What Are The Benefits And Risks Of Trading Forex With Bitcoin – Part 1
Why is forex trading with Bitcoin coming up with so much hype? Get more insight on the trading procedure and the profits gathered
Bitcoin And Forex Market Today
As it is a fact that the forex market is the largest and most liquid market in the world, it runs 24 hours a day, 7 days a week all over the world. Even though it is not dynamic enough, Bitcoin and the allied cryptocurrencies add a fascinating new dimension to currency trading. Thereby in recent years there as many forex brokers have begun to accept bitcoins for currency trading along with some accepting a larger variety of other digital currencies as well. In such a case should you jump in and begin using the hard-mined bitcoins in the forex markets? Here we cover the risks and benefits of trading forex using Bitcoin.
A Standard Forex Trade
It’s helpful to understand how a standard forex trade works before you consider whether to trade forex using Bitcoin. A forex trade simply put facilitates the exchange of one currency for another. In this scenario imagine you are an American trader betting on the British Pound/ US dollar currency pair and while you deposit $100 with your forex broker, it is better to assume the rate of $1= £0.5, where you receive £50 for your $100. In case the GBP/USD rates change to 0.45.close the position to 50/0.45 = $111.11.This implies that you make an 11.11%profit over your initial $ 100 deposit.
For more forex trading done in a decentralized fashion through over-the-counter markets, the fact is that the forex market is decentralized and Bitcoin is considered to be a decentralized digital currency that does not mean that the two are equivalent .the key distinction to be noted here is that though forex exchanges might be done in a decentralized fashion, the currencies though are themselves still backed up by central banks around the world implying Bitcoin and most other cryptocurrencies do not have that support.
A Forex Trade Using Bitcoin
Moving on to an example of a forex trade using Bitcoin, the procedure is as follows. Firstly, you open a forex trading account with a broker accepting Bitcoin such as Ava Trade, 1 e Toro2, or LiteForex.3. Then you transfer 2 bitcoins from the digital wallet to the forex brokers’ digital wallet. While the next step is assuming the current Bitcoin to US dollar rate is 1 Bitcoin= $7,500, and the deposit of 2 bitcoins is equal to $15,000. Assuming that you want to take a position in British pounds, the exchange rate is £0.5 = $1, you receive £7,500. Later on the GBP/USD rate changes to 0.45 where you square off the position to get $ 1,666.65 in the trading account. Thereby now you have made a tidy 11.11% profit as you are ready to cash out. Suppose by this time the Bitcoin to US dollar rate has changed to 1bitocin= $8,500 as you withdraw the money in bitcoins you receive ($16,666.65/$8,500) = 1.961 bitcoins.
This comes even though your bet on British pounds has earned you an 11.11% profit (which is from $15,000 to $16,666.65) the fluctuation in the Bitcoin to US dollar rate means that you still sustain a loss of 0.039 Bitcoin or around 2.0%. The initial deposit of 2 bitcoins- 1.961 bitcoins=.039 Bitcoin. Whereas had the Bitcoin to US dollar exchange rate changed to 1bitoicn = $ 7,000 it will be realized a profit from both the forex trade and the Bitcoin exchange. Whereas in other words, you would’ve received ($16,666.65/$7,000) = 2.381 bitcoins, which is a profit of 19.1%.
This is where the hypothetical example illustrates one of the major reasons to exercise caution as also considering utilizing digital currencies for forex trading. The most popular as well as widely used cryptocurrency, bitcoins remains highly volatile relative to the most fiat money.in such a case this unpredictability means that the risks associated with trading forex that is using Bitcoin are surely that much greater.
The Concluding Thoughts From The Experts
While Bitcoin trading has been in the good books of investors and developers alike, there is much more to be seen as the result of investing in Bitcoin rather than forex trading. The discussion continues that it reveals the major down points as well as advantages related to the Bitcoin trading. While Bitcoin mining is closely scrutinized, the decentralized technology helps them achieve a higher amount of security making it a solid investment portfolio. So read on the next part of this discussion and get more ideas about why Bitcoin trading is hailed as the investment method of the new era. Is it refined to only the tech-savvy or is it available to all around the world?