Trading forex or Bitcoin sounds like a revolutionary profit-minting idea. While both are different ways of looking at money, you can build an understanding of trading each to create real buying power.
Learn more about both forex and Bitcoin with our guide.
What is Forex?
Foreign exchange or forex is when a currency like the U.S. dollar is converted into another country’s currency, such as the euro). As simple as it seems, the magnitude of the forex market is just mind-blowing — more than $5 trillion of currency change hands daily in the 24-hour, 5 days per week foreign exchange market.
Governments, businesses and tourists all have diverse needs for foreign exchange, so they use foreign exchange markets or banks to convert their primary currency into the type of money they want.
Trading forex is simply pairs trading. You buy 1 currency and sell another. For instance, if you buy the USD/EUR pair, you’re long the USD and short the euro. Other more actively traded currency pairs include GBP/USD, USD/JPY, USD/CAD, EUR/JPY and AUD/USD.
What is Bitcoin?
Bitcoin is a cryptocurrency developed by Satoshi Nakamoto, whose identity is still unknown to date. You can compare Bitcoin to an online version of cash. The physical bitcoins you’ve seen around in photos are a novelty — the crypto would be worthless without the private codes printed inside them.
Each Bitcoin transaction is recorded in a public list known as the blockchain. This makes it possible to track the history of bitcoins in order to stop people from making copies, spending coins they don’t own or undoing transactions. Digital wallets store private keys needed to authorize blockchain transactions.
Pros and Cons of Forex
Forex may seem safer than currencies beholden on code, but you still need to understand what you’re getting yourself into. Here are some pros and cons that will help guide your decision.
|Accessibility: The forex market is one of the most accessible markets for traders
Leverage: Access to leverage in forex can be the difference between small and sizeable gains
Easy short selling: Traders can easily sell one currency and buy another paired with it.
Liquidity: Being the largest market globally by volume, there’s ample liquidity.
Minimal price manipulation: The currency market isn’t easily influenced by insider information.
|Volatility: Forex traders may be exposed to extreme volatility
Barriers to entry: The bulk of currency trading is largely done by banks, hedge funds and large financial institutions.
Fees: Trading currencies may attract high fees and costs depending on your broker.
Market shocks: Unexpected market and political events can shock the currency market.Scams: The forex trading market is marred with frauds and scammers.
Pros and Cons of Bitcoin
The thrill of riches from Bitcoin is both a draw and a worry. Consider these pros and cons before investing in this rapidly changing currency landscape.
|Security: Through blockchain technology, Bitcoin seeks to ensure transactions are recognized and stored on a public ledger.
No inflation risk: Bitcoin avoids the inflation risk since it’s supply is capped at $21 million.
Portfolio diversification: Bitcoin may provide a measure of diversification depending on your risk tolerance.
No 3rd parties: Bitcoin transactions are peer-to-peer on the blockchain.
|Volatility: The Bitcoin price is based on demand and supply from investors, so prices can change dramatically.
Market manipulation: The lack of transparency leaves bitcoin susceptible to market manipulation.Hacks: Blockchains aren’t impervious to malicious actors.
Minimal regulation: The Bitcoin market is largely unregulated — investor protection isn’t guaranteed.
Limited use: Bitcoin is yet to gain acceptance by most online merchants.
Cost to Trade Forex
The cost to trade forex largely depends on your broker. For each trade you place, you’ll have to pay a certain amount in commissions or fees for each trade you place with your broker. Common forex trading costs include:
- Rollover fee: The rollover fee is the interest your broker charges for holding positions overnight.
- Currency conversion charges: You may incur a currency conversion charge if you forex trade in a currency other than your account’s base currency.
- Inactivity fee: Your broker may charge an inactivity fee if no trading activity occurs in a given month.
Cost to Trade Bitcoin
Cryptocurrency exchanges charge a trading fee when you buy or sell bitcoin. For instance, Coinbase charges about 0.50% for cryptocurrency purchases and sales. You can also expect to incur charges when performing a cryptocurrency conversion like Bitcoin to Ethereum. A good example is Coinbase that charges a spread margin of up to 2% for cryptocurrency conversion.
Other fees for trading Bitcoin include:
- Maker fee: This is the fee you incur for placing a bitcoin order that doesn’t fulfill immediately.
- Taker fee: The fee incurred for placing a bitcoin order that fulfills instantly.
Best Online Brokers for Forex
There are a ton of online broker options to trade forex, but they may not all align with your trading goals. Your success in forex trading may boil down to the broker you choose. Here are some of our recommended brokerage platforms to trade forex.
Best Online Brokers for Bitcoin
Different online brokers carry different strengths — you must figure out the broker that best suits your bitcoin trading aspirations. Here’s a list of some of the popular and more reputable options.
What’s Your Endgame?
The forex vs. Bitcoin stalemate never seems to end, probably because both carry an intriguing risk-reward dynamic.
If you’re looking to rack up quick profits from a largely speculative asset, then bitcoin may be a good play. But remember, both investing options are just as profitable as they are inherently risky. Be sure you understand each market before making an entry — and if you must speculate — only play around with money you can afford to lose.
Frequently Asked Questions
Is forex better than Bitcoin?
Is forex better than Bitcoin?
Analyzing forex and bitcoin is the first step toward investing in the digital market, but is one better than the other? Well, it all comes down to your strategies, goals and needs.
Sure, forex is considered more stable than Bitcoin, but Bitcoin can provide quicker and higher profits. You may also want to incorporate both for a more diversified portfolio.
Is Bitcoin riskier than forex for trading?
Is Bitcoin riskier than forex for trading?
Trading Bitcoin is riskier than forex trading since Bitcoin is a largely unregulated currency that displays violent price moves, not forgetting its speculative nature. The caveat is that forex is a developed market where you’re squaring it out with a syndicate of hedge funds and large banks that can manipulate prices.
Either way, both markets carry risk. The way you mitigate those risks is what matters. Start by obtaining the relevant knowledge about both markets as well as understanding your risk appetite.
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