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Pros and cons of using Bitcoin to trade forex – London Business News

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The forex market is global and highly liquid, opening 24 hours every day throughout the week. And this makes Bitcoin a fascinating addition to forex trading. Recently, forex brokers started accepting this virtual currency for currency trading. Some even accept other cryptocurrencies. But before using Bitcoins in forex trading, it’s wise to know the pros and cons of this undertaking.

When using Bitcoin for forex trading, you start by opening an account with a reputable broker that allows people to trade with this virtual currency. After that, you can transfer Bitcoins to the digital wallet you will have with a forex broker from your crypto wallet.

The increasing popularity and usage of this virtual currency have prompted several countries to curb the trend. For instance, China has banned this digital currency and created a Digital Currency. Currently, people purchase and sell this virtual currency on the ethereum trader app platform. But this has not hindered people from trading Bitcoin, with some using it to trade forex. Here are the top merits and demerits of using Bitcoin in forex trading.

Pros of using Bitcoin in forex trading

  • High leverage: When you start using Bitcoin to trade forex, you will notice that some forex brokers provide trading leverage with this digital currency. And you can use this leverage to your benefit, especially if you’re an experienced trader. Nevertheless, traders should approach high margins with caution because they magnify your potential losses.
  • Decentralised valuations: Bitcoin doesn’t have a tie with any central bank. That means it’s free from geopolitical influence and macroeconomic issues. Thus, you won’t suffer the effects of country-specific interest rates or inflation.
  • Low deposits: You can venture into forex trading with Bitcoin with a small amount. Some forex trading companies even offer promotions like matching deposit amounts. Nevertheless, pay attention to the broker’s regulation and legitimacy.
  • Global boundaries: Being a digital currency means Bitcoin doesn’t have international borders. Thus, you can trade forex via a broker in a different country using Bitcoin. If brokers and traders are ready to transact, geographical boundaries become a non-issue, although regulatory challenges are still a concern.
  • Security: Bitcoin transactions don’t require users to reveal credit card or bank account details. And this is a significant pro for purposes of financial security and costs.

Cons of using Bitcoin in forex trading

  • Exchange rates variation: People trade Bitcoin on different crypto exchanges at different rates. Therefore, traders must understand the forex brokers’ exchange rates at all times when using Bitcoin.
  • Dollar rate risk: Upon receiving Bitcoin deposits, most brokers sell the tokens almost instantly. That’s because they prefer keeping the amount in dollars. Thus, the broker faces exposure to Bitcoin against the dollar rate between deposits and withdrawals.
  • Volatility: Bitcoin prices have historically remained highly volatile. Without regulations, unregulated brokers can use this volatility to their advantage while disadvantaging traders. For instance, a broker could apply a low rate for deposit to credit a trader and a different rate when the trader wants to withdraw the amount to benefit from the difference.
  • Asset class difference: Bitcoin belongs to a new asset class. It also has a unique valuation mechanism. Thus, using Bitcoin to trade forex introduces an intermediate currency, which can affect loss and profit in unexpected ways. Any amount that you don’t lock in your base currency could be a risk.

Final thoughts

Despite the introduction of many virtual currencies, Bitcoin is the most prominent cryptocurrency. However, using it in forex trading has several pros and cons. Consider them carefully before spending your hard-earned Bitcoins on forex trading.

 

The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.

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