Want To Trade Forex With Bitcoin? It’s Not Without Risks

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Want To Trade Forex With Bitcoin? It’s Not Without Risks
<a href="https://pixabay.com/users/MichaelWuensch/">MichaelWuensch</a> / Pixabay

Bitcoin has emerged as one of the most valuable assets over the past few years. One bitcoin is currently worth about $60,000. With its growing popularity, the use of BTC is also growing in almost all sectors, including the foreign exchange market, the biggest and most liquid market in the world. In recent years, many top forex brokers have started accepting bitcoin for currency trading.

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Advantages Of Trading Forex With Bitcoin

For regular forex traders who also invest in cryptocurrencies, the option of trading forex with BTC may appear attractive. However, like most things, trading forex with BTC also has its own benefits and risks. Before you start to trade forex with bitcoin, it is important that you know all the ins and outs.

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First, let's look at the benefits:

  • Since BTC is not tied to any central bank, it is free from macroeconomic issues, such as inflation or interest rates.
  • Experienced traders can benefit from the leverage many brokers offer on bitcoin trades.
  • Many brokers require a low deposit amount when using bitcoin to trade forex. Moreover, a few broker firms even offer promotions, like a matching deposit amount.
  • Several brokers who offer the facility of forex trading via BTC keep their brokerage costs at a minimum to attract new users.
  • For investors, the use of BTC is cost-effective and good from a security point of view because they don’t have to share their bank account or credit card details.
  • Since BTC has no geographical limitations, it allows investors to trade with any broker around the world. For instance, a trader in Australia may trade through a broker in the U.S. However, traders and brokers need to consider regulatory limitations.

Risks Of Trading Forex With Bitcoin

Here are the risks of trading forex with BTC:

  • Since BTC trades on many exchanges, the cryptocurrency's exchange rate may be different on each of them. Before you start to trade forex via bitcoin, it is important that you are aware of the BTC exchange rate the broker will be using.
  • A trader using BTC as deposits is immediately exposed to the dollar rate risk, irrespective taking a forex position. This is because after a trader makes a deposit in crypto, the broker quickly converts it into U.S. dollars.
  • BTC prices are very volatile, and thus, can swing significantly in a day. A broker may try to benefit from this if the trader doesn’t have the right information. For example, if the price of BTC rises from $50,000 to $55,000 in a day, a broker may use the lower rate to reap benefits. Thus, it is important for a trader to get clarity beforehand on the applicable BTC rates.
  • There is always a risk that deposited BTC is hacked or stolen from the broker’s digital wallet. To minimize such risk, you must look for ECN brokers with insurance protection against theft.
  • Use of bitcoin to trade forex does sound convenient, but the volatility of the digital currency could impact your profit or loss in ways you may fail to understand.

The rising popularity of BTC has certainly attracted forex brokers, which come up with attractive promotions to woo crypto investors. Some forex brokers accept other popular cryptocurrencies as well. However, as discussed above, using BTC to trade forex has its own advantages and disadvantages.

It is recommended that potential investors weigh these risks against their portfolio goals and then decide whether or not to trade forex using BTC.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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