The popularity of cryptocurrencies is increasing rapidly, with several people curious to know how to trade with the new technology. Even people who have established their presence as good stock and forex traders are keen to understand more about cryptocurrencies. As a prerequisite for conducting trading in different platforms, it is essential to finalize a trusted B2B trading platform for all your trading activities. For the last decade, several investors have shown their interest in diversifying investments into cryptocurrencies, realizing that the new technology can fetch them good returns in the future. With the curiosity to know more about cryptocurrencies and forex trading, let’s look at the differences in trading with both markets.
Crypto vs Forex Trading
You can buy digital assets like cryptocurrencies, non-fungible tokens (NFTs), and tokens in crypto trading. On the other hand, in forex, you buy currency pairs, hoping that the currency’s value will rise and give you a profit. In both tradings, the markets operate based on supply and demand. Blockchain technology is behind the operation of cryptocurrencies, while forex trading has a long history in financial markets. In both markets, traders use price charts to analyze movements. Though the forex market is known for its volatility, the fluctuation levels in crypto trading are immense.
The total market capitalization of crypto is estimated to be around $3 trillion, while the forex trade was about $80 trillion in 2017. According to the latest estimates by the Bank for International Settlements, the world’s trading volume in foreign exchange is around $6.6 trillion per day. On the other hand, the trading volume of crypto is estimated to be between $100 billion-$500 billion daily.
Retail traders prefer cryptocurrencies, while larger institutions prefer forex trading.
Though there are more than 10,000 cryptos available in the market now, most crypto pairs use Tether (USDT), Bitcoin (BTC), or Ethereum (ETH) as the currency.
According to the rules by the IRS in the United States, the gains from forex and crypto will be treated differently. Around 60 percent of your profits or losses from forex trading are treated as long-term capital gains or losses, while the remaining 40 percent is accounted as short-term. However, the tax rate for spot forex traders is different, and the trader has to decide their preferred tax system. For example, some spot forex traders prefer taxes under Section 988, where your gains or taxes will be treated as ordinary income.
However, crypto is counted as property, and the tax structure is similar to stocks.
If you hold a particular crypto for 365 days or less, it is counted as a short-term gain or loss. However, you have to pay less tax if you own crypto for more than 365 days.
Chances of Losses
The chances of making losses from the forex market are common. One of the main reasons for making losses from forex trading is the dependence on leverage. However, when it comes to liquidity, the forex market scores favorably against crypto trading.
Though forex trading is considered highly volatile, the fluctuation levels in crypto trading are immense. Both trades are available for traders round the clock. You can buy crypto at any time because it operates almost seven days a week. On the other hand, forex trading is for five days a week.
When compared with crypto, forex trading is considered safe. The Crypto market has no regulation or central authority, and the volatility chances are very high. It also has lower trading volumes than the forex market, and it could be difficult for you to enter or exit from large trades. On the other hand, it is relatively easy to get leverage for forex trades, considering the possibility of larger trades.
It is challenging to understand both markets in the beginning. A trader needs to have a thorough knowledge of both markets to impact trading. When you start trading, you have to watch out for the volatility in the market. As a trader, you can read all the relevant info related to the forex and crypto markets from credible websites and financial publications. You can also talk to experts in the field before putting your money directly in the market. If you approach the market cautiously and start trading judiciously, you can initially make a reasonable profit from the market. Both the markets offer chances for traders, and if you can make proper fundamental and technical analysis, you can also make gains. It is vital to have an appropriate trading plan for both markets with clear-cut entry and exit options. If you can stick to your trading strategy in both markets, you can make good returns over some time.