Forex vs. Cryptocurrency Market – What are the Differences and Similarities?

The Foreign Exchange (Forex) market manages international and government-issued currencies, is open non-stop, and has decentralized, over-the-counter trading. The market is the largest trading market worldwide, with a daily trading volume reaching a few trillions. It comprises financial entities, banks, business, and retail investors, all of which exchange national assets to make a profit or do business.

Forex appeared after the creation of the gold standard in the 19th century and the further establishment of the U.S. dollar as the world reserve currency in the 20th century. As opposed to stocks, which are usually traded on exchanges, most of the Forex market is OTC – this means that traders negotiate without any controlling authority over them that guarantees the trades.

What Does the Cryptocurrency Market Look Like?

In comparison to Forex, the cryptocurrency market is relatively young and exclusively manages digital assets. It is open 24 hours a day, seven days a week, and while OTC trading is on, much of the volume is sent through exchanges.

Cryptocurrency​ trading first started in 2009 with Bitcoin (BTC), but it would be a few years before the first exchanges would emerge. Still, once they did appear, and the creation of many altcoins, a broad ecosystem of trading various digital assets flourished.

Now, the market has massive volumes, with most of them going through exchange platforms. These exchanges are available 24/7/365 – still, trading regulations on numerous of these websites can vary broadly because different parts of the world have various rules and attitudes regarding cryptocurrency​.

What are the Similarities Between Forex and the Cryptocurrency​ Market?

There are numerous similarities between these two markets, including the fact that both deal in currencies, are volatile and fast-paced, and both depend on modern-day communications technology to function.

​Perhaps the most basic comparison to draw between these two markets is that they are both based on currencies instead of other palpable commodities. Also, both markets are made of a variety of players ranging from individuals to big financial institutions.

Another significant connection between Forex and the cryptocurrency​ market is how computers and Internet technology play a role in the emergence of these markets. While Forex appeared before the IT age, it has exploded, and therefore, the Internet is the primary method that these trade are carried out. Cryptocurrency is just a bit more advanced, as it only exists in the digital world and can only be traded with computer networks.

What are the Differences?

In spite of many similarities between these two markets, key differences still remain. One of the biggest is OTC trading’s nature versus using exchanges, and how these markets react differently to global economic changes.

As mentioned, a significant difference is the nature of exchanges versus OTC trading. While OTC trading offers global liquidity, trades usually have to be performed by a broker. It is feasible to get an account that provides you with direct access to the market, but this is extremely regulated.

Cryptocurrency​ is usually purchased on exchanges. Such a platform, similar to a broker, acts as a middleman and will take a cut. However, unlike brokers, the exchange acts as the only authority over purchasing and selling and has typically a fixed rate that will apply to trades.

Traditional currencies, or fiat money, can be pegged to an asset, other currencies, or nothing at all, but central banks and governments highly regulate them. On the other hand, cryptocurrencies have very little of this. None of them are linked to a nation or a bank, and while some can be pegged to other assets, most of them are not, and they only depend on a combination of their own utility and speculative faith to obtain value.

The Bottom Line

​Some may speculate that fiat currencies can one day collapse – however, they are more tried and good investment options on average than most of the cryptocurrencies available now. Still, the intrinsic usefulness of a digital asset is wide, and the market is very competitive, usually with multiple projects trying to complete the same niche. While there are numeorus similarities and differences between Forex and the cryptocurrency markets, both are highly used and sought.

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