Investing in Crypto currency and forex: The insider perspective to a rewarding trade
Posted In: Business/Investment
Cryptocurrency and forex are trading platforms that involve exchanging a currency for another currency. However, the cryptocurrency market and the forex market are influenced by different factors.
Historically, the crypto market is more unpredictable and volatile.
For extreme foreign currency couples in the Forex, volatility is around 1%, and .5% for most of the established currencies. To compare, Bitcoin has a volatility around 5% to 15%.
That’s why cryptocurrencies can be appealing to traders with a high risk tolerance.
Crypto currency is an amazing investment platform for you if
1. You want to speculate on the price of a cryptocurrency without owning the digital asset
2. You want to leverage your position, so that you only put up a fraction of the cost upfront
3. You want to take advantage of the tax benefits of spread betting or CFD trading
4. You want to gain exposure to multiple exchanges from one account
5. You want to start trading straight away
6. You don’t want a maximum deposit limit
7. You don’t want to pay deposit or withdrawal fees
You get more for your investment with you trade forex with bitcoin
Take the following analysis;
1. A Standard Forex Trade
First, here is an example of how a standard forex trade works. Imagine you are an American trader betting on the British pound/U.S. dollar currency pair (GBP/USD). You deposit $100 with your forex broker. Assuming the rate of $1 = £0.5, you will receive £50 for your $100. If the GBP/USD rate changes to 0.45, you close the position to 50/0.45 = $111.11. That is, you make a 11.11% profit over your initial $100 deposit.
2. A Forex Trade Using Bitcoin
Now, let’s move on to an example of a forex trade using bitcoin. First, you open a forex trading account with a broker who accepts bitcoins (like AvaTrade, eToro or Liteforex). You then deposit 2 bitcoins from your digital wallet to the forex broker’s digital wallet. Assuming the current bitcoin to U.S. dollar rate is 1 bitcoin = $500, your deposit of 2 bitcoins is equal to $1,000. Now, assume that you want to take a position in British pounds. If the exchange rate is £0.5 = $1, you will receive £500. After some time, the GBP/USD rate changes to 0.45, and you square off your position to get $1,111.11 in your trading account. You have made a tidy 11.11% profit and you are ready to cash out. However, suppose by this time the bitcoin to U.S. dollar rate has changed to 1 bitcoin = $560. When you withdraw your money in bitcoins, you receive ($1,111.11/$560) = 1.984 bitcoins.
Despite the fact that your bet on British pounds earned you an 11.11% profit (from $1,000 to $1,111.11), the fluctuation in the bitcoin to U.S. dollar rate means that you still sustain a loss of .016 bitcoin, or -0.8%. (initial deposit of 2 bitcoins — 1.984 bitcoins = .016 bitcoin). However, had the bitcoin to U.S. dollar exchange rate changed to 1 bitcoin = $475, you would realize a profit from both the forex trade and the bitcoin exchange. In other words, you would have received ($1,111.11/$475) = 2.339 bitcoins, a profit of 16.95%.
Overall Benefits Of Trading Forex With Bitcoin
1. Decentralized Valuations: One major advantage of trading forex with bitcoin is that there is no central bank to randomly change bitcoin valuations. Due to its decentralized nature, the bitcoin rates are free from geopolitical influence as well from macroeconomic issues like country-specific inflation or interest rates.
2. High Leverage: Most forex brokers offer high leverage ranging up to 1:1000 for bitcoin trades. Experienced traders can use this to their benefit. However, such high margins should also be approached with great caution as they also magnify the loss potential.
3. No Transaction Costs: All bitcoin transactions are digitally recorded on public networks without any involvement from banks or clearing agencies. Hence, there are usually no transaction costs involved in bitcoin, even for global transfers. Brokers pass these benefits to the clients by not imposing any deposit or withdrawal fee for bitcoin transactions. This improves trade profits.
4. Low Deposit Amount: One can start with as little as $25 with some bitcoin forex trading firms. As promotional offers, a few forex trading firms even offer new members a matching deposit amount. Traders should take care to check that all brokers are appropriately regulated.
5. Low Cost of Trading: Most forex brokers that accept cryptocurrency are keeping brokerage costs very low to attract the new bitcoin-trading clients.
6. Security: With bitcoin transactions, you don’t need to reveal your bank account or credit card details to deposit or withdraw money. Especially when dealing with foreign brokers, this is a huge advantage in terms of cost and financial security.
7. No Global Boundaries: Bitcoin transactions have eliminated global boundaries. Using bitcoin, a trader based in Africa can trade forex through a broker based in the United Kingdom. Regulatory challenges may remain a concern, but if both traders and brokers are willing to transact, then all geographical boundaries are eliminated.
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