The cryptocurrency revolution is picking up steam, with new coins emerging almost daily. But some market observers believe that the real revolution is underway in the currency trading arenas-the Forex or Foreign Exchange Market.
How can cryptocurrencies compete with the Forex market? It’s simple: They don’t have to. Not entirely, anyway. Because of their decentralized, peer-to-peer nature, cryptocurrencies are insulated from the infrastructure issues that plague centralized currency markets.
“The cryptocurrency market is very efficient,” notes one CEO of a major Forex brokerage, speaking off the record. “But it’s so new and unregulated that it is easily manipulated by large investors looking to make fast money.”
While cryptocurrencies are very efficient, they’re not foolproof. It is estimated that 80% of bitcoin is owned by 4% of wallet holders, who can swing pricing at will simply by exchanging the coin among themselves. The most famous example took place in November 2013 when a single actor was suspected of driving bitcoin’s value up to several hundred dollars in one week simply by holding and selling.
“The same market-making strategies can be used to drive down a cryptocurrencies price,” explains a senior analyst at a major Forex firm, who also asked not to be identified. “It’s even easier because there is no central authority or clearinghouse for cryptocurrency exchanges.”
Centralized exchanges have been hacked, with customer funds stolen or temporarily frozen. Additionally, the exchanges themselves are also vulnerable to market manipulation-something that is simply not possible with Forex markets.
A decentralized currency is just one of several advantages that cryptocurrencies have over Forex markets, but they are important ones. Another factor working in favor of cryptocurrencies is that most exchanges are unregulated, which means that brokers can’t be held responsible should a client’s funds go missing.
“The regulatory environment in the cryptocurrency market is a nightmare,” snorts a senior trader at a high-profile cryptocurrency exchange. “Brokers are constantly subject to fines from various jurisdictions for having outages or system failures.”
In contrast, Forex markets are regulated, with a central clearinghouse that guarantees all trades and holds accounts for every customer.
“If cryptocurrencies had a centralized clearing system that guaranteed accounts and cleared transactions, they would be much more stable and less volatile,” notes another senior analyst from a leading Forex brokerage firm. “But the current cryptocurrency protocols don’t allow for this type of stability, so the markets will always be subject to enormous volatility.”
Of course, Forex markets aren’t immune from volatility either. Some economists have theorized that a slowdown in China could cause a cryptocurrency market crash. As most analysts point out, though, cryptocurrencies are more insulated from these rapid-fire types of events since trading is typically limited to a small group of investors or miners.
“With Forex trading, we can see rapid swings in prices and ultimately, massive losses,” says the analyst from an FX firm. “But cryptocurrencies just aren’t as accessible to large numbers of traders-and that limits the downside.”
It’s interesting to note that some cryptocurrency supporters are adamantly opposed to regulation. “This industry is about breaking the rules,” scoffs a cryptocurrency miner who worked with several major Forex companies to develop their trading protocols. “So it’s interesting that some supporters are clamoring for centralization and regulatory oversight.”
When asked why he thinks these self-proclaimed anarchists want government intervention, his answer was short but straight to the point: “It’s about money.”
Forex brokers have been slow to embrace cryptocurrencies-after all, there is a great deal of risk associated with trading something that isn’t regulated and could easily be manipulated. However, as cryptocurrency values continue to rise, Forex brokers are looking for ways to monetize this emerging market. For example, several Forex brokers have started offering Bitcoin as a base currency on their platforms.
“We love the cryptocurrency markets because we can charge higher commissions and offer more exotic pairs,” explains one senior trader who asked not to be identified. “And because cryptocurrencies are anonymous and unregulated, we don’t need to deal with Know Your Customer issues.”
Forex brokers are also playing a larger role in the development of cryptocurrencies themselves. For example, several companies have created Bitcoin wallets and mobile apps to facilitate cryptocurrency trading. “By offering these services, we drive demand for Bitcoins,” says one Forex software developer who asked not to be identified.
“We’ve even released our cryptocurrency called ‘Forexoin.’ It’s just like Bitcoin, but it’s backed by the Forex market. So as Bitcoins increase in value, Forexoins will go up at a similar rate.”
Even though these new offerings are generating increased interest in cryptocurrencies, most experts agree that the future of Forex trading still lies with traditional currencies.
“I would never recommend investor trade cryptocurrencies,” warns one senior currency trader at a major bank. “They’re just far too speculative and pose too many risks.”
Of course, this perspective is dependent on the reliability of the Forex markets-and there is always the risk that all trading will be suspended indefinitely with no warning or preparation. If this were to happen, the cryptocurrency markets would likely be completely decimated.
“For now, cryptocurrencies are just hobbies for many traders,” explains one analyst from a leading Forex institute. “The average day trader is still looking for faster returns than Bitcoin provides.”
There is some truth to these claims-after all, it’s difficult for most traders to generate the same profits with cryptocurrencies as they can with Forex trading. That being said, there are plenty of diehard supporters who continue to herald cryptocurrency trading as a ‘game-changer.’
“It’s only a matter of time before all currency markets go digital,” says one cryptocurrency miner from his makeshift mining facility in an abandoned warehouse.
“And once that happens, Forex will be dead.”
Is Forex More Profitable Than Crypto?
Well, I think most people will agree that trading cryptocurrencies is certainly more profitable than Forex. However, is it more profitable than ALL FOREX TRADING?
The answer to this question isn’t as clear-cut. Professional traders and institutional investors who trade currencies daily know how to make smart investments and mitigate risk. They know how to set up hedging strategies, etc. For the average trader who spends more time fumbling around trying to find a trade setup than actually placing trades, Forex is likely much less profitable.
However, if you spend the time learning the markets and developing your trading skills then there is absolutely no reason that Forex shouldn’t be as profitable as trading cryptocurrencies. Based on my experience Forex tends to be more profitable over the long run. There is a LOT of volatility in the crypto markets which creates excellent trading opportunities but also requires constant analysis and adjustment to take full advantage of these opportunities.
Which Is Easy Forex or Crypto?
Once again, this question depends on your skill level. I think Forex is easier to learn than cryptocurrencies for the simple reason that it has been around longer and there are many more resources available online to help you find your way around. For example, what does a crypto beginner do if he can’t find his cryptocurrency wallet? He has no choice but to use the ‘exchange wallet’ which is notoriously insecure.
The best way I can answer this question is by saying that if you already know how to trade with Forex then it will probably be easier for you to learn cryptocurrencies. If you don’t have any experience trading at all, then my advice would be to start with Forex. Once you’ve developed your trading skills enough to be confident in placing trades, THEN start exploring the world of cryptocurrencies.
The bottom line is that if you are interested in cryptocurrencies then I would recommend at least taking some time to learn about Forex trading as well. It has more depth and complexity than you would initially expect which can make it quite addicting.
Is Forex Good for Beginners?
Absolutely! There is no reason to assume that Forex is more complex or difficult than cryptocurrencies. If you are new to trading then I would recommend working with Forex simply because it has been around longer and there are more resources available online.
Forex is also highly regulated by the government which ensures that your investments are safe (at least for now). It can be difficult to find exchanges that are regulated in the cryptocurrency world.
Cryptocurrencies are certainly more profitable than Forex trading but if you lack experience then you might want to start with Forex simply because it is riskier for an inexperienced trader to open a new cryptocurrency account and make investments without first developing some understanding of how the market works. Furthermore, I don’t know of any regulations that are enforced for cryptocurrency exchanges which means your investments are only as safe as the exchange you choose to use.
Is Forex a Gamble?
To be honest I think all trading is a gamble. The only question that matters is how much risk you are willing to take on. You can develop all the skills in the world but if you choose to trade with money that you cannot afford to lose then you are gambling no matter what market you decide to trade in.
When it comes to Forex vs. cryptocurrencies, which are you willing to take more risk on? Both markets have significant risk factors but there are also many opportunities to make a profit if your skill level is above average.
While I wouldn’t recommend using any of your emergency savings to invest in either Forex or cryptocurrencies, I think it’s important for anyone interested in trading to first develop their skills with Forex before trying their luck with cryptocurrencies.
Is Forex Trading Profitable?
Forex is very profitable IF you know what you are doing. If not, then the chances of making a profit are slim to none. There are lots of beginner resources available online that can help inexperienced traders understand how Forex works.
If you have a basic understanding of Forex then the only other skill that will help you trade successfully is being able to place trades at the right time. Both skills can be developed by reading, practicing, and making mistakes over time.
Can Forex Trading Make Me Rich?
Forex trading has the potential to make you rich but this is primarily for people who are interested in trading FOR a living. To be successful long-term with Forex you not only need to develop your skills as a trader, but you also need to develop all of the other business skills necessary to operate an online business.
Does Forex Have Cryptocurrency?
Not yet. But if you are interested in trading Forex as a beginner then I wouldn’t be surprised to see it available someday within the same platform where you can trade cryptocurrencies.
What Tools Do You Need to Trade Forex?
You would need a computer and an internet connection whenever you want to trade Forex. However, some people trade Forex while traveling on the road or vacation so it comes down to what you are most comfortable with.
Should I Invest in Forex?
It depends on your goals for trading. I think Forex is a better option than cryptocurrencies if you are interested in earning money by trading FOR a living (i.e. full-time).
If you could choose either Forex or cryptocurrency then my suggestion would be to invest in both markets to strengthen your potential liquidity and diversify risk.
Final Thoughts
Both Forex and cryptocurrencies offer great potential to earn money through trading but each market comes with its unique risk factors and opportunities. If you choose to invest in either I recommend starting with Forex as a beginner and practicing your skills before moving on to cryptocurrencies.
Overall, we think of Forex as a more established market with safer trading practices than the cryptocurrency market. Furthermore, we think that starting your investment journey with Forex is a better decision than cryptocurrencies, both for beginners and experienced traders.