The bitcoin cryptocurrency has been faced with a lot of criticism recently. One of the most common arguments is that it’s not backed by anything and is worthless. However, one overlooked advantage of bitcoin trading on the forex market is that its value doesn’t depend on economic conditions and can be traded 24 hours a day.
Doing your research before trading forex using cryptocurrencies such as bitcoin is essential. There are many risks involved in this type of trading, such as high commissions and lack of liquidity. Check for more details about cryptocurrency trading; this post discusses some pros and cons of using bitcoin to trade on forex exchanges.
No Dependency on the Economy
The value of traditional currencies is strongly tied to economic factors, such as inflation and interest rates. Therefore, when central banks change the buying power of their currency by printing money or changing interest rates, this can cause drastic changes in their currency’s value. However, bitcoin has no central bank or regulatory body that controls it. Instead, its supply is mathematically limited so that only 21 million bitcoins will ever exist. As a result, it makes its value dependent on supply and demand instead of economic conditions.
This lack of dependency on the economy means that traders can successfully buy low and sell high in almost any type of market environment. Of course, the economy has ups and downs, but bitcoin doesn’t care. It’s also becoming a popular way to invest in gold and silver to hedge against inflation and market uncertainty.
High Profits on Margin Trading
Trading on margin means that you don’t need to purchase the total bitcoin value of the trade and can borrow more money from the broker. It has two advantages. First, it allows traders to profit on their trades even though the bitcoin price is still rising. When you open a long position (buy bitcoin), for example, you’re hoping that the BTC/USD exchange rate will rise so that you can sell your bitcoin at a higher price later on. The higher your initial margin, the more profits you can make when this happens.
Second, if the bitcoin price plummets, you only have to pay back your initial margin. As the bitcoin price drops, your profit margin on that trade will increase as long as you still hold at least one bitcoin. It can be a more profitable option than simply closing the position early and suffering huge losses.
Cryptocurrencies are Easier to Use for Forex Trading
One of the most significant barriers to entry for Forex trading is its complexity. There are many terminologies, and figuring out foreign exchange rates isn’t easy for beginners. Cryptocurrencies are much simpler by comparison. They have fewer terms, less text on each page, and are easier to understand, leaving less room for error.
Conversion Fees
Every time you convert your cash into bitcoins, there are fees involved. If you’re using a credit card or bank account as the intermediary for this transaction, fees can be between 3% and 10% of your total value. It is a lot of money for small trades and can cut your profits significantly.
However, if you’re depositing funds directly from the bank with an online exchange such as Coinbase or CoinMama, the fees will be much lower (less than 1%). Additionally, most exchanges allow traders to purchase fractions of bitcoins in their local currency. It means that you don’t have to convert your entire bank account into bitcoins, which can save a lot of money on fees.
Trade Cryptocurrencies When There’s A Lack Of Transparency
One of the best aspects of the forex market is that the government regulates it for many traders. For example, all exchanges are required to follow strict Know Your Client (KYC) rules, so it’s difficult for criminals to use them to launder money or fund terrorist activities. Unfortunately, cryptocurrencies are not regulated in the same way and have been flagged by governments as potential vehicles for cybercrime.
Cryptocurrencies are also not backed by any national government. It means that you don’t have any recourse if the exchange is hacked or has financial troubles. This is a problem that will only worsen as cryptocurrencies become more popular.
True anonymity can be civil liberty for many people, but it also poses significant risks, particularly when money laundering and terrorist funding are involved. As a result, the best place for cryptocurrencies will likely continue to be the unregulated over-the-counter (OTC) market, where they can’t be tracked by authorities and are unlikely to fall victim to a major hack.