The cryptocurrency market currently boasts a market capitalization of $2.10 trillion, with the market leading asset Bitcoin (BTC) accounting for $1.143 trillion of this amount.
While the crypto market is a viable space in its own right, however, there’s no doubt that assets such as BTC and Ethereum (ETH) have also added a fascinating dimension to the already volatile world of forex trading.
But how does Bitcoin trading on the forex market work, and what are the main pros and cons of this practice?
A Forex Trade Using BTC – What You Need to Know
When you look to trade BTC on the forex market, you’ll first need to open a trading account with a licensed broker that accepts Bitcoin tokens.
You can then transfer two Bitcoins from your crypto wallet to the forex broker’s alternative, with the cumulative value subsequently stored in your account.
At the current BTC valuation of $60,950.80 (as of April 12th, 2021), your two tokens would be worth a hefty $121,901.60. You’ll then be able to open trading positions at real-time exchange rates, depending on the precise pairing that you’d like to leverage.
If you subsequently want to assume a position in GBP at an exchange rate where £0.50 is equal to $1, for example, you’ll receive $60,950.80.
You can then choose to buy or sell according to your strategy, profiting (or losing) in the same way that you would through a normal forex trade.
The Pros and Cons of Forex Trading with BTC
The key differentiator here is the innate volatility of Bitcoin, which has seen its value increase by more than 10-fold during the last 11 months.
This means that BTC is subject to substantial price hikes during relatively short periods of time, which can destabilise the base currency and trigger significant losses as the exchange rate fluctuates.
However, a depreciation in the BTC/USD exchange rate could help you to profit from both the forex trade and the Bitcoin exchange, creating a fascinating risk-reward profile from the perspective of investors.
Another benefit of trading BTC in the forex market is that it provides you with access to decentralised valuations. After all, Bitcoin isn’t tied to a central bank, making them largely immune to the geopolitical and macroeconomic factors that impact fiat currencies.
It can also be argued that trading Bitcoin as a forex option boosts your security as a trader, as you won’t need to share bank account or credit card details with brokers in order to complete a transaction.
Of course, these benefits must be balanced against the volatile nature of BTC and the wide fluctuation that underpins exchange rates, as the failure to comprehend such factors could significantly hinder your success over time.
On a fundamental level, Bitcoin is also evolving into a relatively inaccessible asset, particularly as its price continues to break out above the $60,000 mark.