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What Brings More Risk Investing in Crypto Or Forex?

investing in crypto or forex

July 13, 2021 | 

874 Views | 

JOHN K MWANIKI | 

Get Into Cryptocurrency Trading Today

Cryptos and forex have one thing in common; risk. This is because forex has been around for longer than cryptocurrencies. Owing to this fact, the forex market has a considerably higher trading volume compared to the crypto market. 

Is there is more risk investing in crypto or forex, considering the former is still a new concept to many? Well, understanding the pros and cons of the two markets will go a long way in helping you identify which one brings more risk.

Is there more risk investing in crypto or forex? Understanding the forex market

On average, $5.3 trillion is traded daily in the forex market. The forex market has unique characteristics that make investors attracted to it. One of them is the high liquidity. 

Note that this market is susceptible to global market events, politics, and other macroeconomic events. Is there more risk investing in crypto or forex?  

1. Forex has low volatility

Compared to crypto, forex volatility is considerably lower. This is because forex assets are centralized and controlled by banks. What this means is central banks can reduce or increase the supply of the currencies. In addition, they can regulate the supply and demand of fiat currencies.

There is, therefore, the possibility of creating stability in the market, which results in low risk. 

2. High leverage in currency pairs

High leverage in the forex market comes with benefits. First, note that with high leverage, small movements or shifts in the market are significant. This way, traders can make profits from even the slightest movements in the market prices. 

Is there more risk investing in crypto or forex? Due to the low volatility, forex might be an attractive investment. However, low volatility comes with some concerns, too; fewer profits. High leverage in the forex market addresses this concern adequately.

It ensures traders can still make profits with the low volatility. The nature of this market, which is low volatility, makes the regulators allow the brokers to have high leverage. Traders can buy and sell more assets of higher value than they have in their accounts. 

3. A low cost of trading

The cost of trading in the forex market is low. Traders in the forex market usually pay about 1 pip to trade the EUR/USD pair. This is on average 0.08% of the asset they are trading. Compared to the trading costs for cryptocurrencies, this is significantly lower. 

4. High liquidity

The modern forex market trading began in the 1970s, many years before the first cryptocurrency was established. Owing to this, the forex market has more traders. This equals high liquidity, making it easy and quick for the traders to trade high volumes of currencies. 
In the foreign exchange market, one investor cannot have a significant influence on the market.

5. Unlimited supply

The forex market has an unlimited supply of currencies. In this case, which one has more risk investing in crypto or forex? There being an unlimited number of currencies one can trade means that traders can mitigate the market risk through diversification. 

Trading cryptocurrencies

These are digital currencies created by private groups or individuals. They operate in an encrypted and decentralized system which ensures anonymity. Transactions in the cryptocurrency market are executed through blockchain technology. This ensures integrity in the crypto market and a limited supply of digital assets. 

The trading volume of this market is yet to match the forex market, currently standing at $4.1 billion. Some of the features of the crypto market include.

1. High volatility

While both the forex and crypto markets are volatile, crypto exhibits higher volatility. This is because slight changes in both the micro and macro environment often lead to sudden and sharp movements in price. 

2. The crypto market is unregulated

One of the things that attract investors to this market is decentralization. No central banks control this market. This comes with the advantage of there being no possibility of suppression of the trading values of crypto. 

Also, since there are no regulations, the market may be unstable and therefore unsafe for investment. 

3. Crypto trading fees are high

The cost of trading forex, as earlier mentioned, is about 0.08% of the value of the assets. The trading cost of cryptocurrencies, on the other hand, is 0.40% of the asset traded. What does this mean for the trader? Is there more risk investing in crypto or forex? It might be hard for them to make profits through short-term trading. 

What makes the transaction fees in this market higher is the congestion that exists in the network. Supply and demand factors in blockchain are also a reason behind the high fees. The larger transactions you make, the more costly it will be to send. 

The crypto market is open even on weekends, unlike the forex market. Exponential trends are also more common in the crypto market. Is there more risk investing in crypto or forex? Well, the exponential trends bring about risk, but there is still a high-profit opportunity.

Is there more risk investing in crypto or forex?

The crypto and forex market have a few similarities like volatility and some differences. An investor should look at one of the things before deciding the investment to make the risk involved. You might choose crypto, forex, or both.

What is important is doing a proper analysis of the different markets then make a pick. There are several areas to look at to get answers to whether there is more risk investing in crypto or forex. Market hours are one of them. Compare the volatility of the two markets and the cost of transactions. 

Look at the significant price drivers and how common exponential trends in the market are. Already you have seen the level of volatility in both markets and their causes. You understand the differences in the transaction costs and the reasons behind them.

Take time to understand the differences; then, you will choose an investment option that favors you. 

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