Cryptocurrencies and foreign exchange (forex) have some things in common and can even be traded against each other, but which is the better investment? Both can play a role in a well-diversified portfolio, but if you have to choose just one, it depends on your goals and other factors.
Similarities and differences
Cryptocurrencies and forex are both forms of currency, which means they bear quite a few similarities. However, investors who don't like to speculate on new assets might want to stay away from crypto and opt for forex instead. There is still a certain amount of speculation that goes along with trading forex, though, so that is something else they have in common.
The crypto market and the forex market are both open around the clock, but the forex market is only open Monday through Friday, while the cryptocurrency market never closes. If you are limited in the time you have available for trading, it could make a difference on which asset you choose to trade.
On the other hand, cryptocurrencies are unregulated, while forex is regulated by the central bank of the country whose currency you are trading.
Choosing between forex and crypto
Cryptocurrencies and forex both present opportunities for investment gains, so if the above similarities or differences didn't sway you in one direction or the other, there are other factors to consider. For example, you should think about how long you want to hold the asset and wait for its value to appreciate.
The forex market tends to be very fast-moving, with many positions remaining open for less than a day. Forex traders have to be on their toes, ready to make a trade the instant they see an opening. On the other hand, cryptocurrency traders may be able to buy and hold for an extended period.
Crypto traders may choose to sell their digital currency quickly because prices are very volatile. The bitcoin price, in particular, has been volatile, which means it may be possible to buy some at a lower price and then sell it in less than a week. However, there is also value in holding bitcoin or other cryptocurrencies for the long-term, unlike forex.
Thus, if your goals are extremely short-term, it might make more sense to trade forex or at least to keep that in mind when trading cryptocurrencies.
Trading cryptocurrency against forex
In some ways, cryptocurrencies and forex go hand-in-hand, so it might make sense to trade both. Most U.S. forex brokers allow you to trade them against each other, but there are some things you should keep in mind if you decide to do that.
For example, both forex and crypto prices can be extremely volatile, so when you trade them against each other, you are constantly battling price changes in both of them. Additionally, using cryptocurrencies to trade against foreign currencies can be complex if brokers require digital currencies to be transferred into U.S. dollars before they can be used to trade forex.
Because of the volatility of forex and cryptocurrency, you must be even more vigilant when trading than with forex alone. You may find that at certain times, it's better to trade using the dollar or your native country's currency, while other times, it may be a good idea to use cryptocurrency to trade forex.
There are plenty of opportunities in trading forex and cryptocurrencies, so the wise trader will watch their assets grow if they know what they are doing. Study the markets before you make any investment decisions and look for the best forex broker to handle your trades. Decide what your goals are and what your trading style is like, and then trade accordingly.