Foreign Exchange (Forex) is a market where foreign currencies are traded against each other and include binary options as well as standard buy/sell transactions. 2018 brings with it a new development, the inclusion of cryptocurrencies such as Bitcoin, which are traditionally traded in cryptocurrency exchanges (CCEX).
Forex is a living exchange, it operates 24/7 and is a managed by algorithms and bots. This means that the direct human interface no longer handles most of the deals, rather, they are managed by bots that automate the trading process based on preset risk restrictions.
Here is an example of a standard Forex trade
There are three elements to any Forex transaction, the buy, the sell and the commission. The buy rate is the exchange rate that a speculator is willing to pay for a currency that is set against another currency. The sell rate is the rate the speculator sells the currency. The commission is the added percentage that the Forex takes from the deal, which is usually set at a difference in trading price. For instance, if the current exchange rate of the USD versus the GBP (British Pound) is 1:0.75, it means you can buy 75GBP for 100USD. However, the commission will up the buy-in rate to 0.76, taking .01 per pound bought. (Not actual figures, just representation of the model). This means that if you intend to sell the investment at 1:0.77 you will only make 0.01 profit.
A bitcoin Forex transaction
Using cryptocurrency (CC) is different from the legal tender. CC requires you own a wallet. Wallets are cc accounts that have a special address unique to the wallet and is used to identify it for deposits and withdrawals. Next, you need to open an account in a Forex that accepts CC such as bitcoin so that you can begin your forex bitcoin trading. For a list of up to date Forex that accepts bitcoin (BTC), go to “Scalping Forex Brokers.” The trade is very similar to standard Forex. However, the translation of bitcoin to other currencies is different. You will not be trading in bitcoin since it is not a regulated currency, you will be using it as an asset or commodity that has a market value, this value will determine how much of legal tender you can use to make your bids. For instance, if the USD to BTC rate is 15,000:1 and the USD: GBP is 1:0.75, and you deposit two whole BTC into the account, you will have 30,000USD to speculate with. However, the exchange rate for BTC fluctuates every second, even more so than Forex. So, every time you use the value of the asset to make a trade, you must factor in the current BTC exchange rate too. If the BTC goes up against the USD, then your profit you make in any deal you make will be less since you are cashing out in BTC and not USD.
Let’s put aside the risks of using BTC as an asset for forex bitcoin trading. Here are some of the advantages and risks of using BTC as an asset in Forex accounts.
Advantages of Forex Bitcoin Trading
- Decentralized valuation of BTC and any other CC is based on market demand, not geopolitical forces. The BTC is not regulated by central banks or political and economic upheavals of countries, it is traded by individuals over a public network (blockchain based) and gets its value from supply and demand factors. This is true for all CC’s but there are many variants in the CC world, and not all coins are true cryptocurrencies.
- Forex provides a high leverage rate that can range up to 1:1000 for a BTC trade. While this will appear attractive to many speculators, the higher the margin, the riskier the deal and only seasoned traders, preferably with an excellent bot should consider those levels.
- Bitcoin transactions have no costs, all records of bitcoins are digital and on the public blockchain network. This means that there are no trade fees for BTC transactions and this improves profitability.
Most Forex will allow low deposit amounts for bitcoin, forex bitcoin trading can be as low as $25, and some exchanges offer matching deposit amounts as an incentive. However, when something looks too good to be true, check out the viability and integrity of the exchange.
- Anonymity is a great benefit with BTC trading since there is no bank account, only a wallet with an encrypted code, traders seeking forex bitcoin trading can do so anonymously.
- The cost of trading when basing the assets on BTC are usually love since exchange brokers are trying to attract traders and their main weapon is low brokerage fees.
- Globalization, since forex bitcoin trading has no boundaries, traders can be based on one century and use Forex in another. In many cases, both the trader and the broker are willing to forgo regulatory issues, which is still a concern for law agencies, but still legal.
Risks of Forex Bitcoin Trading
- All CC’s including BTC are traded on various exchanges since there is no centralized regulator board, the prices between exchanges can vary. Also, the process that exchanges use for buying and sell can vary based on their trading fees. This means that traders have to understand the market value. With BTC, where the exchange rate is not 16,000 USD: 1 BTC, every .0001 of a BTC makes a great difference in USD value.
- Apart from the difference in CCEX rates, Bitcoin and all CC’s are highly volatile, they can fluctuate in large percentages, and this leads brokers to use the difference in exchange rates for buy and sell. This translates into extremes. For instance, if BTC intraday rate fluctuates between 15,820 USD and 16,127USD, the unscrupulous broker will buy the BTC at the low rate and then sell it back at the high rate, taking the difference as pure profit. Since the CC’s are no regulated, there is no one to complain to.
Currently, all Forex brokers exchange the BTC to USD immediately. This means that the trader is constantly influenced by the USD:BTC exchange rate.
- Hacking can also be a risk. While bitcoins sit in wallets on blockchain platforms, Forex doesn’t, and once you transfer the BTC to a Forex site, you are opening yourself to hack attack, which is much more common than an attack on a blockchain or CCEX.
Trading in cryptocurrencies on CCEX is one operation when applying BTC as an asset for forex bitcoin trading you are opening yourself up to a lot more hassle and require different tools to monitor every aspect of the trade. When applying forex bitcoin trading, you are adding a third element to a two-element status quo, which can lead to an explosion, as any student of chemistry will tell you.