Over the recent years investing in both forex and bitcoin (which falls under cryptocurrencies) has attracted a lot of attention worldwide. At the same time, investing has opened up and is no longer an ‘exclusive club’ for fund managers in financial institutions. This is because brokerage firms have made it possible for virtually anyone to access the numerous financial markets using the internet. While this can be seen as a huge development, it also means that there is a considerable knowledge gap now where forex and bitcoin are mentioned to novice investors.
Key difference
The key differentiator between the two is that bitcoin is a digital asset/currency that does not depend on any government or central bank to control its value. There is no physical bitcoin and the decentralization of control means that all transactions are carried out using bitcoin and are reflected as balances through a global ledger called blockchain. As vast as the forex market is, it is still susceptible to manipulation by financial institutions or governments since the value of a currency or commodity can be controlled.
Are you interested in trading forex, stocks, indices, commodities or crypto? You will find a variety of licensed trading platforms on sites like BullMarketz to choose from depending on your personal preferences.
Which is better for long-term investment or daily trading?
The beauty of the forex market is that there is always an opportunity to make money. With so many currency pairs, indices, commodities and futures that are in a continuous tug of war between supply and demand traders have the luxury of choosing how often they want to trade. This is actually what it means to be an intraday trader; to execute numerous long and short trades on different assets in order to capitalize on the changes in price of different assets in the global financial markets. Popularly known as a ‘day trader’, this person will rarely hold an open position for more than a day as this goes against most day-trading strategies.
When it comes to bitcoin, most people use it either or both of these two ways:
- As a medium of exchange that means it is used as a store of value in exchange for another item or service of equivalent value. Blockchain enables users of bitcoin to transparently transfer value from one person/institution to another. One of the major advantages of sending bitcoin is that it is instant whereas sending fiat currency is dependent on the hours of operation dictated by the financial institution.
- As a long-term investment which means buy and hold with the expectation of growth or an increase in value. This is often described as capital gains. Bitcoin was introduced in 2009 and has fluctuated in value ever since. It has gone through numerous cycles of all-time highs and lows. To put this into perspective, the value of bitcoin fluctuated between $8,800 and $64,000 within a period of one year! This means that if you bought (and sold) at the right time, you would have profited greatly from the growth in value.
Liquidity
Forex is the largest financial market in the world with the most liquidity (daily volume of up to $7 trillion). The bitcoin market in comparison is much smaller. The amount of liquidity that is available in forex means that it is possible to purchase an asset in the forex market at relatively stable prices. However, when it comes to bitcoin, the price volatility is much higher because even a small number of large transactions can affect the market price significantly. Bitcoin is much more susceptible to the effects of supply and demand forces. This is one of the reasons why leveraged trading of bitcoin is much riskier than leveraged trading in forex.
Bitcoin exchange vs forex market activity
Unlike the forex market that is accessible from Monday to Friday, it is possible to transact with or purchase bitcoin 24/7, even during public holidays. Forex markets can be irrational and it is difficult to explain why the prices of some assets move significantly during the periods when it is impossible for an average trader to trade.
Market makers sometimes play a role in destabilizing the currencies and commodities markets and this can affect you negatively as a day trader. This is an area that you need to pay attention to as we mentioned earlier that most day traders prefer not to leave their trades open when the market is closed.
With bitcoin, all investors operate at a level playing field! The opportunities to trade are available and visible to everyone as long as you have access to a cryptocurrency exchange
