Cryptocurrency is gaining popularity among both novice and expert investors. It is all over the news, social media, and other forms of media these days. When it comes to XBT/USD, it has witnessed exponential growth. Those who invested in Bitcoin between 2010 and 2013 have amassed millions of dollars worth of fortune.
However, what about the traditional market? Is foreign exchange still a viable investment option when compared to cryptocurrencies? Let us begin by defining both of them.
The term "cryptocurrency" refers to a decentralized virtual currency that "transacts" on the blockchain. The main attraction of cryptocurrency lies in its ecosystem. Any entity or institution does not supervise it, and the operation is instantaneous and safe, as the entire blockchain must be modified to "forge" transactions.
On the other hand, Forex is one of the largest and most liquid financial markets in the world. It is open 5 days a week, runs 24 hours a day, and has a daily transaction volume of approximately US$6.6 trillion. The foreign exchange market includes banks, enterprises, financial institutions, retail investors, and all exchange currency institutions engaged in trading or profit-making.
Foreign exchange trading enables you to profit from the changes in the exchange rates of a wide variety of foreign currency pairings. Typically, foreign exchange is exchanged in pairs—for example, XBT/USD. You speculate on the currency exchange rate of a particular nation rising or falling in relation to the currency exchange rate of another country, and you open a position accordingly.
What is the distinction between Forex and Cryptocurrency?
The nature of foreign exchange transactions and cryptocurrency transactions are similar, and both belong to currency transactions. Foreign exchange transactions are usually carried out by brokers. You can open an account with direct market access and start investing.
For instance, if you believe that Bitcoin will rise in value relative to the US dollar, you may invest in the XBT/USD pair. If the price goes in a favorable direction, you will earn a profit. But if the price moves in a way that is not beneficial to you, you will lose money.
However, Forex accounts are strictly regulated. Therefore, it is more convenient for most traders and investors to trade through a broker, but the broker will charge a certain fee. How much the broker charges are determined by various factors, such as the trading pair you choose, the actual institutions involved, current market conditions, etc.
Cryptocurrencies are usually purchased on exchanges. The exchange acts as an intermediary and profits from it. Unlike brokers, exchanges, as a single institution for buying and selling, usually have a fixed exchange rate. Since there is no need to negotiate and only need to comply with the terms of the exchange, this simplifies the process for users.
Traditional currencies or fiat currencies can be linked to assets or other currencies or even not linked to them, but the government and the central bank govern them. The value of global currencies is determined by the commodities produced and their countries’ performance compared to other global players.
On the other hand, cryptocurrencies were not born ten years ago, and they are not linked to a particular country or bank. Although they can be anchored to other assets, the majority are not. They rely on the combination of their utility and speculative beliefs to obtain value.
Which market is better for you?
You're probably wondering which one I should pick now that you've grasped the differences between the two. Let us help you decide!
Foreign exchange trading has a deeper foundation and apparent supervision. And cryptocurrency is a new and risky market. Therefore, whether you choose foreign exchange trading or cryptocurrency, you must understand that every transaction has its own risks and rewards, as well as its positive and negative sides.