By
Mayowa Adebajo
September 8th, 2023
Forex is the largest financial market in the world. It offers liquidity and flexibility for traders, since it’s open 24/7 worldwide.
Currency pairs change in value against each other. Using this foreign exchange, traders bet on whether one currency will rise or fall relative to its counterpart. The volatility of the market creates great opportunities, but also throws in some risks. Lately, another currency market has been on the rise too.
Bitcoin and other cryptocurrencies are in the news daily. People have become more and more used to the idea of a future dominated by digital money. The fact that billions are being pumped into cryptocurrencies, they’re free of the restraints of individual countries and they operate round the clock is sparking traders’ interest. This market is even more wildly volatile than forex. Millions are being made and lost over short periods.
Traders looking for the best of both worlds are in luck. Some forex platforms have now started to accept bitcoin for their currency trading. Let’s dive into how bitcoin and forex are colliding, and some of the pros and cons.
The Pros of Trading Forex with Bitcoin
Forex trading companies want to enable as many new people to enter the market as possible. They know there are billions of dollars floating around the crypto market. What this means for traders is that lots of platforms are charging low deposits and fees. Some are running promotional offers to tempt bitcoin traders in.
International freedom is another benefit of trading forex with bitcoin. Because bitcoin is free from geographic boundaries, customers from anywhere in the world are able to use brokers in different countries. Traders are free to choose the broker that most appeals to them.
Bitcoin wallets are also completely anonymous. This means traders never have to give their forex broker bank or credit card details. Security is greatly improved. Even traders using international brokers are protected. If a platform gets hacked, there is no bank information for hackers to steal.
Finally, this system relies on decentralised valuations. Bitcoin is deflationary. It has no central bank, so it’s protected from unpredictable changes. No one government, company or organization controls it. Its value comes from a number of factors, one of which is scarcity. Country-specific inflation, for example, does not influence it.
The Downsides of Using Bitcoin in Forex Trades
Decentralisation has two sides to it. The other side of the story is that cryptocurrencies can very quickly rally or crash. Prices may change rapidly from one day to the next, or in some cases within hours. Bitcoin’s volatility means that while it’s very easy to make money, it’s also very easy to lose it.
Bitcoin exchange rates vary between exchanges too, providing another drawback. It’s always worth knowing which rate a broker will be using.
Many countries don’t currently have a specified tax system in place for bitcoin. All traders should keep records of trades they carry out. At least half of any profits should be kept in a separate account for tax purposes. Until these regulations have been established by governments, they add an unknown element.
Almost all brokers sell bitcoin immediately and keep the amount in U.S. Dollars. So, when a trader gives a broker bitcoin, their holdings become determined by the bitcoin to US Dollar rate.
There are both advantages and disadvantages to using bitcoin for currency trades. One thing’s for certain: cryptocurrencies will be shaking up a lot of industries in 2018.