The foreign exchange and cryptocurrency sectors often seem to have overlapping features. On the one hand, they both deal in currencies of one type or another. On the other, though, one is remarkably modern while the other appears in many ways to lag behind. The level of legitimacy that each one enjoys is also different. In the eyes of some, cryptocurrency runs the risk of being a scam, while the foreign exchange market is well established and strong.
This blog post will explore the differences between the two types of assets and how a trader can use the two items to their advantage when setting up a trading portfolio. It’s not necessarily the case that a trader will consider trading both, but if they are, it’s wise to make sure they know the differences
Privacy and operation
The first thing to note when it comes to differences between the two types of asset class is privacy. Foreign exchange trading often requires divulging significant amounts of information, such as your name and contact details. It’s also likely that you’ll have to tell your broker your financial information, especially bank account numbers and others.
Trading cryptocurrency, however, is substantially different. Crypto offers much more privacy, not least because it is all run on a decentralized basis. Submitting your details to a cryptocurrency exchange is an essentially private exercise because the information is held on a ledger that is entirely decentralized – meaning that even the administrators can’t see it.
Some crypto exchanges do ask you to submit information about yourself to create an account before you can proceed to the ledger itself. However, this may depend on the jurisdiction in which you or the broker are based. And it’s also possible that you’ll be told by your broker that you have to provide bank details if you ever cash out your cryptocurrency, which makes sense.
But on the whole, information about you is not tracked – so you can buy and sell your crypto with worries around privacy invasion on the low side.
Both are volatile?
In terms of similarities, meanwhile, it’s worth noting that both types of assets are somewhat volatile. Once you learn how to trade forex on an informative site like ForexTraders, you may start to notice that the foreign
exchange trading market can vary to extreme degrees dependent on lots of different variables. It might, for example, change at short notice following remarks made by a central banker or politician. Cryptocurrency is also highly volatile – and, in that sense, the two can be understood as similar to forex.
But it’s also true to say that cryptocurrency is way more volatile in many senses than is forex. The swings observed in cryptocurrencies like Bitcoin are enormous: in 2017, for example, it reached over $20,000 at one stage and then was seen to go down to under $12,000.
The reasons for this are complex, but one of them is likely to be that cryptocurrency is just so new: it makes it harder for people to plan its potential trajectories, making them feel unsure and likely to make potentially knee-jerk decisions and reactions.
Profit and loss
Finally, it’s also worth analyzing whether or not profit and loss are more likely in one of these trading spheres or the other. Of course, there’s no such thing as a crystal ball in the worlds of forex and crypto – and there’s no use trying to guarantee that one asset class is going to be safer than another. But there are some tangible differences to note in terms of what sort of profit the two might turn up.
It is potentially helpful to note that there is a flip side to the volatility found in the cryptocurrency world. As outlined above, this can lead to significant losses in the event of a price drop. However, the presence of severe price upswings can mean that those who manage to time their investment correctly can see lots of returns as time goes on.
The swings in the forex world are, on the whole, not quite as strong. There’s no guarantee, but the volatility of cryptocurrency in particular (compared to forex) means that the sector can be pretty profitable if it works out well.
In short, it’s easy to see how the forex and crypto sectors can be parsed and understood separately. The forex world is more mainstream, and it has a sense of legitimacy around it that the cryptocurrency world – for all its benefits – does not. However, there are still some similarities between the two worlds – and it’s worth remembering this if you’re about to launch into a career trading either item and especially if you’re facing a choice between one or the other.
