How Does Trading Forex With Bitcoin Work?
Trading cryptocurrencies like bitcoin has added a whole new dimension to an already dynamic forex market. Forex brokers have only recently started accepting bitcoin for currency trading and some brokers have also started to add other cryptocurrencies as well. It is important to choose regulated FX brokers that accept bitcoin deposits and withdrawals.
Currency Trading in General
With forex trading being simply one currency exchanged for another, and bitcoin fast being recognised by some brokers as a currency in its own right, the expectation will be that trading bitcoin becomes a part of the norm. However, the risks associated with trading bitcoin are far greater than for standard currencies as bitcoin value fluctuates hugely. To share an example, between July 2019 and July 2020 the value of one bitcoin ranged from $5,532 up to far higher $11,982. This gives you a sense of the sheer fluctuation in just one year.
Trading Forex with Bitcoin
Bitcoin is either traded as part of a currency pair or the other option is to fund a trading account by depositing bitcoin. Bitcoin is not limited to one country, its economy or one bank and one of its primary benefits is anonymity which is not an option with a flat currency trade.
While it can be tempting to wade in and start trading forex with bitcoin, it is important to do plenty of research and to start small. The volatility of bitcoin can easily result in large losses so it is important to be familiar with strategies and to use a reliable broker.
Benefits of Trading Forex with Bitcoin
A trader can start with smaller amounts, sometimes as little as $25, with selected bitcoin forex trading platforms. Some firms have even gone as far as to offer to match the initial deposit amounts.
The trading costs can be lower as most forex trading brokers which accept trading with cryptocurrencies keep the fees low which, in turn, is attractive to new clients.
Bank account details are not required for transactions with bitcoin which is a big win for financial security and costs.
There are no boundaries too where bitcoin is traded. For example a trader in the US can trade forex through a South African broker. There are no geographical limits if both trader and broker are willing to carry out the transaction.
Risks of Trading Forex with Bitcoin
Trading on multiple exchanges can cause issues due to different exchange rates being used by different brokers. There is high volatility in bitcoin value and unregulated brokers could use this to their advantage and much to the disadvantage of the trader. Also, there is a security risk as bitcoins are prone to theft through hacking.
While cryptocurrency like bitcoin gains in popularity the risks in trading are still great. In forex trading, transactions offered with no fees are advantageous to brokers and traders but it is important to ensure dealings are made with a forex brokerage which is locally regulated.