Is It Possible To Trade the Forex Market With Bitcoin?
Imagine if you can combine the most liquid market in the world with one of the hottest and upcoming currencies?
We are talking about forex and bitcoin.
Trade Forex Using Bitcoin with Top Forex Brokers
The forex market is the world’s biggest and most liquid market. Over $5 trillion worth of transactions happen daily on the forex market. It’s a truly global currency market that’s available 24 hours a day, five days a week, and accessible from anywhere in the world.
Cryptocurrencies such as bitcoin have brought a fascinating new dimension to currency trading. The best brokers accepting Bitcoin deposits have even started to embrace bitcoins for currency trading in recent years, with some even accepting several other digital currencies.
So, can you jump in and start trading forex with bitcoin? In this guide, we will reveal how exactly you can trade the forex market with BTC and the benefits of doing so.
What does a typical forex trade look like?
Before we dive in, it’s helpful to understand how a typical forex trade works before deciding on whether you should trade forex with bitcoin.
Forex trading is essentially the translation of one currency into another at the current exchange rate. Unlike holiday tourists who swap their home currency for local spending money, forex traders try to profit from the constant fluctuations in one currency’s real value against another.
An example of how a trade works with a currency pair
Imagine you are a trader betting that the EUR will lose value compared to the U.S. dollar. This is called trading on the EUR/USD currency pair.
Let’s say you deposit $100 with a forex broker. Assuming the rate of $1 = 0.85 euros, you will receive 85 euros for your $100. After five days, you decide to close your position, and the EUR/USD rate has changed to 0.90. As a result, you successfully make a 5.7% profit over your initial $100 deposit.
The majority of forex trading takes place on decentralized over-the-counter markets. However, just because the forex market is decentralized and bitcoin is also a decentralized digital currency does not mean the two are interchangeable.
The main difference is that while forex markets are decentralized, the central banks in different countries back the currency. It is the responsibility of those banks to maintain and maintain the value of their currencies.
That support is not available for Bitcoin or any other cryptocurrencies.
How can you trade Bitcoin on the forex market?
Ok, let’s get to the juicy part. So, can you trade cryptocurrencies on the forex market?
The short answer is yes, you can. However, there are major differences between trading crypto on forex platforms and trading the underlying asset on a crypto exchange that must be considered.
Firstly, cryptocurrency contracts for difference (CFD) are exchanged on most forex/CFD platforms. In other words, the trader is entering into a trade with the CFD provider on an underlying asset like bitcoin.
These derivatives are dependent on the price fluctuations of their underlying assets, but they do not include an exchange or ownership of the digital currency.
This ensures that no real coins are being traded, and there are no wallets or addresses to be concerned about. This also lowers the risk of hacking, which is a real challenge to even the most reputable crypto exchanges. CFD traders can concentrate on how to benefit from market fluctuations.
If you have a buy position and the cryptocurrency’s sell rate rises above its opening buy rate, you can profit from cryptocurrency trading on forex/CFD platforms; if you have a sell position, you can profit when the cryptocurrency’s buy rate falls below its opening sell rate.
Conversely, if the sell rate falls below the opening buy rate, buy positions will lose money, and sell positions will lose money if the buy rate increases above the opening sell price.
How is Bitcoin trading on the forex market different?
There are many key differences between trading cryptos on a forex platform and on a cryptocurrency exchange:
- In all of the trading transactions, no digital cryptos are traded.
- Getting a cryptocurrency wallet is not needed.
- You exchange crypto in compliance with the trading provider’s terms and conditions.
- Crypto trading is leveraged.
- Unlike most crypto exchanges, you can trade crypto-fiat pairs like BTC/USD, whereas most crypto exchanges only allow you to trade crypto-to-crypto pairs.
An example of forex trading with Bitcoin
To begin trading forex with bitcoin, you must first open a forex trading account with a bitcoin-accepting broker, like 4XC.
As an example, let’s say you were to send 0.75 bitcoin from your digital wallet to the digital wallet of your forex broker. Assuming that the value of 1 bitcoin is $52,000, your 0.25 bitcoin would give you around $13,000 worth of capital to trade with.
After you deposit, you decide you want to make a trade on the British pound. If the exchange rate is £0.73 = $1, then you’ll receive £9,490. The GBP/USD rate adjusts to 0.45 after some time, and you close your position to receive $1,666.65 in your trading account. You’ve made a nice profit of 11.11 percent and are about to cash out.
Assume, however, that the bitcoin to U.S. dollar exchange rate has improved during this period, and one bitcoin now equals $8,500. When you withdraw money in bitcoins, you get 1.961 bitcoins ($16,666.65/$8,500).
Despite the fact that your trade on British pounds paid off with an 11.11 percent profit (from $15,000 to $16,666.65), the fluctuation in the bitcoin to U.S. dollar rate means you lost 0.039 bitcoin or 2%. (An initial investment of 2 bitcoins equals 1.961 bitcoins, or.039 bitcoin.)
This hypothetical scenario highlights the importance of exercising caution when trading forex with cryptocurrencies. Even bitcoin, the most well-known and commonly used cryptocurrency, is highly volatile in comparison to most conventional currencies. The unpredictable nature of bitcoin means that the trader will take on a greater level of risk when trading forex using the digital currency.
Beyond the exchange rate fluctuations impacting profit and loss, there are other pros and cons to consider before trading forex with bitcoin.
- The fact that bitcoin is not tied to a central bank is a significant benefit when trading forex with it. Digital currencies are unaffected by geopolitical centralization and macroeconomic problems such as country-specific inflation and interest rates.
- For bitcoin transactions, many forex brokers have leverage. Experienced traders may take advantage of this. On the other hand, high margins should be viewed with caution because they magnify the risk of losses.
- Some bitcoin forex trading firms allow traders to start with as little as $25. A few forex trading companies have also offered bonuses such as deposit matching. Traders should ensure that the broker they are dealing with is legitimate and properly supervised.
- To attract new clients, most forex brokers that embrace cryptocurrency keep brokerage costs low.
- To make a bitcoin transaction, you do not need to disclose your bank account or credit card details. In terms of expense and financial stability, this is a major gain.
- Territorial boundaries do not constrain Bitcoin transactions. A South African trader can exchange forex with a broker based in the United Kingdom. Regulatory problems may persist, but there are no regional limits as both traders and brokers are able to transact.
- Bitcoin is traded on a number of different exchanges with different exchange rates. Traders must be aware of the bitcoin exchange rates that the forex broker would employ.
- As clients make bitcoin deposits, almost all brokers immediately sell the bitcoins and keep the funds in U.S. dollars. Even if a trader does not enter a forex trade right after depositing, they are still exposed to the risk of the bitcoin-to-US-dollar rate fluctuating from deposit to withdrawal.
- Bitcoin prices have been highly volatile in the past. Volatility can be used to the benefit of unregulated brokers and to the disadvantage of traders in the absence of regulations. Assume that the intraday bitcoin rate fluctuates between $5,000 and $5,300 per bitcoin. The unregulated broker may credit the trader $10,000 (2 bitcoins * $5,000 = $10,000) based on the lowest rates for an incoming deposit of 2 bitcoins. When the trader is ready to cash out, the broker will use the lowest exchange rate available. The trader receives 1.88679 bitcoins instead of the original two bitcoins ($10,000/$5,300 = 1.88679 bitcoins). The unregulated broker may be trading bitcoins for dollars at a rate of $5,150 and pocketing the difference at the expense of the customer.
- Also, from a broker’s digital wallet, bitcoins deposited are vulnerable to hacking. To mitigate this risk, search for a broker who is covered by theft insurance.
- Leverage can be dangerous for new traders who aren’t aware of the risks. This danger is not limited to cryptocurrency forex trading; it also occurs in conventional forex trading.
- Cryptocurrency is a distinct asset class with its own valuation approach. Trading forex with bitcoins effectively creates a new intermediate currency, which can have unintended consequences for benefit and loss. A trader’s money that isn’t locked up in his or her base currency is a risk.
Factors to consider when choosing a forex crypto broker
It’s important to bear in mind that not all forex brokers that offer cryptocurrency have the same quality of service.
You must select the best forex bitcoin broker based on their services and the advantages they offer to traders. When selecting a broker, keep the following considerations in mind:
- Many brokers limit the leverage offered on bitcoin trading due to the high volatility of the assets. If leverage is available, it can range from 2:1 to 2000:1. As a result, avoid using too much leverage, as substantial changes toward your position can result in permanent account loss.
- To tempt traders, several forex brokers promise no fees or commissions on bitcoin trading. Make sure you read their terms of service carefully to see if there are any hidden fees or rollover costs.
- Since there are many forex trading platforms to choose from, you can use downloadable platforms, online apps, or a combination of the two. Brokers have customized their bitcoin forex trading to cater to people’s needs. If you want a mobile app, look for a broker that provides one. If you prefer online platforms, look for a broker with an easy-to-use website.
- It is important that you register with a regulated bitcoin forex trading broker. This is to ensure that the funds are safe in the event of a financial emergency. It’s important to note that not every forex broker is monitored, and not every exchange is as well.
- Last but not least, since most traders invest heavily in the exchange, security is a top priority for them. As a result, the broker or platform you choose must be designed with cutting-edge technology that ensures protection against hackers and other malicious activities.
In the long run, bitcoin forex trading is a great way to get started in the future’s most exciting financial market. However, before doing anything else, you must educate yourself on all aspects, try to process all of the information, and analyze the entire trading methodology.
How indices brokers can help you trade forex with bitcoin
Indicesbrokers.com lists a few of the few brokers who provide trading accounts specifically for cryptocurrency traders. With these platforms, you can use your cryptocurrency to trade over 300+ assets at any time and from any place.
You can also rest assured knowing that your funds are safe with them. They’re regulated by the Financial Services Commission, offer negative balance protection, and provide excellent online support.