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What's better to trade in Crypto, stocks, or Forex?

cryptos, stocks or forex

July 9, 2021 | 

1527 Views | 

JOHN K MWANIKI | 

Get Into Cryptocurrency Trading Today

If you ask different investors which investment vehicle is better to trade, you will often receive conflicting answers. This is because these three types of investments vary significantly. Oftentimes, it is better to understand how they work and then decide for yourself which one would suit you best. Ideally, you will use your preference, risk appetite, financial goals, and trading style to decide if you want to trade cryptos, stocks, or forex. 

To help you make a more informed decision, this article will look at each type of investment and its key trading characteristics. At the end of the article, you can find a table summarizing the critical aspect of each that you can use to make your decision. 

1.    Cryptocurrencies

Cryptocurrencies are a relatively new asset class. They are blockchain-based digital currencies that can be created by companies, individuals, or even banks. The main goal of creating cryptocurrencies was to decentralize finance by eliminating the middleman. Cryptocurrencies are very divisive. Some people wholeheartedly believe that the world will eventually shift from fiat currencies to cryptocurrencies as global currencies. On the other hand, some believe that it is a bubble that will eventually burst. 

Trading characteristics

a.    There are two main types of cryptocurrency traders. There are those who buy them, hold them, and then sell them later, and there are also those who day trade with them on exchanges. 
b.    It is possible to go short or long when trading cryptocurrencies short term and long term. Going short refers to when you are trading two currencies against each other, and you speculate that one of the currencies in the currency pair will decline in value. The opposite of that is going long.
c.    Cryptocurrency markets are often very volatile. A cryptocurrency can gain multiple times its value in one day and lose it all the next.
d.    Some cryptocurrencies are very liquid, while others aren't. The cryptocurrencies that have higher market capitalization often have high liquidity.
e.    It is possible to speculate the price changes of cryptocurrencies and trade them from all over the world.
f.    They can be traded 24/7
g.    Cryptocurrency exchanges often only offer low leverage
h.    Cryptocurrencies are often susceptible to macroeconomic factors such as consumer behavior and supply and demand. For example, in the past, a single tweet by Elon Musk caused a significant decline in Bitcoin's value. 

2.    Stocks

When people trade stocks, they are often buying or selling the shares of a company with the aim of making a profit. Often, people trade shares and securities in a stock market to ensure fair price as it is a controlled and regulated environment.

Characteristics of trading stock 

a.    Unlike trading cryptocurrencies, share trading is often limited to the time when the exchange listing the stocks is open. 
b.    The prices of stocks can be affected by both microeconomic and macroeconomic factors. For example, the country's economic performance can affect the company's stock just as consumer behavior can. 
c.    While both markets can be very volatile, stock prices will often move much slower than the prices of cryptocurrencies and forex. 
d.    Generally, the liquidity of a stock depends on the popularity and the market capitalization of the stock. For that reason, blue-chip stocks are often more liquid than other stocks.
e.    Although there are exchanges that allow stock traders to buy stocks online, they are often subject to localized channels, and it is better to buy them in dedicated markets.
f.    The majority of those who invest in stocks buy to hold long term. It is, however, possible to buy CFDs. 
g.    In most cases, unless you are buying stock CFDs, it is only possible to profit from stocks when you go long. 

3.    Forex

This is the largest and the most liquid financial market in the world. According to a 2019 survey, it has a trading volume of $6.6 trillion. Forex, which stands for foreign exchange, refers to the buying and selling of global currencies for profit. 

Characteristics of trading forex

a.    Traders can often trade forex from anywhere around the world through various exchanges. 
b.    Just like cryptocurrencies, forex traders can often benefit by going long or short.
c.    The forex market is typically traded 24 hours a day, 5 hours a week. There are different trading sessions, and the times when these sessions overlap often see the largest trading activity.
d.    The forex markets can be very liquid. In most cases, the major currency pairs are the most liquid, i.e., pairs of major currencies.
e.    Forex exchanges often offer traders high leverage.
f.    The forex market is greatly affected by macroeconomic factors, but the movements resulting from these events are rarely as turbulent as those in the cryptocurrency market.
g.    Trading forex can require low capital to start, and the trading costs (e.g., the spreads) can be very low.
 

The table below will show the different investment vehicles and the factors you can consider when choosing which asset to invest in. 

Assets/factors

Forex

Stocks

Cryptocurrencies

Time to trade

24 hours a day,  5 days a week

Trading times depend on when the exchange is open

Can be traded 24/7

Where to trade

Worldwide

Worldwide but localized channels are preferred

Worldwide

Liquidity

Highly liquid, especially for major pairs

Only stocks with large market capitalization have high liquidity

Liquidity depends on the cryptocurrency and the exchange

Volatility

Relatively average volatility compared to cryptocurrencies and therefore suitable for investors with high to medium risk appetite

Low volatility but can experience high volatility therefore suitable for traders with low-risk tolerance

Very high volatility and best suited for traders with high-risk appetite

Trading style

short-term

Suitable for long-term investors

Suitable for both short-term and long-term investors

Financial goals

Suitable for traders saving medium or long term financial goals

Suitable for those saving for long-term financial goals

Suitable for those who want fast money (short term traders) or for longer-term goals (buy and hold)

Conclusion

As you may have concluded by now, when you ask which asset is a better trading option, the answers you receive will always be biased. The best thing to do is decide which asset meets your preferences and aligns with your investment goals. Afterward, you can research the individual stocks, currencies, or cryptocurrencies you wish to trade. Alternatively, you may decide to trade in a combination of two or three to get the benefits of each. 

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Total Market Cap The Total Market Capitalization (Market Cap) is an indicator that measures the size of all the cryptocurrencies.It’s the total market value of all the cryptocurrencies' circulating supply: so it’s the total value of all the coins that have been mined.

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Price Cryptocurrency prices are volatile, and the prices change all the time. We are collecting all the data from several exchanges to provide the most accurate price available.

24H Cryptocurrency prices are volatile… The 24h % change is the difference between the current price and the price24 hours ago.

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