As you may already know, Foreign exchange is by far and away the largest, most liquid market in the world running relentlessly around the globe 24/7. And while actual currency that is validated by governments and banks is at the forefront of this market, it is worth that other far more understated element of the forex trade: cryptocurrencies.
Bitcoin and Forex: What are the Benefits?
Their arrival on the market is quite recent. However, they managed to expand exponentially in terms of value and appeal for traders. And now, we even have forex brokers that will readily accept these currencies for trading. The specific currency we want to focus on here is bitcoin and the specific risks and benefits it poses to current and would-be forex traders.
Bitcoin in Forex Trading
Now we already know how real money is traded in the forex market but what about bitcoin? Being a virtual currency that is intangible and invalid within a bank or government, bitcoin represents a whole other ball game when it comes to forex trading. Here is what a typical bitcoin transaction would look like:
The first step is opening a forex account with a broker that deals in bitcoins. Assuming that is true, let us say you make a deposit of 2 bitcoins from your digital wallet and post the value for one bitcoin at $500 which is entirely realistic here. So your deposit is worth $1000 now.
Now assuming you want to take up a position in English pounds and the exchange rate is 2 dollars for each pound. That will yield 500 pounds. Now assuming rate for GBP/USD changes to 0.45 and you quote your position as $1,111.11. That equals a profit of 11.11%. But it is quite probable that the prevailing dollar rate for bitcoin will have changed in that time.
Let us assume $560 to 1 bitcoin. So now when you make a withdrawal in bitcoins the value of your position – which is $1,111.11 – divided by the current going rate for a bitcoin – which is $560. That means you will now be getting 1.984 bitcoins.
What Are The Benefits To Using Bitcoin?
- Decentralized valuations: There is no central bank here that implements random valuations on bitcoins. Being decentralized allow bitcoins complete immunity to any geopolitical or macroeconomic factors.
- Leverage: On average, the rate of leverage offered by forex brokers on bitcoin trades can be as high as 1:1000. And this can be an enormous asset to the more experienced players. But in any case, one must pay due caution to the projected losses that could be inflicted with a poor decision.
- No cost for transactions: Again, no banks or clearing institutions involved here since every bitcoin transaction is recorded on a public network and none of it is on paper. As a result, transaction costs normally do not apply to bitcoin even if that transaction is international. And with brokers not imposing a liable fee on bitcoin transactions, profits are that made that much sweeter.
- Slim deposits are enough: With some brokers that include bitcoin, you can begin with as little as $25. It goes without saying this is only trustworthy with a broker that is highly reputed and regulated by the law.
- Safety: Yet another benefit of not having a bank involved is you no longer have to produce your credit card or expose your bank account to make your transactions. And that is a big plus particularly if you are trading with foreign brokers since you get more privacy and incur far less of a cost.
- Trading at a low cost: With more and more bitcoin traders being added as clients, forex brokers incur increasingly lower costs on their operations.
- Limitless possibilities: Bitcoin dissolves the whole currency concept where each country runs on a certain value currency. Bitcoin does not submit to these boundaries. It is as applicable to a trader in the United States as it is to one in Hong Kong. Wherever traders are so long as they are willing, they can trade with no geographical concerns.
Such is the nature of bitcoin and forex and the benefits are very appealing to a lot of traders.