The Forex market is a long and established practice, dating back centuries. There are many unique properties to the market – it is global, available 24/7 and extremely popular. It is estimated that in 2022, the daily volume of Forex trading was about $7.5 trillion. Recently, however, crypto trading has been getting into the spotlight as well. The two markets share many similarities – there is the global distribution of the traders on them, and the fact that crypto trading is also constantly available. However, it cannot be said that the two are actually the same – there are many specificities to each, which might make it difficult to pick what to engage with for traders. The Forex market is more mature, and there seems to be a different crypto controversy every day. At the same time, dealing with volatile digital assets can lead to huge profits. The article below seeks to make it easier to decide, should you find yourself needing to do that:
Is crypto’s lack of regulation a good thing?
Regulation is a pillar of Forex trading – since you need an exchange or a broker to access the markets, you have to make sure that you are dealing with one which is licensed and has your well-being in mind. There is not a unified approach to regulation across the world, but most jurisdictions nowadays have implemented features to make it possible to deter scams and ensure the liquidity of the major brokerages.
At the same time, there is no regulation over the crypto market. That is largely by design, as the assets were made to be decentralized and trustless. There can be some positives to this, for instance the crypto market is very difficult to permanently shut down by a single authority. However, it often makes it incredibly difficult to tell you are dealing with fraudulent companies. In fact, the space has become rather synonymous with scams, and there is a very unreasonable amount of steps one needs to take to make sure they are dealing with a good crypto broker.
For comparison, picking a good MT5 forex broker can be rather difficult as well, because the market is competitive, but if a company is licensed in a country like the UK that means it complies with many regulatory standards which ensure it is not going to try and engage in shady behavior. One such example would be the duty of these regulated companies to report on a daily basis on open and closed trades – that way, it is made sure none of them will try and fix prices.
The same cannot be said about crypto, as the brokers who deal with it often turn out to be fraudulent. In fact, even getting into crypto trading and getting past the first step of buying digital assets can be challenging, as many exchanges out there are just scams. On every step of your trading journey, you have to be extremely careful, and that is just not really suitable for retail clients – only experienced traders can safely navigate the trustless space.
Can you profit from the volatile nature of crypto?
Another huge distinction between the Forex and crypto markets is the underlying volatility of each of them. It cannot be said that the Forex market is stable, and the prices of the assets there can fluctuate wildly each second during peak trading hours. At the same time, crypto prices are notoriously fluctuant, all the time! In November of 2022, the price of the main digital currency, dropped 24% in five days, from $21 301 on 6.11 to $16 276 on 10.11. The majority of the drop occurred in just one day, and we assume many traders were wiped out. In fact, it is estimated $700 million in losses took place – traders with long positions took the brunt of the drop.
The price drop was associated with the crash of a big crypto company – FTX. This brings us to our next point – the huge impact high volume traders have on the crypto market. Since many of the coins are deflationary and there is a limited supply of them, the so-called “whales” – individuals or companies holding a large amount of a certain coin, are able to affect the markets when they move large amounts of them around. As a result, the majority of assets are within the hands of a fraction of the total number of traders. And, in fact, most of said assets do not move, which makes for a very illiquid market.
The disadvantage of such a market is the slow speed at which it moves. When crypto crashes, there are a lot of people trying to pull out, but are not able to, because of the lack of liquidity. In fact, this is usually the reason major companies in the space go under. That is precisely why FTX, Luna and Celsius all failed to make it through 2022.
The Forex market has none of these issues. It is the most liquid market in the world, in fact. There is also the fact that most of the participants within it are large financial institutions – that way, it is very easy to pinpoint exactly what affects the markets, and what to focus on – usually these are important global events like the midterm elections in the United States. There is another advantage to that fact – most of the big participants being banks, they are tightly regulated. There is a strict set of rules for how they can keep their clients’ capital and just how much of it they can spend, which is just not the case with the likes of FTX.
Of course, that comes at the disadvantage of being able to realize profits slower – if you were to short BTC during its freefall, you would be able to make a serious return, for instance. At the same time, that would be extremely difficult for anyone to do – the prices of the digital assets are rarely predictable in any way, and it is better to stick with the comparatively slower, but also comparatively steadier, returns on the Forex market.
So who is crypto trading for?
If you have made it this far, it remains to answer the question of who is best suited to engage with the crypto market. In our view, the space is not compatible with the needs of the retail client. As is, there is no way that their safety can be ensured, not until the first regulated crypto brokers appear. In 2020, the UK banned the provision of crypto derivatives, among which CFDs, to the retail clients within the country. That was the first such ban and it shows the will of regulatory bodies to protect their citizens from the dangers we listed. Time will tell if the ban will remain in effect, or if it will be replicated in more places.
On the other hand, if you know your way around trading, you can easily make use of the volatile nature of crypto to your advantage. But you need to stay safe along the way – always use the services of big exchanges and reputable crypto brokers, or you will risk getting scammed!
