Every trader in the financial market aims to make profits. Regarding optimising for more returns, the two markets that stand out in currency trading are forex and crypto. If you are looking for an opportunity for increased profitability, then it is important to compare and determine which is more profitable.
Whether you are experienced in the forex market or currently in the crypto market and contemplating a move, it’s important to evaluate. Even if you’re just starting out, it’s still necessary to ask: What is more profitable for beginners: forex or crypto, and why?
In this article, we will assess which option may be better aligned with your goals and help you decide.
Key takeaways
- Regarding optimising for higher returns, the two markets that stand out in currency trading are forex and crypto.
- Understanding the difference between forex and crypto is essential to determining which market may be more profitable.
- Volatility in both markets can lead to either potential losses or significant profits.
- Both markets come with risks such as hacking, phishing, and trading platform bankruptcy.
- Whether forex or crypto trading is more profitable depends on individual goals, risk appetite, and understanding of each market.
Forex vs crypto
Forex trading—also known as foreign exchange trading or FX trading—involves buying and selling currencies to profit from changes in rates. Crypto trading, on the other hand, is similar to forex trading and involves buying and selling digital currencies like Bitcoin and altcoins such as Ethereum to profit from price fluctuations.
While we aim to help you determine whether forex trading is better than crypto, it’s important to note that the primary factors attracting different types of traders to each market include risk appetite, trading preferences, and adoption.
Understanding forex and crypto trading
Understanding both forex and crypto trading is key to determining their profitability. Additionally, assessing the difficulty level of each financial market is essential to deciding which one to enter.
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Forex and crypto trading offer unique opportunities to profit from currency movements. For beginners, comparing forex and crypto side by side can also help them identify which is easier to start with.
Understanding forex
The number of available coins and assets is a significant factor in both markets. The forex market offers a limited selection of tradable currencies, such as the United States Dollar, Euro, Japanese Yen, Pound Sterling (GBP), and Chinese Yuan. But is forex trading better than crypto trading?
In forex trading, currencies are traded in pairs, where you buy one currency relative to another. For example, you might buy Euros (EUR) with US Dollars (USD) (EUR/USD) with the aim to profit if your speculation aligns with the market direction.
Forex trading is accessible to institutional traders and retail traders who trade through online platforms provided by retail forex brokers. The market comes with a level of volatility, so it is possible to lose a significant amount of money.
Resources for learning forex trading can be either free — such as YouTube and other free materials — or paid. Various individuals and learning institutions offer tutorials and mentorship for a fee.
Additionally, learning can be self-paced, and most brokers provide demo accounts for practice before you fund an actual trade. However, forex trading may not be easy to learn, and it can take considerable time to understand the market and make consistent profits.
Understanding crypto
Crypto, on the other hand, is traded through exchanges. Centralised exchanges act as custodians, holding your private keys and funds, whereas decentralised exchanges provide non-custodial assets to wallets, allowing you to retain control of your private keys and funds.
There are over ten thousand cryptocurrencies, with Bitcoin topping the list in terms of market dominance, popularity, user base, and market capitalisation.
It’s important to note that in crypto trading, if you buy 5,000 XYZ coins at, say, $300 and the price falls to $230, the number of XYZ coins you own remains the same, but the value per coin decreases. The market is volatile, increasing the potential for losses.
In crypto trading, you can buy and sell individual currencies directly from a fiat bank account or through peer-to-peer (P2P) transactions. You can also trade in pairs, such as USDT/BTC, on exchanges.
Resources for learning crypto trading can be either free or paid. Some individuals offer tutorials and mentorship for a fee. You can also learn at your own pace, but demo accounts by exchanges are uncommon in crypto trading. Though crypto trading is also difficult to learn, it could be easier than forex trading.
Forex and crypto are similar in some ways. Fundamental, technical, and sentimental analyses are applicable in both. Moreover, platforms offering access to these markets often provide technical analysis tools to help you make trading decisions based on previous market patterns and trends. You can also trade forex with Bitcoin.
Here are some profitability factors to consider when trying to decide between forex and crypto.
Profitability factors: Forex vs crypto
Market volatility
Volatility refers to frequent, sharp changes in price movement. It can serve as an opportunity to make substantial profits quickly.
| Forex | Unlike the crypto market, the forex market is less volatile with most currency pairs moving 50-100 (0.5-1%) pips a day. |
| Crypro | The crypto market is highly volatile, and prices can fluctuate by 5-20% or more daily. |
Liquidity
Liquidity suggests significant trading activity and volume, allowing traders to easily enter and exit positions without significantly impacting the market price.
| Forex | The forex market is highly liquid, with daily trade volume in trillions. |
| Crypto | Despite significant price increases as observed with Bitcoin over the years, the crypto market liquidity is lower than forex’s, with daily trading volume still in billions. |
Market accessibility
Accessibility is the ease with which you can enter trades and participate in the forex or crypto market.
| Forex | Forex has higher barriers to entry, requiring significant capital and intermediaries such as brokers. It operates 24 hours a day on weekdays, with trading sessions in major financial hubs. |
| Crypto | The crypto market is open to anyone with an Internet connection. It also has lower barriers to entry, requiring less capital; however, for certain assets, the price to acquire a full unit may be high. Nonetheless, you can purchase a fraction based on your capital, and it’s easy to create accounts on exchanges or set up wallets. The crypto market is accessible 24/7, operating continuously. |
Potential returns
Profit potential refers to the possible financial gains that you can get through investing, trading, or participating in the forex or crypto market.
| Forex | While the forex market is less volatile, it offers higher leverage, which can help increase your profit potential. You can trade more than one currency pair for more returns. |
| Crypto | The high level of fluctuation in the crypto market increases the potential to profit from the movements. Diversifying investments across assets creates further opportunities for profit. |
Risks associated with forex and crypto trading
It doesn’t stop at comparing forex vs. crypto, which is more profitable; it’s also important to consider the risks associated with each market.
Forex trading risks
The volatility of the forex market causes rapid fluctuations, which may result in losses if your trade doesn’t align with the market’s direction. A trade might initially be favourable but change before you can make a profit. Additionally, high leverage can amplify gains and also magnify losses.
But, before you decide to trade in the forex market, you should conduct thorough due diligence on any broker you intend to use. Engage only with reputable brokerage firms, as a firm’s insolvency could lead to losses. Moreover, trading across different time zones can be challenging, and emotions may interfere with your strategy, leading you to consider overtrading, resulting in both losses and burnout.
Crypto trading risks
Due to its high volatility, cryptocurrency values and prices can fluctuate rapidly, leading to potential losses. While forex is more liquid than the crypto market, its insufficient crypto liquidity can make it difficult to enter or exit trades.
Given the technologies involved in the crypto market, you should hedge against security risks, including hacking and phishing. The crypto market still faces regulatory scrutiny, and changes in regulations can impact cryptocurrency prices.
Crypto trading occurs on exchanges, which may experience insolvency or security breaches, resulting in losses. Loss or theft of the private keys to your decentralised wallets can also lead to losses.
Additionally, the project developers whose tokens are listed may "rug pull" investors by either liquidating the project or withdrawing from it, leaving investors with losses. This can happen through token dump and pump or exit scams.
Poor trading decisions, resulting from inaccurate technical analysis or fear of missing out (FOMO), can also lead to losses. The urge to recover lost trades may result in over-trading, leading to further losses and burnout.
For both markets, features like ‘take profit’ and ‘stop loss’ can help minimise these risks. Take profit allows you to set your profit target and exit the market at predetermined levels, while stop loss helps you manage your risk by exiting the market at specified loss levels.
Pros and cons: Forex vs crypto
Weigh these pros and cons carefully to determine which trading market aligns best with your goals and risk tolerance.
Forex trading pros
- In forex trading, it is easier to enter and exit trades. It also offers high leverage, allowing you to control large positions with little capital, while volatility provides opportunities to profit.
- The forex market is open 24 hours a day, five days a week, and you can trade a wide range of currency pairs with relatively low barriers to entry. Being a global market, it allows you to access trading from anywhere.
- Forex is generally safer than crypto because it is more heavily regulated and has lower price volatility.
Forex trading cons
- Forex trading carries high levels of risk, including market risk, leverage risk, and liquidity risk, and it is highly unpredictable.
- It can be complex to understand, making it challenging for beginners and requiring significant time to understand.
- Forex trading analysis demands that you monitor markets and analyse data consistently. It can also be emotionally demanding, leading to stress and burnout.
- Additionally, there are instances of scams and fraud involving brokers, and the market is subject to regulatory changes that can impact trading conditions.
Crypto trading pros
- Due to its volatility, the crypto market offers high potential returns, which you can take advantage of for potential gains.
- The market is decentralised, allowing for peer-to-peer transactions without intermediaries.
- Crypto trading is flexible, as it is accessible 24/7 and offers low barriers to entry. It also provides a wide range of assets to help you diversify your portfolio.
- Transactions in the crypto market are secured through cryptography and are recorded on public ledgers, carrying the inherent advantages of blockchain technology.
Crypto trading cons
- Sharp declines in crypto trading can result in significant losses. Transactions incur gas fees, which can be quite high for certain blockchain networks.
- Crypto exchanges and wallets are vulnerable to hacking and security risks, and scams may occur. If you lose your private keys or seed phrases, your funds may not be recoverable.
- Market and price manipulation, such as pump-and-dump schemes, can occur. Additionally, the market still lacks clear regulations and faces challenges related to adoption.
Market accessibility for beginners
Despite its high volatility and high potential for losses, the crypto market could be more accessible for beginners. This is due to lower initial capital requirements, lower leverage, and easier-to-understand market trends. Additionally, there are more accessible educational resources for those new to the market.
Forex trading typically requires a minimum of $100 to $500 to open a trading account, although some brokers offer privileges for lower requirements. In contrast, many crypto exchanges have no minimum balance requirements and allow trading with small amounts.
Both forex and crypto have complex concepts, but crypto may be easier to grasp. Additionally, in the crypto market, you can invest any amount in a cryptocurrency and hold (or "hodl") it for a long period.
Conclusion: Deciding between forex and crypto for profitability
This article explored the profitability of forex and crypto, focusing on risks and the advantages and disadvantages of both markets. Overall, whether you choose forex or crypto trading, proper education and due diligence are important. You should set realistic goals, choose the right strategies, implement proper risk management, and stay emotionally disciplined.
Is forex trading better than crypto? The answer depends on your individual goals, risk tolerance, and market understanding.
Please note that this content is for informational purposes only and should not be considered financial advice.
