The forex and crypto markets are two popular financial markets with a combined market capitalization worth over US$ 7 trillion. Cryptocurrency trading only became popular over the last decade but has grown in leaps, led by Bitcoin, the first and most valuable cryptocurrency today.
Investors have the flexibility to invest in either or both forex and crypto markets and can leverage their advantages to build their investment portfolios. Several factors are essential when considering the market, but investors typically look at each market's opportunities.
How forex impacts the financial sector
The financial landscape has witnessed remarkable transformations over the last decades, with technology spearheading the change. Although Bitcoin gained significant attention and value, the sheer number and volumes involved in trading forex indicate how the forex market has quietly shaped global finance.
Here is how forex is surpassing Bitcoin and playing a pivotal role in shaping the financial landscape globally.
Forex: the most significant financial market
The forex market is today's largest financial market; traders move over $6 trillion each trading day. Forex traders come from every continent and have more market activity than the stock or crypto markets.
This is an important factor that attracts various classes of investors and leads to the development of technological solutions that advance the financial sector. The reach and capacity of the forex market also allow the smooth flow of international trade where currencies must be exchanged.
Forex plays a crucial role in every country's stability and growth, so central banks have forex-friendly policies to protect their countries.
Regulatory framework and consumer protection
Decentralization is an essential attraction for Bitcoin and cryptocurrencies, but it raises the question of regulation and protection for investors. The financial landscape is built on trust and regulatory frameworks guiding the operation of financial institutions.
The forex market, on the other hand, is well-regulated internationally by central banks and government authorities. For example, securities and exchange commissions or monetary authorities set anti-money laundering requirements for brokers.
They also stipulate conditions that brokers and traders must meet before getting operational licenses. This is necessary to prevent the manipulation of market data and prices of currencies for ulterior motives.
Volatility and stability
Investors leverage volatility to make profits but also understand that negative volatility could impact their portfolios. This is also crucial to the stability of financial systems and institutions that thrive on the value of currencies.
Bitcoin and other cryptocurrencies are intrinsically volatile and far less stable than goat currencies. For example, Bitcoin fell more than 56% from its all-time high price in 2022.
But forex currencies limit the impact of volatility by providing traders with a range of pairs for diversifying their trades. This strategy is also used to hedge funds during inflation and stabilize the market.
Structures and market participants
Unlike Bitcoin, the forex market is well-established following decades of building and development. The evolution of forex trading over decades places forex above crypto in terms of stability and market participants.
Today, institutional traders such as banks, hedge funds, and investment brokers provide deep market liquidity and stability in forex trading. Various trading strategies and investments promote a diverse ecosystem where every trader can function.
The infrastructure of the forex market also makes it easy to regulate and develop solutions to emerging challenges that traders face.
Integration with the global economy
Forex is a critical component of international trade and commerce, playing an essential role in shaping the global economy. Forex facilitates cross-border and international payments, currency exchange, and import-export.
Forex trading also influences the strength of currencies and their exchange rates which are crucial to the competitiveness of countries in the global financial landscape.
Central banks carefully plan and deploy monetary policies to influence the exchange rate, the price of goods and services, and the economic strength of countries. Even political stability in any country is an indirect function of financial stability.
Liquidity and accessibility
Forex's unparalleled liquidity is one of its main advantages over Bitcoin. Because of its massive trading volume, forex enables traders to open and close trading positions quickly without the risk of market manipulation.
Additionally, the market's accessibility is unmatched, with a wide variety of online platforms and brokers enabling retail investors to engage in forex trading with just a little capital.
Trading currencies on the largest financial market has been made more accessible, enabling people and small investors to participate. The deployment of modern technologies also improves access to the forex market.
Although cryptocurrencies are projected to bring decentralized finance globally, the forex market is shaping global access to financial investments locally and internationally.
The future of forex trading
The daily volume of forex is expected to hit $8 trillion within ten years, but several factors will impact how traders participate in the market. One of those factors is the innovative central bank digital currencies (CBDCs).
CBDCs are digital versions of fiat currencies issued and regulated by central banks. Although they are built using blockchain technology, CBDCs remain centralized under the authority of the issuing countries.
While the value of CBDCs will reflect the fiat currencies, there are varied opinions on their impact on foreign trade and exchange rates globally.
Another critical factor is the design and deployment of AI technology for analyzing and trading forex. Will forex become more difficult for retail traders as institutional traders deploy AI?
Forex trading remains the most significant financial activity in the economic landscape today and shapes the policies and practices observed by traders. Although Bitcoin is revolutionizing finance, the forex market surpasses it in crucial qualities such as liquidity, stability, and infrastructure.
