Comparing Trading Opportunities: Forex vs. Crypto for US-Based Investors

Traders have been able to make profits in forex and crypto trading, which are two of the most popular trading markets globally. But US-based traders who wish to get into these markets have to deal with some unique challenges and regulations that make them inaccessible and less profitable. In this article, we will compare forex and crypto trading in the US and discuss things such as regulation, volatility, fees, accessibility, tax treatment, and other things to determine which market is more favorable to investors.

Regulation and Legal Status

Forex and crypto trading platforms operating in the US are a major consideration for US-based investors, especially when evaluating Forex brokers that accept US traders and comply with local regulatory standards. It is legal to trade in the US, and the Commodity Futures Trading Commission (CFTC) requires that brokers out of the country register, report, and have a minimum capital requirement. Most of the major forex brokers register with the CFTC and National Futures Association (NFA) properly.

On the other hand, the regulatory status of the product is still unclear. While states are deviating on crypto regulation, agencies like the SEC and CFTC have gotten more aggressive recently with their crypto regulation. Even if it’s not clear which states require a BitLicense, all New York cryptocurrency exchanges must have one. Forex is regulated more than crypto.

It allows US investors to operate on properly regulated forex platforms and protects them from problems such as fraud. Access to foreign crypto exchanges can also be limited by regulatory status – some foreign crypto exchanges do not allow US users because of unclear regulations. Forex brokers are far less likely to geo-block US traders.

Accessibility

In addition to regulatory barriers, US-based investors also have more practical accessibility hurdles when it comes to crypto trading platforms. Most popular offshore exchanges like Binance, KuCoin, and Gate.io don’t accept users from certain restricted jurisdictions such as the US. While VPNs are workarounds, they are against most platforms’ terms of service.

Forex trading platforms, on the other hand, generally remain open to US traders. Major brokers like Forex.com, IG, and OANDA accept clients from all US states except Arizona. The switching between brokers is usually seamless, especially for MetaTrader platforms.

The limited payment options for crypto trading pose another barrier for US investors. Because banks are reluctant to process crypto-related transactions, investors have to resort to P2P methods like Bisq or LocalBitcoins. Forex brokers readily accept all major US payment methods.

In general, forex trading is much more accessible for US citizens than crypto trading in terms of regulation, geo-blocking, and payments.

Trading Conditions

In addition to accessibility, US traders also consider a market’s trading conditions, such as costs, leverage, and asset diversity.

Forex trading has much lower fees and commissions than crypto. The costs are low because Forex brokers make money on the bid-ask spread rather than fees. The spreads from major currency pairs are 0.1 pip, and there are no commissions for the leading brokers.

Trading fees of cryptocurrency exchanges range from 0.1% to 0.25% per transaction. Fiat transactions also come with additional deposit/withdrawal fees. These can eat into profits substantially over a year compared to tax-free forex spreads.

High leverage is also offered in forex trading, usually 30:1 internationally and 50:1 for major US currency pairs. Forex traders can go long with larger positions through margin trading. In contrast, US crypto margin trading policies prohibit leverage currently.

Finally, forex has diversity in assets traded, from major and minor currencies to cryptocurrency and commodity CFDs. These only include digital assets and work as crypto exchanges. This variety is appropriate for different trading strategies and portfolios.

Overall, trading conditions favor forex in terms of lower fees and greater leverage for US citizens. However, both markets offer distinct assets and strategies.

Tax Implications

Tax obligations also differ between forex and crypto trading in the US due to their legal classification by the IRS.

The profits of forex trading are considered capital gains in the US tax code. Positions held over a year enjoy long-term tax rates of 0%, 15%, or 20%, depending on income level. Ordinary income rates up to 37% apply to short-term gains within a year. Most importantly, forex provides tax write-offs for losses against future profits.

Cryptocurrencies are treated as property by the IRS. Like real estate flipping, crypto trades of any length less than a year pay short-term capital gains taxes up to 37%. Gains from longer positions still enjoy the 0-20% brackets. However, crypto traders cannot write off capital losses against income. These limitations drive many US investors to forex.

Reporting obligations also differ – forex brokers issue 1099-B forms documenting gains/losses for tax filing. For crypto, traders must self-report transactions on 8949/Schedule D. Forex simplifies tax paperwork through broker reporting.

Overall, forex provides preferable tax conditions for US traders, including lower income tax rates and loss write-off benefits. However, crypto taxes may evolve with changing regulations.

Volatility and Profit Potential

Traders also consider a market’s natural profit potential beyond conditions and policy. Volatility—price change or movement—drives much of the core.

Extreme volatility is what we mean when we talk about crypto’s extreme volatility. Prices tend to fluctuate 5-10% per day and are up or down regularly. Traders make a profit from short-term moves due to these fluctuations. The reason for crypto volatility is immature markets, thin liquidity, and speculation, not actual utility.

However, crypto is riskier, as prices can rise as fast as they can fall and by a lot. In the crypto bear market from 2021 to 2022, the values of Bitcoin and Ethereum went down by 60 to 80 percent. Traders are exposed to high risks with high volatility.

To the contrary, forex volatility is not very high, with the daily swings of the major currency pairs being below 1% for the most part. However, big one-day moves only rarely exceed 2 – 3% unless it’s an interest rate change or an election. That said, forex trading allows for forex traders to execute longer-term strategies (days/weeks) and is not contingent on responding to minute chart information, as is required in crypto trading.

While reduced volatility limits profit potential per trade, forex markets provide reliable trends traders can exploit – EUR/USD may fluctuate in a 300-pip range for months. These slower moves let traders profit consistently without constant alarms.

Overall, crypto provides explosive but riskier short-term profit potential from volatility, while forex focuses on steadier gains over longer periods. US traders must align their volatility tolerance to their strategy.

Trading Times and Session Volatility

Trading sessions impact both markets, too – the 24/7 availability of crypto seems an advantage over forex’s limited trading week. However, trading times also influence volatility.

In forex, the London/New York overlap session sees peak volatility and trading volume – most trends emerge during these liquid hours. Traders can focus on just 3-4 hours of the day to observe moves. Other sessions, like Sydney and Tokyo, are slower but still useful for monitoring swings as markets open.

For cryptocurrency, trading follows more erratic sessions based on geography and trader activity. Volatility often spikes during peaks in regional usage, like late-night hours in the US or midday in Asian markets. However, major moves can occur at any time of day in crypto, weekends included. The irregularity makes crypto trading more time-intensive.

While US forex traders have limited trading hours, session volatility predictability benefits strategy. Crypto’s 24/7 nature has its advantages, though – automated bots can run without interruption.

Technology and Tools

The technology infrastructure around both markets also impacts the trading experience. Advanced trading platforms, analysis tools, automated bots, and order types facilitate strategy.

Currently, forex is the technology leader of crypto. The industry leaders are MetaTrader 4/5, which offer an incredible array of indicators, drawing tools, and order types to analyze and execute. There are enhanced versions of MT4/5 or proprietary platforms, such as TradingView, with the same capabilities offered by leading brokers. More possibilities to expand are offered in the form of integrations with algorithms, signals, and copy trading technology.

Moreover, crypto exchange platforms are rapidly developing, but some still follow forex in terms of features. Basic charting is in place, and tools use simple orders and indicators. Instead of focusing on exchanges, the most popular ones are focused on portfolio tracking and coin research features, which are more helpful for buy-and-hold investors than active traders. But platforms like PrimeXBT remove this barrier thanks to the inclusion of pro-grade trading tools in their segment.

For US traders today, forex broker platforms enable more advanced trading techniques through robust technology. But crypto is catching up in usability for active investors rather than just speculators.

Security and Protection

As financial trading carries risks, both markets provide protections around security, account access, and balance insurance.

Forex brokers implement strong identity verification, encryption, DDoS protection, and other measures to prevent fraud and hacking. Account access requires email/SMS confirmations by default, with options for 2FA. Additionally, NFA member brokers carry balance insurance up to $500,000 through the Securities Investor Protection Corporation (SIPC) to offset losses from bankruptcy or theft.

For cryptocurrency exchanges, security breaches and thefts have been more common given the nascence of the technology. Over $2.2 billion was lost to crypto hacks in 2024 alone. However, regulation is driving rapid improvement in security practices and infrastructure. Major exchanges now implement 2FA, cold wallet storage, DDoS filters, and other precautions as strictly as forex brokers. Some insure hot wallet balances up to 750 million. Account restoration is also improving if hacking does occur.

While crypto security had a poor reputation historically, leading US-regulated exchanges now match forex brokers in safety systems and balance protection for traders. Improving regulation continues to raise security standards across crypto trading.

Conclusion

The forex vs. crypto trading opportunities for US investors comparison is done based on a few factors, such as regulations, fees, tools, volatility, and other factors that affect the accessibility, conditions, risks, and profitability.

Forex is preferred by US-based investors trading part-time because of easier forex market access, tighter spreads, tax advantages, and proven forex trading technology. However, limitations like geo-blocking and light regulation still impede crypto adoption.

Contrary to this, cryptocurrencies allow exposure to a completely new asset class, driven by volatility with massive moves. But there are also restrictive trading conditions, higher fees, and security risks to be considered.

In the end, our US traders can take advantage of allocating a portion of a portfolio to both markets, depending on their own goals and preferences regarding regulations, costs, and their tolerance for volatility. We like blending fantasy (forex) and my fantasy (crypto) with risk and opportunity, diversifying against the market bounces on either side due to market cycles. However, continuing regulatory developments may shift the comparison further, but doing so strongly in forex and cryptocurrencies is a solid bet for 2023.