What Are The Benefits And Risks Of Trading Forex With Bitcoin – Part 2
Below are the benefits and risks of trading forex with Bitcoin. Note the major points that help you trade safely.
What Are The Crucial Benefits Of Trading Forex With Bitcoin
There are other benefits and risks to consider before trading forex with Bitcoin beyond the exchange rate fluctuations impacting profit and loss.
The most important advantage of trading forex with Bitcoin is the fact that there is no central bank to randomly change Bitcoin valuations whereas due to its decentralized nature, the Bitcoin rates are free from central geopolitical influence as well from macroeconomic issues like country-specific inflation or interest rates.
For Bitcoin trades, many forex brokers offer leverage as experienced traders use this to their benefit however some of these high margins should also be approached with great caution as they also magnify the loss potential.
Low Deposit Amount:
While starting with as little as $25 with some Bitcoin forex trading firms having promotional offers while a few forex trading firms offer new members a matching deposit amount through prior special promotions. Thereby traders should take care to check that all brokers are appropriately regulated.
Low Cost of Trading:
For most of the forex brokers accepting cryptocurrency, keeping brokerage costs very low attracts new Bitcoin trading clients
Bitcoin transactions come without the need to reveal the bank account or credit card details to deposit or withdraw money, especially when dealing with foreign brokers as a huge advantage in terms of cost and financial security.
No Global Boundaries:
Having eliminated global boundaries, Bitcoin transactions use Bitcoin where a trader based in Africa trades forex through a broker based in the UK. Therefore regulatory challenges may remain a concern in case both traders and brokers are willing to transact then all the geographical boundaries are eliminated.
Risks of Trading Forex with Bitcoin
Different Exchange Rates:
This comes from the fact that as the Bitcoin trades on multiple exchanges as also the exchange rates vary traders must ensure they understand which bitcoin exchange rates the forex broker will be using commonly.
U.S. Dollar Rate Risk:
On receiving Bitcoin deposits from clients is where almost all brokers instantly sell the bitcoins as well as hold the amount in US dollars. In case the trader does not take a forex trade position immediately after the deposit, he or she is still exposed to the Bitcoin to US dollar rate risk from deposit to withdrawal.
The danger of Volatility:
Bitcoin prices historically have exhibited high volatility whereas the absence of regulations brings volatility to be used by unregulated brokers to their advantage and a trader’s disadvantage. As an example assuming the intraday Bitcoin rate fluctuates from $5,000 to $5,300 U.S. dollars per Bitcoin. Thereby for an incoming deposit of 2 bitcoins, the unregulated broker may apply the lowest rates to credit the trader $ 10,000 whereas once the trader is ready to make a withdrawal the broker may use the lowest exchange rate and instead of the original 2 bitcoins deposited, the trader only receives 1.88679 bitcoins ($10,000/$5,300 = 1.88679 bitcoins). The unregulated broker, in reality, maybe exchanging bitcoins and dollars at say $ 5,150 whereby pocketing the difference at the expense of the client.
Security Risks Inherent to Bitcoin:
While it is true that deposited bitcoins are prone to theft by hacking even from the broker’s digital wallet, to cut down on the risk, look for brokers who do have insurance protection against theft.
Risk of Leverage:
In the case of high leverage, it is risky for newbie traders who may not understand the exposure as the risk is not unique to cryptocurrency forex trading coming into play whereas in traditional forex transactions it helps by employing leverage as well.
Asset Class Mixing:
Being a different asset class altogether, cryptocurrency has its valuation mechanism. Essentially introducing a new intermediate currency, trading forex with bitcoins can impact profit and loss in unexpected ways with any money that is not locked down in a trader’s base currency is at risk.
The Bottom Line Underlining The Forex Trading Scenario
Gaining popularity cryptocurrencies like Bitcoin however, has many associated risks whereby forex trading deals in a decentralized currency offering global transactions with no fees is an advantage. Thereby the tradeoff is essentially adding a third currency to what was a trading pair. Therefore the traders who want to take on that risk should use only locally regulated forex brokerages. Make sure you have a trusted broker so that no hacking or stealing does harm to your cryptocurrencies. There is a lot of factors going into determining the strength of the digital wallet.