Advantages and Disadvantages of Forex trading with Bitcoin

The Forex trading Market is known to be the largest, most liquid, and dynamic financial market globally. As if that all wasn’t enough in that market, bitcoin cryptocurrency has added various new dimensions to currency trading.

It’s no surprise that numerous Forex brokers have started to accept bitcoin for trading with currencies. On the other hand, some other brokers have begun trading with other currencies as well.

Suppose you wondered whether it’s a good idea to begin using hard-mined bitcoins in the Forex market. In that case, you must first find a trustworthy Forex broker, what the standard Forex trade includes, and the advantages and disadvantages of trading Forex with Bitcoin.

Standard Forex trade definition and explanation 

Before trading Forex with bitcoin, the first thing to have in mind is understanding how the Forex trade functions and what it all includes. This trade is an exchange of one currency for another at its current rate.

The main difference between forex traders and regular tourists is that tourists are exchanging money in their home currency for local spending, while Forex traders are trying to make money off the continual fluctuations in the currency’s actual value against another.

Forex trade using Bitcoin :

Here is one example of a Forex trade using bitcoin:

  1. Open a Forex trading account that accepts bitcoin-like LiteForex, eToro, AvaTrade, etc.
  2. Transfer 2 bitcoins from your own digital wallet to the digital wallet of a forex broker

Let’s assume that the current bitcoin to U.S. dollar rate is: 1 bitcoin = $7,500. So the deposit of 2 bitcoins is worth $15,000. If you want to take a position in British pounds, and the exchange rate is £0.5 = $1, you will get £7,500. 

After a while, let’s say that GBP/USD rate changes to 0.45 and that you square off your position to receive $1.666.65 in your trading account. That means that you have managed to make an 11.11% profit and that you are allowed to cash out.

And what if the bitcoin to U.S. dollar rate changes so that one bitcoin is equal to $8,500? In that case, when you are about to withdraw your money in bitcoin cryptocurrency, you will get 1.961 bitcoins which is equivalent to $16,666.65/$8,500. 

It is a hypothetical example that implies that a reasonable exercise of caution in trading is mandatory. Bitcoin is also one of the currencies that are highly volatile in comparison to most traditional currencies.

So, what are the advantages and, more importantly, the disadvantages of trading Forex with Bitcoin? Let’s start with the benefits.

Advantages of Forex trading with Bitcoin

Here are the excellent reasons why you should consider Forex trading with Bitcoin:

  1. Low trading costs: Brokerage costs are meager because many forex brokers want to attract new clients
  2. Suitable security: There is no need for credit card or bank account revelation for bitcoin transactions
  3. High leverage: Numerous brokers are offering power for bitcoin trades
  4. Low amount of deposit: With some brokerage firms, it is possible to start with $25
  5. Global boundaries don’t exist: It’s clear that bitcoin transactions have no international limitations. A trader in Australia can trade with someone from Bulgaria, for example.
  6. Decentralization of valuations: Bitcoins have nothing to do with central banks

Disadvantages of Forex trading with Bitcoin

  1. The risk of leverage is very high
  2. Exchange Rates are different: Bitcoin trades on multiple exchanges, and exchange rates may vary. That’s why traders must understand which bitcoin exchange rates the forex brokers will be using
  3. The rate risk of the U.S. Dollar – Many brokers sell their bitcoins instantly while receiving bitcoin deposits to hold the amount in USD
  4. The danger of Volatility – bitcoin prices have exhibited high Volatility
  5. Cryptocurrency is a different asset class altogether – they have their valuation mechanism
  6. The risk of hacking deposited bitcoins even from a broker’s digital wallet 

Conclusion:

Although bitcoin is very popular, there are still certain risks. Nevertheless, when it comes to forex trading, the main advantage of dealing in a decentralized currency is that it offers global transactions that exclude fees.

Alen Parker

Guest Blogger | SEO Outreach | SEO