Bitcoin is a quite controversial currency, which offers lucrative investment opportunities along with high risks. What are the main benefits and risks associated with bitcoin use in Forex industry?
29 June, AtoZForex – The digital currency Bitcoin is becoming stronger and gaining more popularity since it was introduced in 2008 by Satoshi Nakomoto. The currency’s user-friendliness and encryption allow users to conduct their operations in private. The cryptocurrency is not regulated by any authorities and its value is rising through the years and gaining official recognition in some countries. Is Bitcoin becoming more popular in the Forex industry and what risks and opportunities await traders who use this currency?
Bitcoin use in Forex industry
The growing popularity of the cryptocurrency as an alternative investment opportunity has drawn the attention of Forex brokers who are looking to expand the scope of their services. Some Forex brokers already offer their users the opportunity to deposit, withdraw and trade on a bitcoin-based account. Other Forex brokers state that they can include bitcoin trading in their platforms. However, as they are not BTC-based, it is not clear will they allow users anything broader than just buying and selling bitcoin through already existing bitcoin exchanges.
According to the recent report of Goldman Sachs, the Chinese yuan is currently the most popular currency on which bitcoin trades are being based. Investment bank stated in its recent report that 80% of bitcoin volume is exchanged into and out of Chinese yuan.
If you want to purchase bitcoin, you have to create a bitcoin account and initiate a transfer of money into your account every time you will want to buy bitcoin. It may require 3-5 working days as it does not work as any other traditional currency. Until Forex platforms grow more confident in their bitcoin offerings, investors probably are better off working only with BTC-based exchanges which trade in their national currencies. These brokerages have a better understanding of market, security criteria and probably will have fewer trading costs for each purchase.
Benefits of Trading Forex with Bitcoin
- Decentralized valuation – the bitcoin rates are free from geopolitical influence and macroeconomic issues like interest rates and inflation.
- High leverage – this can be profitable for experienced traders as it represents great profit opportunity along with big loss potential.
- Low deposits – you can start with $25 dollars with some BTC-based Forex trading firms. But make sure to check if the firm is regulated.
- No transaction costs – as no banks and clearance agencies are involved in digitally recorded bitcoin transactions, there are no transaction costs even for global transfers.
- Security – to deposit or withdraw money you don‘t have to reveal your personal bank account or credit card details.
- Low-cost trading – most BTC-based Forex brokers keep brokerage costs low to attract new clients.
However, along with these rewarding sides of bitcoin, there are enough risks associated with trading Forex with Bitcoin. Those include the deposited Bitcoins being prone to hacking, high leverage being risky for newbie traders and many others. Also, the fact that bitcoin is not locked in a trader‘s base currency puts it at risk. The tradeoff is adding a third currency to the trading pair. Though bitcoin use in Forex industry is growing, trading bitcoin requires extensive trading knowledge and skills. Traders who want to take on that risk should use only locally regulated Forex brokerage firms.
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