Crypto vs. Forex Trading: Key Differences


Following the industrial revolution, the people of the world started to pay more attention to the benefits of investing. Therefore, many investors came up with the idea of finding new trading tools that can help them generate profits with their savings.

The general idea of investing is that traders can generate more money by deploying the money that they already possess. Forex is one of the biggest trading markets in the world. This article will try to find the similarities and differences between crypto and forex trading instruments.

What is Crypto Trading?

The cryptocurrency market was invented after the debut of the first ever decentralized blockchain-based currency called Bitcoin. Following the invention of the internet, many researchers were working on creating the best possible rendition of internet money.

Since websites and other online programs are susceptible to hacks, therefore the developers needed to find a way to perform secure and decentralized transactions.

With this ideology, decentralized blockchain based on the DLT infrastructure gained popularity. Since Bitcoin was open-sourced, many other developers took inspiration from the Bitcoin blockchain and created new blockchain projects.

At present, there are hundreds of blockchains that have been issued with several types of digital currencies. Blockchains can issue tokens, coins, stablecoins, NFTs, utility tokens, governance tokens, yield tokens, and several other types of cryptocurrencies. Trading these cryptocurrencies in an open market is called Crypto trading.

How does Crypto Trading Work?

Crypto Trading entails the selling or buying of new digital currencies. As per the data by CoinMarketCap, there are currently thousands of cryptocurrencies in the world. The investors are free to select the best cryptocurrency variants based on technical analysis, market projections, and fundamental scrutiny of the markets.

Once the investors are ready with a viable trading strategy, they can purchase cryptocurrencies using fiat currencies, stablecoins, or even other cryptocurrencies.

The winning formula for crypto trading is to purchase a cryptocurrency at low prices and sell them at its peak. However, since cryptocurrency markets are international, it can be difficult to predict the direction of the market despite all the trading tools and technical deliberation.

Furthermore, cryptocurrencies are also more volatile on account of their global distribution. Therefore, it takes a lot of experience and market knowledge to invest in crypto.

What is Forex Trading?

Humans started to learn about the importance of monetary instruments as a result of the evolutionary processes. Before money was invented, most people tended to stick to the barter system. A group of human society could adopt any commodity, such as wheat, for the exchange of goods and services.

For example, a farmer who grew wheat could trade the remaining wheat that he did not need for personal consumption to purchase more goods and services. However, there were many issues with this type of barter network. Not everyone was a wheat farmer, so it was a problem of accessibility among the masses.

Second, there was no way for the people to calculate the increase or decrease in the value of their wheat currency despite changes in demand and supply.

Therefore, human civilizations started to lean towards a neutral medium of exchange that held a specified value among the masses. In this manner, there was no need for the masses to keep a record of a particular bartering commodity as a medium of exchange.

With the invention of money, governments were able to maintain power within their jurisdiction. Today, each sovereign nation issues a constitutional legal tender that is accepted universally for minor and major trades. However, forex traders tend to make money by exchanging different legal tenders.

How does Forex Trading Work?

It is a well-known fact that every country has a legal tender or fiat currency. The fiat currency of every nation holds a certain value in the international market on account of several factors, such as the productivity of the nation and the stability of the local government.

In the same manner, local and international economic factors can increase or decrease the value of a fiat currency. Therefore, forex traders use the same tools of technical and fundamental analysis to measure the speed of the marketplace.

The winning strategy for a forex trader entails that they must purchase a forex currency for a lower price and sells it when it has peaked in the international market. Forex traders must deal with currencies in the form of pairs. They can purchase one legal tender with another.

They must account for the exchange costs and keep an eye on all the latest developments and learn about economic studies that can help them make the best trading decisions. Forex traders can also use a chain of swaps to earn gains on their forex trading ventures.

Comparison Between Forex and Crypto Trading

The main reason that many people tend to compare cryptocurrencies with forex trading is that they are both used as a medium of exchange at some level. Most cryptocurrencies act as a way to make purchases and swaps for other goods or services.

Therefore, it can seem like cryptocurrency traders are mimicking forex traders. However, there are many differences between the forex and cryptocurrency markets. Here is a comparative analysis of crypto and forex to help investors learn about their parallels and perpendiculars:

Market Capital

The Bank for International Settlement, or BIS, calculates the market cap of the international forex markets every three years. The latest report of BIS was published in 2019. As per this report, the daily trading volume of the forex trading market was estimated to be $6.6 trillion; meanwhile, the yearly market capital of the forex market was estimated to be around $80 trillion in n2017 as per economists.

Due to the size and volume of forex trading markets, it is considered one of the largest investment markets in the world.

On the other hand, the cryptocurrency market was founded after the introduction of the first blockchain named Bitcoin in 2009. It has been 12 years since the advent of Bitcoin and other altcoins that today the crypto market is valued to have a $3 trillion annual market cap at the peak of its bull run.

During this time, Bitcoin has remained the dominant currency, and the daily trading volume for crypto is estimated to be $100-$500 billion. The total market evaluation of the crypto market is much smaller than forex markets but it has surpassed some of the biggest tech giants in the world.

Market Participation

The market participation for forex and crypto has followed a reciprocal pattern in the financial markets. Cryptocurrencies were created keeping in view the financial inclusion for small investors.

Blockchains aimed to be decentralized, and they allowed retail investors to trade cryptocurrencies without going through the hefty requirements of central banks. However, as the crypto market kept growing, it moved towards enterprise adoption with financial enterprises like VISA, MasterCard, and even MicroStrategy adding cryptocurrencies to their roasters.

In contrast, forex trading started as a way for big corporations to make payments or invest in foreign economies. At the same time, governments tend to perform forex trading for international trades such as oil purchases, etc.

To this end, the banks deal with their foreign counterparts in a yard which is a unit of one billion fiat currency. Today, forex trading has been adopted by online applications and small brokers and has become more accessible for individual traders.

Trading Pairs

When it comes to forex markets, trading pairs are very important. Forex traders are inherently good at calculating swaps. They are on a mission to generate profits by swapping one legal tender with other.

Short and long-term forex traders can time their swaps and control the exchange prices to make sure that they can take advantage of the changes in the intrinsic value of these fiat currencies.

Taking only seven major fiat currencies, forex traders can get around 21 unique trading pairs. Furthermore, the investors can also earn profits by speculating the price changes with online forex platforms.

Meanwhile, cryptocurrencies are only in the early stages of adoption with trading pairs and swaps. Investors can make swaps between different types of cryptocurrencies, such as stablecoins, NFTs, and crypto tokens, etc.

However, core currencies or coins such as Bitcoin, Ethereum, and others are more popular among investors because they are more practical for swapping between two lesser-known altcoins to minimize the risk ratio.

Taxation and Regulations

The centralized authority for the delegation of taxation laws on the market is IRS in the United States. For forex traders, there are two possible paths. The first one is going with Section 1256, which treats 60% of the forex exchange income as long-term and 40% as short-term returns regardless of the duration of the forex position.

The second one is Section 988; under this rule, all forex incomes are treated as ordinary income. It is up to the forex investor to decide which option they go for before entering a new forex position.

On the other hand, cryptocurrencies are taxed under the digital asset trading laws by IRS. All crypto positions that are held for lesser than 365 days or equivalent are considered to be short-term and subject to higher tax deductions. Meanwhile, crypto gains after one year are considered to be long-term and have smaller tax percentages.

Furthermore, crypto investors are required to report their crypto trading particulars to the IRS only after they have dissolved their crypto positions. As long as they have only purchased cryptocurrencies, they are not taxed.


The rate of success in the forex markets is visibly low. As much as 65-75% of traders lose money when dealing with forex trading. Therefore, it can be quite challenging to succeed in the forex market where barely 25-35% of the investors can generate profits. The main reason for massive losses with forex is leveraged positions.

Forex products are often more stable than cryptocurrencies on account of their adoption as legal tender. Therefore, investors may be more prone to take the risk of generating leveraged positions.

Leveraged positions can trigger margin calls on account of the smallest decimal movements in the trading markets. Therefore, many people can end up losing money if they are unable to retain the collateral. Some cryptocurrency traders take the risk of leveraged trading but most investors refrain from it because of the high volatility of cryptocurrencies.

The percentage of profits with cryptocurrencies can be seen as somewhat better than forex trading markets because small investors can enter new positions at a very early stage, and their gamble might pay eventually.

There is also the option of increasing the profit percentage of crypto trading using techniques like yield farming, staking, derivatives, etc.


The forex market is based on legal tenders from different countries. A legal tender is the accepted and sanctioned medium of exchange in a nation. It means that until the government of the nation is intact, the forex currency is unlikely to lose its value.

Therefore, forex traders do not have to worry about volatility unless they have created leveraged positions.

However, there are always special circumstances that can affect the value of a fiat currency significantly, such as financial crises, the stock market, new regulations, international sanctions, pandemics, economic factors, and geo-political changes.

In comparison, cryptocurrency markets are inherently more volatile than forex. The average rate of change for a cryptocurrency product is higher than any other trading product, such as stocks.

The main reason is that cryptocurrencies are traded in the international free market, and it is difficult to measure the variables that are created by the massive number of international investors. Therefore, cryptocurrencies are subject to more frequent price changes and are difficult to speculate on.


Forex markets enjoy a considerable amount of liquidity. As long as a fiat currency is a legal tender in a country and is widely accepted there, it can remain highly liquid. There are some currencies, like the USD, that might experience periods of low and high liquidity on account of their demand in the international markets.

Meanwhile, there are currencies like the Euro that are highly liquid as they are accepted in a host of nations across the EU area.

Cryptocurrencies may or may not have enough liquidity in the market. It all depends on the financial management of the said project. If the currencies can offer practical utility, they can maintain their demand.

Furthermore, the cryptocurrency should adopt a deflationary mechanism to control its supply. Additionally, blockchains can integrate liquidity pools and Automated Market Makers to maintain a healthy amount of liquidity for its investors.

Market Operation

Forex trading operations are regulated, and they are controlled and monitored by dedicated financial regulators in all countries. There are nominated forex exchange markets that are registered under the assigned centralized regulators.

On the other hand, cryptocurrencies can be traded on centralized or decentralized exchange platforms. Cryptocurrencies are partially subjected to regulatory implications. Financial regulators can impose regulations on cryptocurrency enterprises such as exchange markets, but the decentralized blockchains mostly remain free from any direct regulatory obligations.

Business Hours

Since forex markets are regulated, they have defined business hours. In most cases, forex markets open for business for 24 hours but 5 days around the week. There are a few forex trading markets that allow investors to conduct trades during weekends, but these transactions are carried by sanctioned brokers.

Meanwhile, cryptocurrency markets remain operational 24/7. The users can sell, purchase, swap, leverage, stake, or trade their cryptocurrency positions at any time and from any part of the world.

Market Dynamics

The responsibility of assigning value to the forex products is performed by the interbank market. When these prices are issues, brokers can create spreads to take advantage of a personalized price projection for their clients.

Each cryptocurrency trading platform calculates the prices of the currency based on the forces of demand and supply. The number of crypto reserves present in the liquidity pools of these cryptocurrency investors allows them to assign value to these cryptocurrencies.

Exchange Markets

Forex trading markets are regulated, and they can offer a variety of regular or derivative trading platforms. Users can also perform OTC (over-the-counter) trading using banks rather than using exchanges for forex.

In comparison, cryptocurrency users can choose to trade on DEX (decentralized exchanges) and CEX (centralized exchanges) depending on their requirements and trading strategies.

Beginner Friendliness

There are many aspects to consider for forex trading. The average percentage of successful returns is less frequent. However, forex products are much more liquid and risk-averse in comparison to cryptocurrencies.

Therefore, they can be a good way for beginners. At the same time, investors who are just getting started must refrain from leveraged positions. Meanwhile, cryptocurrencies can be viewed as riskier on account of their limited liquidity, higher volatility, and greater risk ratios.


Cryptocurrencies and forex trading products have their pros and cons. It is up to the investors which market they pick. The secret of success for any trading venture is to adopt a strategy to mitigate risks as much as possible.

At the same time, investors who are good at performing technical and fundamental analysis of the market can increase their chances of success with both crypto and forex trading products.

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