Finance

Advantages and Risks Associated with Forex Trading Using Bitcoin

Forex is the largest liquid global market. It is open 24/7, so traders from different time zones can easily gain access. Bitcoin is another dimension that is gaining popularity in currency trading.

Currently, several Fx brokers have started accepting bitcoins and other types of crypto currencies. In regular Forex trade, there is an exchange of one country’s currency with another country’s at current rate. The investors are earning profits from consistent fluctuation of one currency’s real value against the other currency.

Forex market is decentralized and even crypto or digital currencies are decentralized. This does not mean both are same. The major difference between Forex and BitCoin trading is that the former has the support of global central banks that issue them. The banks are responsible to stabilize currencies value and maintain stability. Crypto currencies like Bitcoin and others don’t have such support.

Unpredictability is high…..so exercise caution in Fx trading with digital currencies.

At the end of July 2020, Bitcoin value saw a huge fluctuation ranging from $5,532 – $11.983. So, you can see how high the most popular Bitcoin’s volatility is than the traditional currencies. This unpredictability indicates that the risk associated with bitcoin trading with forex is higher. Price fluctuations can impact profit and loss, but you need to consider the advantages and risks before diving in trading Fx with bitcoin.

Advantages

Dencentralized valuations

As Bitcoin is not bank regulated, it is free from the geopolitical influence and macroeconomic problems.

High leverage

For bitcoin trades, many Fx brokers like ADSS offer leverage. Seasoned traders use leverage to earn more profits. These high margins have an inherent risk like magnifying the possibility of losses. High margins need a cautious approach!

Low deposit

Some bitcoin forex brokers allow traders to deposit as low as $25. Several brokerage platforms offer promotions like welcome bonus or matching deposit amount. Ensure to do your research on the online brokerage platform and check their legitimacy.

Low trading cost

Brokerage firm accepting digital currency or bitcoin keep their commission low to encourage new customers to get registered.

Security

Never share your credit card or bank details during bitcoin trading. It is a huge advantage associated with financial security.

Wide exposure

Bitcoin transactions can get conducted across the world. There are no global boundaries. However, there may be regulatory challenges, but if both brokers and traders are keen to progress with their transaction then there is no law that can stop them.

Risks

Different exchange rate

The traders need to get familiar with multiple bitcoin exchange rates as they differ from one Fx broker to another and one exchange to another.

US dollars price risk

Bitcoins get sold instantly and US dollars get held by the brokers. Even when the trader has not entered a position in commodity trading after depositing, he/she will be exposed to Bitcoin-to-US dollar price fluctuation risk ranging from deposit to withdrawal.

Volatility concerns

Due to non-regulation, the unregulated brokers can use volatility to their advantage, which can possibly be a disadvantage to the traders. For example, during withdrawal the scam broker can use low exchange rate and pocket the difference at your expense.

Inherent security risk of bitcoin

Hackers can hack deposited bitcoin from the digital wallet of the broker. Therefore, check the broker’s insurance coverage against theft.

Even with risk, bitcoin is gaining popularity because it is a compromise to add third currency to a trading pair.

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