With a daily turnover exceeding $6.6 trillion, the global FX market is the largest and most liquid. The cryptocurrency market has also grown exponentially over the past few years with a massive boom in the market from 2017 when the total cryptocurrency market capitalization surged from around $17 billion to over $800 billion—driven by public interest and speculation.
So, what exactly are the differences between forex trading and cryptocurrency trading?
One of the key differences between the two markets is volatility. Cryptocurrencies are notoriously volatile, with prices often swinging wildly up and down daily. Many factors influence it, including the lack of regulation in the cryptocurrency market, the large number of retail investors, and the use of leverage. In contrast, FX is a much more mature and regulated market, which results in lower volatility.
Cryptocurrencies are not limited to specific trading sessions and can be traded around the clock, 24/7. In contrast, FX markets are only open during specific trading hours, typically 8 am to 4 pm EST on weekdays.
Cryptocurrency exchanges typically offer a more limited range of products than FX brokers. For example, most cryptocurrency exchanges only offer trading in bitcoin and Ethereum, while FX brokers offer various currency pairs. Additionally, cryptocurrency exchanges often do not have sophisticated order management systems or analytical tools. FX brokers typically have advanced trading platforms that provide a more comprehensive range of features and tools.
Cryptocurrency exchanges typically only offer basic order types, such as market orders, limit orders, and stop-loss orders. In contrast, FX brokers offer a wide range of charges, including advanced directives such as trailing stop orders and OCO orders.
Leverage equates to the money you can borrow from your broker to trade. Cryptocurrency exchanges typically offer much higher power than FX brokers. For example, Kraken offers up to 50x leverage for bitcoin trades. It means that you can trade $50 worth of bitcoin with just $1 of your own money. However, it is essential to note that high leverage can lead to significant losses, so it should be used with caution.
Margin requirements are determined by brokers and are the amount of money you need to have in your account to trade. Cryptocurrency exchanges typically have lower margin requirements than FX brokers. For example, Kraken only requires a 2% margin for bitcoin trades. You can trade $50 worth of bitcoin with just $1 in your account. However, it is essential to note that crypto exchanges can change their margin requirements, so it is necessary to check before trading.
Order execution is the process by which the exchange fills your order. Cryptocurrency exchanges typically have slower and less reliable order execution than FX brokers. It can be attributed to the decentralized nature of the cryptocurrency market, resulting in many conversations with different order books. In contrast, FX brokers are typically connected to a centralized order book, which results in faster and more reliable order execution.
Cryptocurrency exchanges typically only offer digital deposit and withdrawal methods, such as wire transfers or credit/debit cards. In contrast, FX brokers often offer a wide range of deposit and withdrawal methods, including physical methods such as checks or bank transfers.
Cryptocurrency exchanges typically charge higher fees than FX brokers. For example, Kraken charges a 0.26% fee for bitcoin trades. In contrast, FX brokers typically charge lower fees, often less than 0.1%.
Cryptocurrency exchanges are typically not regulated, while FX brokers are heavily regulated by organizations such as the CFTC and the FCA. It results in a higher level of trust in FX brokers.
Cryptocurrency exchanges typically offer poor customer support, while FX brokers offer excellent customer support. It can be attributed to FX brokers being regulated and must meet specific standards. In contrast, cryptocurrency exchanges are not regulated and do not have to meet any standards.
Cryptocurrency exchanges are global, while FX brokers are limited to specific geographies. For example, Coinbase is available in over 30 countries, while FX brokerages such as TD Ameritrade are only available in the United States.
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