Forex Trading versus Crypto Trading in South Africa revealed. We have researched the similarities and differences between Forex Trading versus Crypto Trading. This is a comprehensive guide on Forex Trading vs Crypto Trading.
In this guide, you’ll learn:
- What are Forex and Crypto Trading?
- Overview of Forex Trading
- Overview of Crypto Trading
- Similarities between Forex and Crypto Trading in South Africa
- Differences between Forex Trading and Crypto Trading
- How do you know which one is right for you?
- How to choose the right financial market in which you should trade
- How to start trading in Financial Markets
- Best Crypto and Forex Brokers in South Africa
What are Forex and Crypto Trading?
Speculation in the price movements of cryptocurrency markets via the buying and selling of coins on an exchange is known as cryptocurrency trading. Trading in foreign exchange involves swapping one currency for another, also known just as Forex, or FX.
Overview of Forex Trading
The term “Forex” (short for “foreign exchange”) describes the process of exchanging one currency for another. Everyone from individuals to multinational corporations to whole nations trades on this market, making it the busiest of its kind.
Currency values are always fluctuating with others because of demand for or lack thereof. Learning the meanings of currency pairings is crucial before making your first deal.
On the foreign exchange market, currency pairs are constantly traded. Since there are two different currencies at play when exchanging USD for EUR, the exchange rate will always reflect the value of USD to EUR.
For instance, the Euro to Dollar (EUR/USD) exchange rate specifies the number of US Dollars (USD) required to purchase one Euro (EUR). There will be a market price for every currency pair traded. How much of the second currency must be exchanged for a single unit of the first currency is what is meant by the “price.”
If the Euro/Dollar exchange rate is 1.3635, then 1 US dollar will purchase 1.3635 euros right now. The term “spread” is used to describe the gap between the asking price and the purchase price.
Brokers will take a percentage of the spread as compensation for their services in facilitating transactions.
South African traders must note that tighter spreads can typically be expected between any two currencies if they are very liquid and stable. Higher spreads are to be expected between low-liquidity, highly volatile currency pairings.
Overview of Crypto Trading
One of the most lucrative areas in fintech is cryptocurrency trading. It is common for investments to be very speculative, thus familiarity with the trading instruments accessible to them might assist reduce losses.
Because of the proliferation of unregulated and dangerous firms, cryptocurrency exchanges were sometimes referred to as the “wild west” in the industry’s early days.
Since its inception in 2009 by pseudonymous developer Satoshi Nakamoto, Bitcoin (BTC) has had a restricted market for exchanging it for other currencies or physical commodities. Transactions were conducted between users of the Bitcoin community Bitcointalk on a P2P basis.
These deals were dangerous, but the value of Bitcoin was so low that it did not matter if you trusted a stranger.
Since then, more regulated, and more trustworthy exchanges have dominated the global crypto market by adhering to stringent Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter-Terrorism Financial (CTF) rules.
Today, cryptocurrency exchanges jointly process about $50 billion in daily deals, indicating that the industry is worth billions. To help its customers maximize earnings and minimize losses, bitcoin exchanges now provide a wide variety of trading tools.
There are a variety of order types available in cryptocurrency trading, all of which are intended to assist traders purchase and selling at the best possible moment and price while minimizing the risk of making expensive errors.
Ordinary retail traders in the crypto realm may now easily execute orders, keep track of their buying and selling activities with no third parties involved, and do so entirely automatically thanks to the rise of the internet and automated systems.
The days of trading being a sequence of steps that may take hours or even days to accomplish are over.
A trading pair’s order book is only a list of all current open purchase (bid) and sells (ask) orders for that pair. Those interested in buying or selling assets may participate in this “marketplace” by posting bids or asking prices.
An open order remains active in the order book until it is either canceled or a buyer or seller reaches an agreement on the terms of the transaction. In addition, South Africans must note that there will be separate order books for each cryptocurrency pair.
There is a wide range of order types available for traders to choose from when buying or selling cryptocurrencies, giving them control over many aspects of the deal, such as the price at which they buy or sell and the time at which they make the purchase or the sale.
Similarities between Forex and Crypto Trading in South Africa
Trading in foreign exchange and virtual currencies is founded on the speculative decisions of their respective investors.
Both long and short positions are available in both forms of trading. Thus, if your forecast is true, you will earn a return whether the asset’s price rises or falls.
You need a trading account and a high-tech computer connected to the internet before you can begin trading. If you know how to trade foreign currency, you will have no trouble grasping the fundamentals of cryptocurrency trading.
You could put all your efforts into trading since charts are easily accessible and orders are executed quickly. The supply and demand for cryptocurrencies are like that of the foreign exchange market.
When there are more buyers than sellers, the price rises, and vice versa when sellers have more of the market share. Therefore, you could trade cryptocurrencies using the same indicators and chart patterns with which you are already used.
Differences between Forex Trading and Crypto Trading
You are dealing with currencies whether you are trading on the Forex market or the Crypto market, with Cryptocurrencies being completely digital. In addition to this fundamental difference, there are several others that South Africans must know.
Market Hours
As opposed to the foreign exchange market, which is only open during business hours on weekdays, the cryptocurrency market is always active.
Risks Involved
As opposed to the low volatility and high leverage of the forex market, the high volatility and low leverage of the crypto market are a major difference. More volatility carries with it the possibility of a greater gain, but also far greater hazards.
Because the cryptocurrency market is both decentralized and young, it is very volatile. Currency pairings from more politically stable nations tend to be less volatile in the foreign exchange market.
Monetary Control
Bitcoin, the first cryptocurrency, began as an easily scalable worldwide retail transaction unregulated by any major institution. This makes bitcoin markets distinct from the more familiar foreign exchange markets.
Overall Liquidity
Currency exchange markets, according to their extensive history of trading, are more liquid than the cryptocurrency market.
Market Size
In terms of daily trading volume, the foreign exchange market is unrivaled. Since the cryptocurrency industry is so young, it is smaller, but it is expanding rapidly.
Instruments Available
When trading foreign exchange, most traders focus their attention on the major currency pairings, but there are other smaller and exotic pairs accessible.
Certain investors like dealing with exotic currency pairings, which consist of a major currency and the currency of a nation with an economy still in the process of growing, such as Mexico or South Africa.
At the time of writing, there are over 20,000 distinct cryptocurrencies available right now, and the number is only going to continue to rise.
Some of them, like Bitcoin and Ethereum, are frequently traded, while most cryptocurrencies are only known to crypto aficionados who are dedicated to the field.
Real Money and Digital Money
For those who seek the opportunity to earn a living through investments, the foreign exchange market might be the way to go. When trading on the cryptocurrency market, digital coins are used instead of receiving fiat currency.
How do you know which one is right for you?
You should be aware that trading in forex or cryptocurrencies has its own unique set of risks and opportunities.
Forex trading is safer, more regulated, and more stable than crypto trading, although the latter might provide higher potential rewards.
Both exchanges deal in electronic trading forms of money, thus in that respect, they are quite comparable. As previously said, all that is required to begin trading is a connection to the Internet and a computer device.
Traders would need to adopt distinct approaches to the forex and crypto markets due to the former’s greater liquidity and the latter’s greater volatility.
Each market is unique in terms of size, dynamics, and structure. It is like trying to compare apples to oranges, even if they have many similarities.
However, opportunities may be found wherever. Due to the meteoric rise of the cryptocurrency markets, many forex traders have shifted their focus there.
Your personal objectives, available resources, and risk tolerance should all be considered when you decide between forex and cryptocurrency trading.
How to choose the right financial market in which you should trade
The variety of trading instruments available around the globe has grown in recent years because of developments in both technology and trade.
Speculating on the underlying market price using derivative products or exchanging the actual asset via a broker are the two primary approaches to trading in the financial markets.
Derivative products are often used in the financial markets because they allow traders to speculate on market price movements without having to purchase the underlying asset.
Because of potential extra fees, such as stamp duty, associated with actual ownership of the asset, derivative products have become more popular. However, since traders never really own the underlying asset, they may be eligible for substantial tax savings in certain jurisdictions.
Even apparently distinct markets compete with one another for customers. Which markets are optimal for each given trader depends on several factors, including their trading style, available capital, geographical location, and desired trading hours.
Depending on one’s level of training and prior experience, one may not be fully aware of the range of investing and trading options available at their fingertips. Traders can discover opportunities in numerous markets, even if they shy away from those that are more theoretical or less liquid.
The basic tenets of this famous market, known as the “stock market,” are the purchase and sale of shares of a company’s stock.
- The ETF Market is a collection of funds tracking a wide range of underlying assets, including stocks, bonds, commodities, currencies, and indices. The funds may be purchased and sold quickly or kept for a long time like equities.
- Cryptocurrencies are a new player in the financial markets. The time frame is shorter than that of foreign exchange trading, but it does not make it any less difficult. Traders in the crypto market make predictions on the value of a currency pair, like those made in the foreign exchange market.
- The Foreign Exchange, or Forex, Market is where buyers and sellers of currencies come together. Exchange rates are quoted in pairs, with a wide variety of combinations accessible, but only a subset of these pairings are actively traded.
- The Options Market is a financial market in which buyers and sellers of derivatives of underlying assets may transact. Since the option does not represent ownership of the underlying asset, its value (together with other inputs) reflects changes in the underlying asset’s supply and demand.
- To trade in a derivative product based on an underlying asset in a market that combines elements of the stock, foreign exchange, and options markets is possible via a product known as a “contract for difference” (CFD).
Every market has its own set of benefits and drawbacks. Because of this, many traders may choose to focus on a single market, either because they have little understanding of the other markets or because they find it best matches a certain area of their lifestyle.
Subsequently, traders may not be capitalizing on the best market for their trading strategies.
Investing vs Trading
Making money in the financial markets may be done in several ways but investing and trading are two of the most common. Making this difference early on will help you pick the one that works best for you.
The key distinctions lie in the length of time a position is kept, how profit is generated, and the question of whether the investor acquires ownership of the asset.
Investing is done with the expectation of earning a return on the money spent over a lengthy period, often many years or even decades.
Traders, on the other hand, will establish speculative positions for a much shorter time to profit from even the smallest price fluctuations.
While individual positions may only gain a little sum, the compounding effect of opening new trades regularly may let investors amass substantial wealth very rapidly. Whereas some investors want profits of 15 percent per year, some traders may try to achieve this in as little as a month.
When compared to more conventional investors, traders benefit from the ability to trade in both directions.
How to start trading in Financial Markets
When you have settled on your trading method and the asset you want to trade, there are a few more things you need to do before opening a position.
Do Your Research First
To those unfamiliar with the financial markets, there may seem to be a great deal of language and procedures to learn. Therefore, it is crucial to study the market thoroughly before putting your money on the line.
It is not only that every market has its own unique set of opening hours and set rules; the factors that motivate various markets may also vary greatly.
For instance, firm earnings reports have a significant impact on the stock market, while political news and economic data releases have a greater impact on the foreign exchange market.
You should not be discouraged if you have questions; there are many excellent resources available to assist you in starting your trading journey quickly.
Draft a Solid Trading Plan
Consider your goals carefully before jumping into the financial markets. In other words, you should not set your sights too high in the hopes of being rich overnight.
For this reason, many traders draft a set of guidelines to guide their future actions. In it, you should detail the kind of trades you want to make, when you intend to make them, and how much cash you intend to allocate to each position.
Decide on your trading style and develop a strategy
Your trading strategy should always reflect your own goals and comfort level with risk. The frequency with which you trade, and the duration of your holding periods are both products of your trading strategy.
Although you will develop your own style, here are some widely-used guidelines:
- Scalping
- Day Trading
- Position Trading
- Swing Trading
Once you have settled on a trading style, you will need to develop an entry and exit plan. Standard methods include:
- Range Trading
- News Trading
- Reversal Trading
- Trend Trading, and more.
Perform in-depth fundamental and technical analysis of the market
In trading, you may rely on either fundamental or technical analysis or both.
Trading decisions based on fundamental research are often driven by news events, corporate reports, and macroeconomic indicators. If you choose the route of technical analysis, though, you will be looking at things like charts, data, and indicators.
Develop an effective Risk Management System
Developing a plan for mitigating potential losses is an important part of being ready to trade. Traders may reduce the likelihood of catastrophic losses by taking preventative action.
Limit-stop orders and stop-loss orders are two of the most important risk management techniques available to traders.
Stop-loss orders tell your broker to get out of a deal before a certain loss is incurred if the market price drops below that threshold. This implies that you could set your own tolerance for loss by determining the amount that will trigger the stop-loss order to cancel your position in the market.
To complete a deal at a better price than what was originally offered, you might place a limit-close order with your broker. That way, any gains may be secured.
Make sure that you practice trading before risking money
The thought of potentially losing money while trading on the financial markets is scary for anybody considering it for the first time. But there is no need to go headfirst into anything new and by using a demo account, you can get some trading experience without any of the inherent risks.
The Best Crypto and Forex Brokers in South Africa
In this article, we have listed the best brokers that offer both crypto and forex to South African traders. We have also pinpointed brokers who go beyond what is required to meet the needs of their clients.
Best MetaTrader 4 / MT4 Broker in South Africa
Overall, Axi is the best MT4 broker in South Africa. Axi offers its services to traders in more than 150 countries worldwide. Axi guarantees quick and reliable trade execution and a range of tradable markets via MetaTrader 4.
Best MetaTrader 5 / MT5 Broker in South Africa
Overall, GV Markets is the best MetaTrader 5 broker in South Africa. GV Markets is a well-regulated forex and CFD broker in South Africa that offers more than 80 forex pairs and a range of crypto pairs through MetaTrader 5.
Best Broker for beginners in South Africa
Overall, AvaTrade is the best broker for beginners in South Africa. AvaTrade is a leading Dealing Desk broker that caters to beginner South African traders. AvaTrade offers an impressive selection of educational tools and guides to all traders.
Best ECN Broker in South Africa
Overall, Pepperstone is the best ECN broker in South Africa. Pepperstone is a major broker offering competitive spreads from 0.1 pips on the EUR/USD currency pair through an ECN.
Crypto traders from South Africa can also use hedging and scalping tactics thanks to Pepperstone’s support for these methods.
Best Islamic / Swap-Free Broker in South Africa
Overall, HFM is the best Islamic / Swap-Free broker in South Africa. HFM is one of the most popular trading brokers in the country.
South African Muslim traders can register a live HFM account and convert it to a Swap-Free account quickly.
Best Trading App in South Africa
Overall, Trading 212 is the best trading app in South Africa. When it comes to trading applications, Trading 212 is among the most popular (over 14 million on both iOS and Android).
Trading 212 is a rapid and low-cost option for buying and selling cryptocurrency CFDs.
Best ZAR Trading Account Broker in South Africa
Overall, Exness is the best ZAR Trading Account Broker in South Africa. Exness is a popular FSCA-regulated broker in South Africa.
Signing up as a South African means you may open an account in ZAR and avoid any additional costs associated with currency conversion.
Best Lowest Spread Broker in South Africa
Overall, Plus500 is the best lowest spread broker in South Africa. Plus500 is an established Market Maker that charges no commission costs and has low spreads. Plus500 also offers a wide range of forex CFDs that South Africans can trade in competitive markets.
Best NDD Broker in South Africa
Overall, FXCM is the best NDD broker in South Africa. Well-known NDD and STP broker FXCM offer 31 millisecond execution times. FXCM is a highly regulated broker by the FSCA and has won several accolades for its quality service.
Best STP Broker in South Africa
Overall, IG is the best STP broker in South Africa. IG is one of the best STP and ECN brokers with over 18,000 markets that can be traded.
IG also offers comprehensive trading guides and tools for beginners, along with sophisticated solutions for professionals.
Best Sign-up Bonus Broker in South Africa in South Africa
Overall, Tickmill is the best sign-up bonus broker in South Africa. For new traders from South Africa, Tickmill provides a $30 welcome incentive.
Through its MetaTrader platforms, Tickmill provides access to over 80 different trading products.
Conclusion
Trading forex or cryptocurrencies is a matter of preference. Knowing the similarities and differences between cryptocurrency trading and forex trading makes forex online trading much more approachable.
Trading in either, or both, cryptocurrency and FX trading may provide your portfolio with some much-needed diversity.
FAQ
Which is better, forex trading or crypto trading?
It will depend on your trading objectives and personal preference. Today, both forex and crypto markets provide high-risk-high-reward investing opportunities.
However, in contrast, crypto trading has certain obvious benefits that are typically accompanied by publicly visible trade volume, minimal barriers to entry, and widely accessible exchanges, among others.
Is Crypto more profitable than Forex?
For the same amount of capital, a crypto trader might expect a higher return from the cryptocurrency market than from the foreign exchange market. However, this is not without significant risk.
Is forex trading different from cryptocurrency?
Yes, there are several differences between these two financial markets including market hours, volatility, trading volume, and more.
Can you trade crypto through forex?
Yes, you can but there are large variations that apply to crypto trading when you use forex and CFD platforms.
Which is riskier, forex or cryptocurrency?
The cryptocurrency market is more volatile than the foreign exchange market, which makes it riskier than forex.
