto Trading

Trading with foreign currencies has not only advantages compared to crypto trading, but there are definitely some disadvantages. We would also like to briefly list and explain these in the following sections.


Often times with little movement:

Typical for the foreign exchange market is a relatively low volatility, at least for the major currencies such as the euro, the US dollar and the Swiss franc. This does not have to be a disadvantage for safety-oriented investors, but numerous traders simply want to achieve the highest possible profits in a short period of time. To some, the forex market even seems a bit boring at times. Under this premise, crypto trading clearly has advantages, as the volatility is much higher with Bitcoin & Co.


Significantly less choice in foreign exchange:

Another disadvantage some traders see in forex trading is that the number of tradable currencies is limited. Most brokers provide between 50 to 100 tradable currency pairs, while the selection for cryptocurrencies now amounts to over 10,000 different cryptocoins.


No "story" behind the foreign exchange:

Quite a few traders see a point of criticism in Forex trading in the sense that there is no (exciting) "story" behind the individual foreign currencies. The development of the rates is mostly oriented to actions of the central banks or the economic development.

With cryptocurrencies, on the other hand, there is often a unique selling point through which the company behind the currency or the digital currencies themselves can distinguish themselves. Such "stories" around the coin are extremely interesting for traders. This gives some cryptos the possibility of an enormous price increase, which does not exist in the form of foreign exchange.


Limited profit margin:

Another disadvantage of trading with foreign exchange may be that the possible gains - especially when considered in terms of time - are quite limited in practice. For example, it is almost inconceivable that the value of the dollar will double against the euro within a year. On the other hand, price increases on the crypto market of 100, 200 or more than 500 percent within 365 days are not uncommon.


Should I trade forex or cryptocurrencies?

Basically, this decision must be made by every investor and trader himself. It mainly depends on how safety-conscious and risk-averse you are. If you would rather invest for the long term and not take an above-average risk, forex is certainly more suitable than cryptocurrencies. If, on the other hand, you pursue the goal of achieving very high profits in the higher double- or even triple-digit percentage range with relatively little capital in a short period of time, crypto trading is certainly more suitable. However, you must be aware that you also have a considerable risk of loss.

If you are not sure whether you want to trade forex or cryptocurrencies in the future, it is definitely an option to try CFD trading. There, both forex and cryptos are offered as underlying assets by CFD brokers. Thus, you have the option to trade forex CFDs first and then crypto CFDs, for example. This way, you will surely come closer to your decision whether you prefer trading forex or digital currencies in the future.


What is a good CFD broker for Forex and cryptocurrencies?

The CFD trading with foreign exchange and cryptocurrencies mentioned before works via a CFD broker. There are now more than 30 of these providers on the market. Especially the larger CFD brokers also provide crypto CFDs. But what actually makes a good broker for forex and cryptocurrencies?


Choice in trading instruments

First of all, a good CFD broker should of course offer a not too small selection of forex and cryptocurrencies. Especially with digital currencies, there are still some brokers that only offer Bitcoin and maybe Ethereum as underlying assets. Here, you should make sure that at least 30 foreign currencies and 10 cryptos are available as underlying assets.


Functional and easy to use trading platform

Another feature that can distinguish a good CFD broker for Forex and cryptocurrencies is an intuitive and functional trading platform. In addition, more and more traders want the possibility to trade mobile, i.e. via app. In the best case, the headquarters of the CFD broker is located in the EU. Then you can assume that the security is high and that the broker is regulated.


Customer service, demo account and conditions

A good CFD broker is also characterized by general features, such as an easily accessible customer service and that a demo account can be used free of charge. Last but not least, you should also pay attention to the conditions, especially the spread and any additional costs. All of these factors together give a good picture to make a good choice. find good CFD broker for forex and cryptocurrencies.