1.Introduction to Forex and Cryptocurrency Trading

In essence, cryptocurrency trading is similar to forex or other forms of trading in that it requires possessing a currency and investing it in the hopes of earning more money. Traders will wait for the value of their currency to inflate and then attempt to resell it at a profit. The difference between traditional foreign exchange and cryptocurrency trading lies at the trade’s forefront. When one dollar is worth 1.2 euros in typical foreign exchange trading, an investor will convert one USD to 1.2 euros. However, when purchasing Ethereum, rather than paying in Euros or USD to attain it, investors can swap either BEP-20, ERC-20, TRC-20, or other cryptocurrencies in a cryptographic exchange for Ethereum, in which its value will be added up. Whereas trading in cryptocurrencies is almost like purchasing an asset or a commodity, this conveys trading in foreign exchange to be further like buying a foreign national intended to price commodities.

Forex trading, also known as foreign exchange, FX, or currency trading, is a decentralized global market. It’s the world’s single most liquid financial market, significantly bigger than the stock market. In this enormous marketplace, individuals, companies, banks, and nations all participate. Forex investors trade a currency pair, such as USD/EUR, which involves purchasing one currency and selling another. By keeping up with international news, making market predictions, and by doing more comprehensive market research, traders can anticipate what is likely to happen in the world currency markets.

2.Market Structure and Participants

2.2 Market Structure and Participants for the Cryptocurrency Market

The Cryptocurrency market is another part of the digital financial markets; however, in distinct connotation to Forex, it deals in virtual or digital currencies. The novel financial market has entered with the advent of the 21st century. Virtual currencies typically use a technology called blockchain and focus on cryptographic techniques. The arrival of Bitcoin during development in 2009 gave birth to the first virtual currency. Since then, the market has continued to expand, and as of now, around 4,000 cryptocurrencies are in active trading. Some other forms of virtual tokens include stablecoins, utility tokens and security tokens. Based on the operating mechanism, the cryptocurrencies can function through Proof of Work (PoW), Proof of Stake (PoS) or as a governance system called as Delegated Proof of Stake (DPoS). A majority of cryptocurrencies work through PoW consensus algorithm, where miners are given a mathematical problem and, if solved, earn blockchain network fees, typically transacted in cryptocurrencies. Most of the platforms, whether transactional or crypto exchanges acting as buyers/sellers or a combination of both, render similar trading opportunities. Unlike cryptocurrency, fiat digital currencies are supported and issued by the respective governments. Major fiat currencies used to trade in forex are US Dollar, Euro, Japanese Yen, Swiss Franc and Australian Dollar.

• Market Structure and Participants

2.1 Market Structure and Participants for the Forex Market

The Foreign Exchange Market (Forex), a global exchange for trading currencies against one another, offers a range of financial products for trading. The simplicity of entering or exiting trades and low entry costs attract individual investors, retail as well as institutional, into the market. The Forex market is a decentralized market, functioning electronically across the globe, and is open five and a half days a week. Because of the absence of a central trading floor, foreign exchange brokers act as intermediaries to facilitate exchange of currencies. Forex Market Participants: The forex market functions as an over-the-counter (OTC) market, where trading is done over-the-counter and not in a centralized exchange. The Forex interbank market, composed of a network of banks, works as a trading ground for large-volume trading, though they extend their services to other market participants as well. Commercial and investment banks are the largest Forex market participants, acting as market makers as well as market takers. Moreover, central banks also partake in trading for a variety of transactional and speculative purposes. Brokers are market intermediaries that offer to buy or sell underlying assets and often make a profit from the difference in bid and ask prices, called the spread. Hedge funds, corporations, and individuals (future commission merchants, retail forex brokers, and money exchange houses) are non-bank participants in the forex market. They cater to asset management, private customer requirements and speculative purposes.

Table of Contents

• Market Structure and Participants
  • Market Structure and Participants for the Forex Market
  • Market Structure and Participants for the Cryptocurrency Market

2.1.   Forex Market

It is important to note that the Forex market participants are mainly held in national banks, commercial banks, and licensed international banks. The market participants also include corporate partners, private investors, and state and government debt management personnel. Brokers and dealers in the Forex market receive orders from participants. There are two types of prices that can be quoted in the Forex market. Market price refers to a rapid quote of the current bid and ask price for a particular security or currency. Bank rates, on the other hand, are older prices that are available to the same sector of other banks, dealers, agents, and other financial service providers. They are not visible to the trading public and are normally only disclosed to financial investors, such as banks and dealers of securities, who undertake transactions worth large volumes of buying and selling. In between the bank rates and the market prices is the brokerage house. The bid and ask quotes given by these entities are always the current market prices.

Market Participants

The Forex (Foreign Exchange) market, also known as the currency exchange market, is a global decentralized (over-the-counter) or inter-bank market for trading currencies. It has largely taken over from where the Gold Standard and Bretton Woods systems left off in 1973. The currency market is considered the largest financial market, with a daily turnover of over $6 trillion. Just like crypto, the main purpose of Forex trading is to exchange one form of currency for another, which is why Forex is often cited as a market for foreign exchange in cryptographic terms.

Forex Market

2.2.   Cryptocurrency Market

2.2.1 Characteristics of Cryptocurrency. The market structure of the cryptocurrency market requires a specific definition. It is performed through electronic communication networks (ECNs), and trading is done over the counter (OTC) via matching platforms/handles. For most accounts, cryptocurrencies need a digital wallet with a public and private key to buy, store, or trade. Typically, a transaction ID is granted once the trade is fulfilled. The microstructure setting in which sophisticated, technologically advanced traders mine new cryptocurrencies and extract price discovery from incumbent ones is characterized by four distinctive aspects in comparison with the traditional area. Amateur traders are generally low volume and Martingale style—you can then define novices as infected with finite lifetime, and the ones that remain in the market are the ones benefiting from trading operations. Prices are determined as a function of supply and demand. The demand for cryptocurrencies is related to risk and safe haven-related characteristics. Many “whales” are present on a number of cryptocurrency markets and determine part of those characteristics.

The cryptocurrency market first sprang into existence with Bitcoin taking the lead as the pioneering digital currency in 2009. Following Bitcoin’s inception, hundreds of other digital currencies have emerged, with the overall market growing into the several-trillion dollar range to date. Cryptocurrencies, like fiat currencies, can be used for a wide range of purposes and can be purchased or transacted using brokers, margin trading, social trading, etc. Similar to fiat currencies, the cryptocurrency industry, in general, has also adopted the concept of loan trading, exchange bonuses, and referral programs, among other trading perks, to attract new traders. So, in today’s digital currency landscape, a diverse user base of different experience levels and interests make up the cryptocurrency market.

3.    Regulation and Oversight

The “open-source” technology behind cryptocurrencies, such as Bitcoin, was designed to be run for free by a person to a person without any licensed intermediaries in between. Since its instantiation, cryptocurrency trading has matured from an “open-source” network to a global economic powerhouse. While many governing bodies around the world still maintain definitive opinions on cryptocurrencies, few have openly embraced their activities, trading, or otherwise. Regulators remain unclear on issues such as trade financing, fraud, income-tax evasion, and the investment cap on cryptos. “The investment world and the constructs of how these things work are carefully regulated and encapsulated. Trading in the euro (another name for Forex) virtually anywhere else in the civilized world is a regulated market, so people are there to make sure that participants are not doing unethical or less than above-board things with other people’s money.”

Institutional oversight and regulation are set in place to ensure that free markets function correctly. It is the role of the governing authority to ensure that all transactions are fair, safe, and do not involve any nefarious activities. Authorities are also present to protect against money laundering and protect small investors from the negative tricks of big investors. Trading in regulated markets offers greater protection and security for smaller and more money-averse investors. “Forex trading, as a major component of the global economy, features regulation from nations around the world. The trading of cryptocurrencies, however, is yet to be similarly codified. In summary, everybody who trades in the Forex markets is trading in a regulated environment. Trading in cryptos is an open market, and the rules are

different.”

4.    Liquidity and Volatility

When it comes to forex or cryptocurrency trading, another factor to bear in mind is the market’s level of volatility and fluidity. Trade volume in forex is always high, and liquidity is always available, as in cryptocurrency, since traders are in constant movement. In a highly liquid forex market, buyers and sellers can go in and out of the currency up to 1000 times by using the same forex brokers. For cryptocurrencies, there is not much evidence of high trading volumes. In any trading day, eBehavior exchange does not transfer more than 90,000 BTC, which equals about $250 million. In fact, a very limited amount of money is involved. Picking an appropriate time to swap is thus relatively simpler.

While forex involves trading currency pairs with some level of certainty, cryptocurrencies of all kinds fluctuate wildly. Trading in forex gives a trader steady movements, while trading the latter can be unpredictable. In the middle of a trend, crypto can switch and head the other way and experience substantial volatility. In addition, the behavior of a particular currency is influenced by various factors and the economics of the two dealing states concerned. In that regard, the market often behaves like a bear or a bull. However, it is highly unlikely for some peripheral activities to adhere to any economic or monetary considerations. An unforeseeable and wild frenzy can be found in the crypto market. They often fail, leaving traders with losses, or behave like pump-and-dump activity.

5.    Trading Hours and Accessibility

Cryptocurrencies are, for the majority of use cases, unbacked fiat currencies with no intrinsic value. The forex market is most fundamentally driven by beliefs held by people on when the currency will be accepted in everyday use, with economic variations being the main concept of liquid coin reducing friction.

Market prices are likely to be surrounded by negative sentiment early this week. The El Salvador President said there will be risks tied to the adoption of bitcoin in the country. Hypothetically, we will be getting news pumps in this space, which can drop the price and cause a fall.

The forex market is also one of the biggest and most liquid markets in the world, which means it is not advisable to pump and dump a market that is already deep and characteristic. The stock market has its driving force of fear and greed affected by technical analysis, whereas the forex market is fundamentally driven by economic data releases, with the big players running “stop loss” orders causing news and technical factors to be the reason it moves. Forex is also mainly driven by many outside influences, such as the government.

Forex trading hours are around the world between Monday 00:00 and Friday 22:00 server time. For cryptocurrencies, trading is open 24 hours per day, 7 days a week, on many platforms and marketplaces. Buying is available outside of trading hours via electronic communication network (ECN) brokers and through a new type of broker referred to as

“cryptocurrency brokers.” One of the more popular of these brokers is Silk Road Bitcoins.

Trading Hours and Accessibility

Forex and cryptocurrencies are, of course, massively different markets. We have picked out five key differences between the two, focusing on the quality of trading, the mindset of the traders, surveillance, analysis, penalty enforcement, security and market risks, and the operational hours of the market.