Trading in the markets has long been one of the best ways to build wealth, and it’s still proving to be. However, if you’ve been a trader for a long time, you also know that your trading options had been limited to the currency, commodity, or stock markets until recently. Today, a new kid on the block, cryptocurrency, is challenging all the institutional beliefs, which got us thinking. What should you invest in today? Crypto? Or forex?
Cryptocurrencies, as the forex market, have their up and downsides. For instance, crypto offers you freedom from traditional financial systems, while the forex is a true and tested system that’s less volatile than the latter. But who’s to say that one is better than the other? Join us as we explore this question and see if we can reach a consensus. We’ve also put together this list of forex brokers to help you in your investment journey.
Table of Contents
Setting the Ground
Even though crypto and forex trading might look similar on the surface, they are two different things that share some commonalities but also have differences. For instance, crypto trading is the exchange of digital assets such as cryptocurrencies, tokens, and none fungible tokens (NFTs). At the same time, forex trading is the exchange of fiat currencies, which takes advantage of their rising and falling values to make a profit.
They are similar in that they rely upon the forces of supply and demand to set their prices, but the mechanisms behind them are totally different. For instance, the crypto market runs on blockchain technology that uses a decentralized ledger to record and store transactions. As such, crypto trading is more transparent, and you can easily refer to records.
On the other hand, forex trading involves pinning two economies against each other to increase the value of the economy’s currency you’ve bought. However, this can have significant ripple effects that can spread to other economies associated with the currencies involved. In addition, the system is centralized and only open to a few.
Pros and Cons of Forex Trading
Pros
- Low volatility- fiat currencies are closely watched by central banks that expand or contract their supply to balance out ripples.
- High leverage- forex brokers can offer as high as 30-1 leverage on currency pairs, meaning you can forex more than the actual capital you have in your trading account.
- Mean-reverting- when periods of high volatility occur, forex trading tends to correct itself over time.
- Safe- forex trading is a true and tested mechanism that has been around for decades.
- Cheap- the spread to placing trades on forex is relatively low.
Cons
- Over leveraging- sometimes currencies can be unintentionally overexposed to more risk than they can take, leading to unwanted crashes.
- Few good markets- there are essentially three viable forex markets, London, New York, and Tokyo. If you’re outside these time zones, you have to be keen and time the best trading hours.
- Centralized- fiat currencies are owned and controlled by a few figureheads at the top of financial institutions.
Pros and Cons of Cryptocurrencies
Pros
- Decentralization- private individuals and companies create cryptocurrencies, which means they are not under one centralised authority, and you can join the crypto market.
- Blockchain technology- the technology crypto operates on is safe and secure and allows for much better integration of monetary systems with other aspects of business and life.
- Markets are open 24/7- you can trade crypto at your convenience.
Cons
- Not legal tender- they are not accepted by all merchants, and you might find it difficult to exchange them for goods and services.
- Highly volatile- crypto prices are unreliable, making them lousy value storage systems.
- Expensive to hold- if you own crypto, you will also need secure ways to store or risk losing them.
The Bottom Line
Even though the current fiat system is not perfect, and we like crypto, on this occasion, we’d caution you on investing in it. It has proven to be volatile and is still finding it difficult to self-mean revert in a reasonable time frame as we expect with fiat currencies. However, this is not to say that crypto is terrible or it should not exist; far from that. We think crypto has its place and time, but when it comes to making an investment decision right now. Forex trading is the safer bet.
