1. Introduction

The forex market has been around since the 1970s and is known as the foreign exchange market. In this market, people could trade online for convenience with no quotation price. This is due to the probability of vast market spreads and price manipulations. Forex trading is also known as an over-the-counter (OTC) market since the trades are executed electronically, the deals are price-negotiated, and there’s no centralized exchange where, in regular hours, trading is done. Over two-day transactions, the spot exchange rate managed to move several times from prices to tens of thousands of pips. Pathetic-sized trades are better suited when the entry and exit points are significant. Smaller trades are better for tighter stop-losses. Trading volume and volatility are the methods of this business.

The proliferation of forex trading and cryptocurrency trading as a fast-growing market has attracted traders from every part of the world. Here’s an analysis carried out to comprehend the similarities and differences between trading forex and trading cryptocurrency. This has been done to understand their fundamentals, strategies, and impacts. Forex trading revolves around trading currency from another country in the market. Similarly, in cryptocurrency trading, people tend to buy cryptocurrency from another country. Even though both seem similar, these two markets have significant differences in the financial market context.

This essay aims to provide a detailed comparison between forex trading and cryptocurrency trading by first establishing their historical context and how, over time, they have become a forecast-based market. This analysis describes the past market structure and has identified the high, low, and close prices, tick size, and number of trades occurring at any given time as its manipulation. The next part of this report also discusses the structure of the present market for each sector and identifies the advantages that forex trading has over cryptocurrency.

2. Historical Background

Historical Background: In 2009, Bitcoin, created anonymously with a timestamp for the term “Bitcoin” on a white paper, launched the first cryptocurrency. In July 2010, the cryptocurrency sector took another step forward with the introduction of the first blockchain-based cryptocurrency, known as Namecoin. On March 17, 2010, USD was first paired with Bitcoin, and a few days later, the first recorded transaction of Bitcoin was made on May 22, 2010, whereby 10,000 Bitcoins were traded for two pizzas. JP Morgan became the first bank to introduce its cryptocurrency, the JPM coin, in February 2019. It took a record ten years from the introduction of Bitcoin to reach the billionth cryptocurrency transaction. Bitcoin was also able to split by executing a hard fork implemented in 2017, producing Bitcoin Cash and Bitcoin Gold. A similar move also took place when a hard fork was carried out to form Ethereum Classic. Regulations vary greatly by nation. In India, possession, issuance, trading, or use of cryptocurrencies are not recognized. As China’s anti-crypto law pushed miners elsewhere, China continued telling banks not to provide services linked to cryptocurrencies. Recently, investment banks like Citi have shown interest in cryptocurrencies.

Cryptocurrency Trading

Historical Background: Oceanic trade began with the practice of trading foreign currencies.

Since 1876, countries have engaged in the practice of pegging currencies to gold. From 1944 to 1971, a system of pegged exchange rates for gold was initiated when the members of the IMF agreed on a value of 35 USD per ounce. Nixon, President of the United States, announced in 1971 that the USD would no longer be converted to gold. After the collapse of the Bretton Woods system, a dual exchange rate system was initiated in which fixed rates were used for significant transactions and floating rates were used for other dealings. The world’s main currencies became free-floating in the 1970s. The Forex market, as we now know it, has evolved to accommodate international trade and investment, as well as speculation. Governments, businesses, financial institutions, and individual retail traders all take part in the Forex market, which often brokers over 5.3 trillion USD a day.

2.1. Forex Market

The forex market has a lot of market dynamics. The monetary planning of a country, for example, frequently differs, and so does the currency rate established by the bank on the basis of the assets’ supply and demand at a unique point in time. When the US abolished the gold standard and sought other currencies, the Forex embraced controls on foreign ownership of wealth among a few countries with three key items. The majority of trading in forex involves getting to the certainty that exchange rate costs for certain assets become profitable. The Forex market has no fixed location for currency trading but rather carries out transactions around the clock, 24 hours a day, at various locations. Some of those characteristics may be different from any other market, such as shares, with contrasts in the Forex market.

The historical quarters of the world’s foremost foreign exchange market, Forex, started to take shape in the early 1970s after three decades of restrictions on the movements of currencies. The real period that we are proud of in the modern Forex era, however, started before the dawn of the 20th century. As new technologies and communication methods facilitate a broader expansion of international investing and trade, the Forex or FX market is forecast to evolve further, despite the contrasts between Forex and other markets. The Forex market metamorphosed yet again when technological reforms and online trading lay at the foundation of the 1980s. Before long, trading was finely tuned from interbank to online rather than from machine-based to electronic.

2.2. Cryptocurrency Market

The first transaction of Bitcoin took place on May 22, 2010, when a programmer and early

Bitcoin enthusiast, together with another Bitcoin enthusiast, bought two pizzas using 10,000 Bitcoin. By 2013, Bitcoin had become the talk of the time and was accepted by a number of leading e-vendor companies for transactions. In 2017, the adoption of Bitcoin gained more momentum and soared to thousands of dollars. As a result, Bitcoin was symbolized as digital gold. Based on the success of Bitcoin, several alternative cryptocurrencies were created. Accordingly, 2017 witnessed a surge in the emergence of the following alternative cryptocurrencies, sometimes referred to as altcoins: Ethereum, Ripple, Litecoin, Dash, Dogecoin, and others in the market.

The cryptocurrency market is one of the latest frontiers in online currency exchange, with a fast-rising popularity since its inception over a decade ago. The history of cryptocurrency is influenced to a great degree by that of Bitcoin, which indeed serves as a veritable oscillating barometer of dietary salt or a window into the progress and future of cryptocurrency trading as a whole. The seminal ancestor of cryptocurrency is Bitcoin, which was created by Satoshi Nakamoto (thought to be a pseudonym).

3. Market Structure

The forex market is the biggest market of any asset class in the world. Forex functions as the mechanism for conducting transactions between participants and serving as a true timeand place-transcending market. It has the following structure: Currency Pairs: The major currency pair is seven that have USD and a few other pairs, up to 80% of the market, while the minor pairs and exotics (a cross-currency pair where the U.S. dollar is not present) It is also known as an “exotic currency.” Make up the rest. A typical example of this pair is EUR/USD, which indicates that one unit of EUR (base currency) can be bought with around 1.1303 of USD (quote currency). Market Load: Unlike any other market, the forex market operates 24/5, from Sunday at 5 p.m. EST to Friday at 4 p.m. EST, and is closed for only 30 minutes a day during the weekday. OTC Market: It is over-the-counter, meaning that it has no main exchange.

The trading structure supports the stock market, the forex market, and the cryptocurrency market. Consequently, all of them have profits and risks that outweigh the others. However, their profit and loss differences exist due to the disparities between their market characteristics. The essential difference between the domains is how their market is constructed. Specifically, a comparison between the profits and/or the risks of the three trading areas can evaluate the nature of the profit and/or the risk comparison. This section will give an overview of the market structure of forex and cryptocurrency.

3.1. Forex Market

Central banks, exchange clearing houses, government finance institutions, multinational corporations, retail, and foreign exchanges (brokerage firms and dealers) are important agents in the foreign exchange market. Among the various levels involved, over-the-counter (OTC) mode is the major execution platform for currency trading across the most active forex trading centers, such as London, New York, Tokyo, and Switzerland. It has been estimated by the Bank of International Settlements (BIS) that the overall trading value would exceed US$5.92 trillion of long OTC swaps and outright deals, subject to all currency, spot, forward, and swap transactions on the OTC platform. Furthermore, there were US$2771 billion in average daily turnover of spot transactions, while traders and investors carried out

6.6% of the transactions in the form of options and 34.1% as outright and swaps contracts. Judging from the volume in the forex market, forex traders are the key drivers of the market, communicating between the domestic and institutional agents, consisting of hedge fund employees, insurance companies, pension funds, multi-national business partners, and investment and commercial banks. The relationships between them further control the market.

Despite its basic structural similarity to an ideal economy, the foreign exchange (Forex) market is the most polished financial market because the underlying economic value of the foreign currencies and goods deeply guides this market. In a nutshell, in the foreign currency market, currencies are bought and sold; the valuation of currencies for trading and investment purposes is done primarily by tracking the economic and political strengths and stability of the countries. This market is essentially involved in various currency-related transactions, such as transferring money or promising to exchange money in the future. This implies that exchange rates represent the price of one currency in terms of another. The ongoing process of setting exchange rates often involves vast volumes of financial and physical trading activities, cross-border financing of non-residential private and public investments, loan transactions, etc. In general, there is no physical or geographical boundary for forex trading. It is operated hassle-free 24 hours a day and 5 days a week across several trading powerhouses (the USA, the UK, Japan, Hong Kong, Australia, Singapore, France, Germany, Switzerland, Ireland, etc.).

3.2. Cryptocurrency Market

However, the lack of regulatory framework in the value transaction domain of the cryptocurrency domain has also provided room for fraudulent results. Owing to the relative newness of the market, only the essential research work has been conducted in the respective domain, which necessitates highlighting the existence of fraudulent practices in the market. Another concerning aspect is the minute academic attention given to exchanges. This initially limits the transition of established and proven knowledge from traditional trading to cryptocurrency exchanges, and an equally viable conclusion could be a lack of viability of traditional trading research on cryptocurrency exchanges. In essence, to yield insightful and substantiated observations and conclusions, it is necessary to gain an all-inclusive comprehension of the trading mechanisms, technologies implemented, applicable algorithms, and present executive strategies in vogue on these cryptocurrency exchanges.

Infrastructure and functionality. The technical infrastructure of the cryptocurrency market employs web-based interfaces for trading, application programming interfaces for developing custom trading bots, and wallets for storing, sending, and receiving cryptocurrencies. Functionally, the cryptocurrency market remains open 24/7 without any session break compared to the forex asset, as the entire cryptocurrency is associated with a borderless network.

The organizational design of the cryptocurrency market is represented by the following domains: cryptocurrency exchanges, cryptocurrency brokers, and over-the-counter (OTC) trading. Cryptocurrency exchanges are the most predominant entity in the market as they facilitate the trading of cryptocurrencies in a standardized market environment with fixed trading rules, regulations, and market surveillance. Some of the renowned cryptocurrency exchanges are Binance, Coinbase, and Kraken. Cryptocurrency brokers operate on behalf of their clients and initiate trades on the client’s order. OTC trading instigates the trade of cryptocurrencies between two parties directly, usually employing a dealer as an intermediary.

4. Key Differences

Legal Sanctions Since the foreign exchange market and international stocks are closely regulated, most countries have strict laws that govern trading. In contrast, cryptocurrencies were created from the start to be decentralized and outside of any government promise, so trading in them was somewhat unregulated. This difference in regulation means that forex trading is more protected, and brokers have to jump through hoops in order to achieve regulations. Crypto trading, on the other hand, saw little to no limitations, but attitudes are changing. No country has banned cryptocurrencies exclusively, but some countries some countries have put some hard restrictions on them. There are countries like China that are trying to make it as hard as feasible for individuals to carry out operations in the cryptocurrency industry, like using surveillance to identify cryptocurrency miners and high-powered computers. As of now, cryptocurrencies are showing more limited possibilities than trading with forex. It can be a totally unrestricted operation in which you spend from wherever you are without deposits or withdrawal restrictions based on the account you have. Regulatory variations can regularly take place. Some nations are more inclined to suppress cryptocurrencies. Japan, for example, has legally recognized bitcoin as an

anti-establishment coin and, as a result, has become the country with the strongest currency market. More countries are opening the door for bitcoins than are closing, an example of an ardent one.

One sector that has recently developed is the cryptocurrency world, and this sector has made a place for itself in the trading world. Despite the strength of the foreign exchange industry, the cryptocurrency industry has stood out significantly. In terms of trading, there are various reasons why cryptocurrencies are different from traditional foreign exchange trading.

Forex trading vs. cryptocurrency trading: the main differences

4.1. Regulation

An increasing number of brokers are offering multi-asset trading, which covers forex and cryptocurrencies, and even more brokers now accept bitcoin deposits. As brokers begin to expand their offering to include cryptocurrencies, there are differences in the regulation over how crypto assets can be held versus more established forex holdings, which may be locked in negative balance protection rules. IBs and marketing agencies also need to consider the relevant regulations, as the regulatory status and knowledge of clients will give rise to different marketing practices and disclosure requirements. Given the emergence of the regulatory status for taking custody of digital assets, more crypto firms in both the crypto to fiat and the crypto to crypto space are considering the regulatory approach and compliance for operating as exchange, broker, dealer, or money service businesses.

4.1. Regulation Given forex is the most liquid and actively traded market globally, it’s unsurprising that it is highly regulated, and forex brokers are required to hold licenses to operate, either by national financial regulators or more increasingly by European-wide bodies such as the Financial Conduct Authority in the UK (FCA). Cryptocurrencies, while increasingly being utilized in digital transactions, account for a fraction of international financial transactions, meaning regulation has been slower to develop in many cases. Many cryptocurrency exchanges have little to no regulation at all, especially those aimed at retail brokerage. Given the unstructured regulatory environment, scams and pyramid selling in the crypto space are also more common and hard to prosecute, as many of the perpetrators are spurious actors rather than licensed and regulated financial companies.

Differences between forex and cryptocurrency trading

4.2. Liquidity

Evans and Lyons (2004) develop a model of trading in centralized dealer markets. They assume that one-sided traders arrive according to a Poisson process in which trade intensity depends on the depth of the book, the accuracy of their value estimate, and the rate at which new information arrives. These traders then duke it out to find out how much and how soon they will trade. In Ashraf et al. (2004), trades arrive from informed and noise traders with different degrees of aggression (or, more broadly, impatience), but volume and trade price depend on relative enough liquidity to absorb the trade without too much slippage (in a shaded-limit order setting designed to model a centralized dealer market). In Kaniel and Liu (2006), market depth (in a centralized dealer market setting) depends on uninformed liquidity

(i.e., the liquidity of the side of the market that is not producing the large trade). For both Ashraf et al. (2004) and Kaniel and Liu (2006), with time to liquidate an order being an increasing, appropriately esperex-distributed random variable, aggressive traders trade faster. Thus, the time to liquidate and market depth are endogenous to the trading process.

Orphanides (1998) identifies market depth as a measure of the liquidity of a market. For a given position size in forex trading, a larger market depth implies that it will take longer for prices to move enough to fully absorb an order positioned at that size. Hence, a larger market depth implies that the order flow to the market can be spread out over a greater period of time. According to him, decentralized dealer markets, typified by forex trading, offer much greater market depth than do centralized limit order book markets, typified by exchanges that offer crypto trading. In centralized markets, all orders have the potential to either hit a new first-in-line order or to be filled by a limit order behind a market order. According to him, the entry of a large new order has the dual effect of increasing the likelihood that a sizable distortion to the market’s best estimate of value (i.e., price) will result and of making the distortion produced by that entry transitory, as limit orders are quickly absorbed. As a result of this inherent instability, the depth of the book in centralized markets tends to be finite and limited to the best estimate of value.

4.3. Volatility

Crypto-trading: One such explanation for network activity is that cost fluctuations are really real; on some occasions, virtual currency investors make significantly more investments and withdraw funds rapidly. In addition, it has been shown that network activity leads to rising prices since the cost boost in the cryptocurrency market is quite real. Nevertheless, cryptocurrency pricing is predictable based on a variety of variables, and movements are maybe more predictable than forex foreign ones. Despite the dominant position several decades ago, the capital control process was designed to avoid difficulties by entirely curtailing foreigners’ freedom to get their money.

Forex: Volatility in currency exchange rates can be attributed to many causes, including interest rate adjustments, sustainable cross-country economic performance, and links, in contrast to improvements in the geopolitical climate, to mention a couple. Worldwide stakes can also contribute to these adjustments in exchange rates. It is no surprise, as a result, that these influences have led to serious effects on the thoughts of exporters and investors (especially multinationals) in trade settings. The cryptocurrency has greater economic uncertainty owing to the large shortage of any basic vicissitudes that increase optimism or prevent pessimism. The cryptocurrency property is extremely robust; it is opposing the global economy.

4.3. Volatility: This sub-section looks thoroughly into the volatility patterns, price fluctuations, and risk profiles that are unique to the two trading markets. In this section, our aim is to focus on the inherent behavior of the forex and cryptocurrency markets concerning the volatility impact on both.

4.4. Accessibility

The entry requirements for trading in cryptocurrencies are far lower. In order to trade cryptocurrencies, the only requirements could pertain to an ID and possibly a credit card. Cryptocurrency markets are traditionally less regulated than securities markets. This means that transparency about pricing is also lower. As a summary, the combination of a non-regulated market and a relatively low entry requirement regarding funding (ID or credit card) has increased popularity among the younger population. The world of cryptocurrencies is functioning 24/7, and the market has been created to facilitate trading 24/7.

In terms of entry barriers, traders require a minimum balance of a few hundred dollars in their account to be an FX participant. The high requirements on margin funds and the extreme volatility in FX trading effectively exclude smaller participants, and they are advised to conduct trading in stocks or other markets with fewer barriers. The securities exchanges are heavily regulated with respect to margin lending, with local regulators allowing participants to use debt (leverage) up to a factor of four. Moreover, most securities exchanges also require that participants have an account with an authorized trader, and most of these traders act as brokers or dealers, executing the trades on behalf of the participant.

One key difference between trading forex and cryptocurrencies pertains to accessibility. The FX market operates 24/5 (or 24/6), while cryptocurrency markets operate 24/7. Here, it is

important to note that the forex market is not tradable during weekends but is open for trading from Sunday 17:00 EST (New York time) till Friday 17:00 EST. However, this feature (24/7) is not available for the equity/commodity market. Thus, the equivalence of the crypto market and the forex market is relevant only to the time component.

5. Conclusion and Future Trends

Future trends revolving around cryptocurrency trading are expected to receive further attention in the financial world. The sector is expected to welcome new investment tools meant to reach out to clients, affecting a bigger interest in them. New investors are expected to create fund vehicles where they can come up with funds to invest in cryptos. Analysts also project future trading in cryptocurrencies to be better, involving lower transaction charges and creating more familiar exchanges. Type 2 exchanges are expected to play a bigger role in the rise. Forex traders are in high demand for adding crypto-money to their platforms this year, especially those forex brokers who offer trading in crypto coins, as they also help in weakening their business dependence on margin forex trading. More brokers are expected to establish a new offering of leveraging strategies and options as the market shortens. Trading in futures is expected to keep growing as more HFAs enter this market with a better environment that provides rising digital security prices.

In the conclusion, it is stressed that while there are some similarities between forex trading and cryptocurrency, they actually differ in many ways. These are in terms of developments, use, history, and volatility, among others. It was also noted that relied-on technical analysis tools such as trend lines might have no meaning in trading cryptocurrencies as they do for forex. In the case of hedging techniques, little is available for those who are concerned about predicting or controlling the downside. These make forex and cryptocurrencies different trading instruments that need special research when entering. It was also pointed out that forex is highly integrated, while cryptocurrencies are not.