If you’re new to trading, you might want to know the differences in investing in forex versus cryptocurrency. Whilst many people often bunch them together, assuming that because they’re both assets they behave in the same way and are influenced by the same factors, this is not the case.
Here we’ll explore each asset, the key differences and how to decide which is the right type of investment for you.
What is forex?
This is essentially the investment of foreign currencies and money is made based on the exchange rates between them. A forex trader invests in economies and will decide where to place their money by looking at and trying to determine growth and loss as well as taking into account potential imports, exports and government spending.
Much of forex trading is based on predicting how a country’s economy will perform in relation to another and the value of their currency.
What is cryptocurrency?
Based on blockchain technology, cryptocurrency is also an asset, but a purely digital, decentralised one, meaning you can’t withdraw your investment – it is simply held in a digital account. These digital currencies include Bitcoin, Ethereum, Litecoin and Dogecoin, among others.
Whilst the technology and mining process behind such currencies is fairly complicated, many investors simply trade cryptocurrency to try and make a return in the form of standard currency.
The cryptocurrency market is extremely volatile due to various factors such as lower numbers of investors, new technology and lack of expert or professional investors. Media headlines can also cause massive shifts in the crypto market as influencers give their views or announce an investment.
Which one is best suited for you?
There are potential benefits and risks from investing in either the forex market or cryptocurrency. Both markets can succumb to volatility, especially when there are significant political or global situations dominating the headlines, however, crypto tends to see bigger spikes and falls. This is where many traders tend to lose out and decide to pull out their assets, which, in turn creates an even larger downturn.
Those investing in forex will usually trade a pair of currencies whilst those trading crypto have over 10,000 currency options. It’s perhaps easier to identify risks in the forex market, particularly as crypto is a recent currency, meaning those of you who are new to trading might have an easier time getting to grips with forex.
Whichever you choose to trade, being aware of the risks and the factors that can impact both markets can make investing easier to understand and navigate.