Liquidity is how active a market is in a given time. It is determined based on how many traders are trading actively at a given time, and the total amount they are trading altogether. The reason why forex is the most liquid market is that the market stays open for 24 hours a day for five days straight.
Cryptocurrencies have become popular in the past decade due to the success of bitcoin. There has been a rise in the prices of cryptocurrencies which no one readily expected. The bitcoin owners today might have made the best investments of their lives in 2009. Crypto trading is a new market for traders who seek quick profits. It is similar to the forex market in terms of its online trading platforms and no centralized authority. Even though both the markets function in a similar manner, there is a lot that differs between both.
Difference in liquidity
Comparing both in terms of liquidity, we can clearly say that forex is way more liquid than cryptocurrency or any other market. It has a much higher trading volume compared fro crypto market. While forex makes trillions daily on an average, the crypto market has hardly made it to billions on a daily basis. It means that more people are trading more assets on forex and you can enter and exit trades in forex almost immediately on currencies of your choice.
On the other hand, the liquidity of crypto is still considered doubtful as to the currencies like bitcoin are already very expensive to be bought by an average investor, and the small cryptocurrencies are still not trusted by many. You can liquidate Bitcoin and Ethereum coins in a fast transaction, but the availability of such cryptocurrencies is very low. In some cases, you may also require to accept a high free or an inferior price to complete a trade safely.
The trading pairs in both markets
In forex, there are 30 commonly traded pairs of currencies, but most traded pairs include the British Pound, the US and Canadian Dollars, Japanese Yen, Australian Dollar, etc. A professional trader may only trade with 5-6 pairs on a daily basis. With the availability of multiple pairs, more traders show interest in trying out investments with different currencies, which in the process makes forex more liquid.
Things are a little different in crypto trading. There are commonly 10-12 pairs along with the OTC market pairs which help in liquidating crypto trades. This helps in building more diversity and reduces competition in the market, which results in high profits for up to 70%.
The of the two markets
Volatility means the fluctuation of prices on a regular basis. High volatility makes is easy for traders to make profits, but it also increases the risks in the trade. On the contrary, stable assets are harder to change but can also be less risky.
Crypto has always been more volatile than forex every since it was first introduced and had been growing more compared to the eventual declines. The volatility of cryptocurrencies makes it profitable for traders, yet due to higher risks, one needs to be careful.