Many people are starting to recognize alternative investment instruments outside of stocks such as forex and crypto. However, each investment instrument has its own advantages and disadvantages, so it is necessary for potential investors or traders to know what instruments are suitable for them and how to buy them.
If in the previous post we discussed the differences between trading stocks and forex as well as stocks and crypto, then now is the time for you to know the differences between forex and crypto trading. Forex and crypto trading both trade currencies and are regulated by the Commodity Futures Trading Regulatory Agency (BAPPEBTI).
Both have essential differences that every trader interested in entering this market should be aware of.
What are the differences between forex and crypto trading? Here's the explanation.
Getting to Know Forex Trading
Forex trading is a transaction of buying and selling fiat currency (currency) which is officially used by a country. Currently there are around 164 fiat currencies in circulation officially in the world. For example, buying and selling between the rupiah (IDR) and the United States dollar (USD) or the Japanese yen with the Chinese renminbi (RNB).
Forex trading is needed along with the increasing intensity of international trade and travel. In the past, trading these commodities was only for the needs of a money changer, but now that there is trading technology, forex trading can be done on the basis of a desire to get a profit.
Forex is the most traded commodity traded worldwide. According to the Triennial Central Bank Survey of FX and OTC Derivatives Markets, daily forex trading volume in 2019 reached 6.6 trillion USD (Investopedia).
Getting to Know Crypto Trading
Cryptocurrency is a virtual currency built on blockchain technology.
Therefore, crypto trading can be interpreted as buying and selling virtual currency transactions. There are currently more than 10,000 cryptocurrencies circulating in the world. These include Bitcoin, Ethereum, Dogecoin, Ripple, and others.
Crypto trading is becoming increasingly important as blockchain technology and the metaverse increase in popularity. This is because cryptocurrencies, whether in the form of coins or tokens, are needed for various gaming needs and transactions in the metaverse. Even some countries have allowed this digital asset to be used as a means of offline payment.
Difference between Forex and Crypto Trading
1. Traded currencies
As discussed above, the similarity between forex and crypto trading is that they both trade currencies. The difference is, forex trading trades fiat currencies, while crypto trading trades virtual currencies.
Then, what is the difference between fiat currency and virtual currency? The difference is, fiat currency is the official currency released and regulated by monetary authorities such as Federal Reserve in the United States. Therefore, fiat currency can be used for buying and selling in their respective countries.
On the other hand, virtual currencies such as cryptocurrencies are currencies that are only in the form of digital assets (generally cannot be touched). In addition, this currency is also issued by private technology development companies and is not controlled by the monetary authority of a country.
Therefore, not many countries allow crypto money to be used for offline buying and selling transactions. Cryptocurrency is not fully considered a legal currency to be used as a medium of exchange and means of payment. In this country, cryptocurrency is still seen as a digital asset that can only be bought or sold and cannot be used to pay for daily needs.
2. Fundamental aspects
Both forex trading and crypto trading use similar technical analysis because basically technical analysis discusses how the history of the price movement of an asset in estimating the price of the asset in the future.
However, the two have very different fundamental aspects. The fundamental aspects of forex trading depend on the economic conditions of the issuing country of the fiat currency being traded and the overall global economic conditions. This is because forex is issued, controlled and regulated by a country's official monetary authority. That is, trading on a forex will not collapse unless the issuing country of the currency also collapses.
It is different with crypto trading. The fundamental aspects of crypto really depend on 3 things, namely the blockchain technology offered, the profile and experience of the developer of the crypto asset developer and how it is expected to be used in the present and future. This means, crypto trading will fail if the developer