Is it better to trade Forex or cryptocurrencies?

Since the cryptocurrency boom of the late 2010s, many traditional Forex / CFD brokers have begun to offer trading in the most major liquid cryptocurrencies such as Bitcoin, Ethereum, Tether, and Ripple.

This has made trading in cryptocurrencies considerably easier. You may choose to trade traditional Forex currency pairs or cryptocurrencies after opening an account with many major brokers – or both!

eToro is one of the brokers that provide the ability to trade Forex as well as 90+ cryptocurrencies. It is important to know what you are getting into when you make that choice. With this article, we will try to help you navigate the pros and cons of each asset class.

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What is Forex?

Forex stands for foreign exchange and it is a global market of exchange between national currencies, with the highest trading volume and liquidity. Everyday transactions are concluded worth a total of approximately $6.6 trillion, made up of over 150 government-backed national currencies.

Pros and Cons of Forex

The Forex market is highly sensitive to global events which makes foreign currency exchange rates very susceptible to economic data releases, central bank policy changes, and macroeconomic and political events.

Forex as an asset class has relatively low volatility. This is because Forex assets are fiat currencies managed by central banks, and these banks can expand or reduce supplies of their respective currencies as they wish, giving them the ability to turn both demand and supply on or off. As central banks generally strive for relatively stable exchange rates for their currencies, Forex tends to be a relatively stable mean-reverting market most of the time, although persistent trends do of course happen, especially in the biggest currencies such as the U.S. Dollar and the Euro.

What is Cryptocurrency?

Cryptocurrencies are digital currencies, which have been created by private individuals, groups, and in some cases banks and other companies. Cryptocurrencies are not legal tender which means they are not readily exchangeable for goods and services in the way that national currencies are, but one day they may be – there is already much business which accepts the larger cryptocurrencies as payment.

Pros and Cons of Cryptocurrencies

If you are buying and holding the legal ownership of cryptocurrencies, you will have security and storage issues which will impose a cost.

I mentioned earlier that major Forex currency pairs can be traded at a cost of only about 0.08% of the value of the asset traded. It is relatively considerably more expensive to trade cryptocurrencies. For example, the major cryptocurrency Bitcoin typically has a spread/commission structure of about 0.40% of the asset traded, about 5 times the cost of trading EUR/USD. This can make profitable short-term trading in cryptocurrency more challenging to execute in cryptocurrency than in Forex.

Cryptocurrencies, with the possible exception of Bitcoin, are much smaller in capitalization than the national currencies which are traded in Forex. They are more sensitive to micro issues that affect their own markets such as their integrity, adaptability, and popularity. In a sense, it is widely believed that in the end there will be a few successful cryptocurrencies that become widely used, so the value of the smaller cryptocurrencies will tend to rise or fall depending upon how their chances of becoming a “successful” cryptocurrency are seen.

Forex vs Crypto: What is Best for Me?

You may choose to trade only Forex, only cryptocurrencies, or both.

The below table summarizes the factors you should consider in making this decision.

We encourage you to spend some time to do analysis and research on both markets before choosing which one to trade. If you are interested in Forex trading, we recommend that you start your trading journey by reading our expert FXTM review. FXTM allows its clients to trade Forex currency pairs and crosses, the precious metals gold and silver, crude oil, and natural gas. If you wish to explore the Crypto market, AvaTrade allows its clients to trade 14 cryptocurrencies. We encourage you to read our expert AvaTrade review that covers everything you need to know about AvaTrade so that you can determine if this is the right broker for you.