Trading Forex With Bitcoin: How Does It Work?

Forex is a large and exciting market. It is where the highest volume of money gets exchanged every day, totaling trillions of dollars. It is also open 24 hours a day. And it is available almost anywhere in the world. In the forex market, the different currencies of the world get traded against one another. The goal of every forex trader is to make money from buying and selling these currencies. But the risks associated with the forex industry are high. Experts say that almost 70% of all traders fail to achieve their profit targets. And that even experienced traders will lose money in some trade transactions.

Enter the bitcoin or BTC. It is a digital or virtual currency that works like your cash but existing in the digital space. Some people refer to it as cryptocurrency. It is a name that is from the secure encryption method used called cryptography. In simple terms, it allows you to buy products and services from partner merchants both in digital and physical stores. But it is not yet widely accepted as a currency in many countries due to several factors. We will consider some of these later. For now, we can say that bitcoin is a new form of currency that is exciting for traders. It is still in the early stage of development since it started only in 2009. As opposed, the USD is centuries old, and so are the other major currencies on Earth today. Bitcoin is also highly volatile. It means its value increases and decreases sharply against a known currency such as the US dollar. This volatility makes bitcoin interesting for day traders since these sharp movements are triggers that can translate to higher profits. 

How is bitcoin different from currencies?

Currencies, or fiat currencies, are government-issued money that has a physical form. It can be notes printed on paper or coins shaped from common metals. These currencies are independent of a commodity like gold. Well, not since 1971 when the gold standard for printing notes ended. Since then, the political governments that issued these currencies backed them up. It is why the central bank has a lot of influence on the value of an individual currency. As opposed, a bitcoin is not under the jurisdiction of any government or central bank. It is decentralized and exists everywhere. Both fiat currency and bitcoin are indeed affected by the law of supply and demand. When many people want to buy the currency (or cryptocurrency), its value increases due to the high demand. But when there is more money than people who want to buy it, then its value decreases. The advantage of bitcoin is that it is not affected by the policies of the central bank. Political changes and economic indicators of one country also do not affect it.

Also, bitcoin is not under the control and supervision of the government or banks. You can trade bitcoins without disclosing your identity and account number. It gives an additional layer of protection and confidentiality to users. If you compare this to currencies, there will be limitations and disclosures before you can make transactions. First, you need to register with a bank or financial institution to buy and sell currencies. They will ask for your name, contact number, address, identification cards, and other personal information. The government also monitors the amount of money people make. It also sets a daily limit on how much money you can transfer, withdraw, or use for purchases. They do this to ensure that you pay the correct taxes. And do not get involved in money laundering. The anonymity that bitcoin brings to the table makes it appealing to people. 

Another key difference is the liquidity of the market. When you can buy and sell something fast, then it is a highly liquid asset. As mentioned at the beginning of this article, forex trading is the biggest market in the world, with trillions of dollars worth of transactions happening every day. It means that you can always find someone willing to buy or sell a currency any time and from anywhere. There is no need to wait for hours or days until someone buys your position with your selling price. It almost happens instantly. But for bitcoin, you may have to wait for a bit longer. The total volume for the cryptocurrency market is billions of dollars per day. While this is still a large number, it is small compared to the forex market.     

How do you use bitcoin in forex trading?

There are two ways to use bitcoin in forex trading.

  1. Use bitcoin as one-half of the currency pair. Forex trading always involves a currency pair. And the goal is to make profits every time you buy or sell currencies in the forex market. Or, at least most of the time, you want to gain a small amount. When you trade, you speculate that one currency will increase in value while the other will lose within a particular time frame. USD is the usual pair of bitcoin or BTC. But, you can trade it with just about any currency. You can pair it with the Euro, British pound, Japanese yen, Canadian dollar, or Australian dollar. Choose the pair that will give you a higher chance of profits. Take the BTC/USD currency pair as an example. When you take a position in the bitcoin, you gain profit when the exchange rate goes up. For instance, you started a trading position in the BTC/USD pair at 1 BTC to $50,000. If at market closing the exchange rate has gone up to 1 BTC to $50,250, you gained a $250 profit. But if the trade closes at 1 BTC to $49,500, you lost $500 for this trading transaction.   
  2. Use bitcoin to fund your trading account. Forex trading is an over-the-counter or OTC market where transactions are happening online. And these transactions are under the control of a network of international banks and financial institutions. To participate in trading, a person needs someone who will connect you to this online network. It is where the brokers come in. But before getting access, you will need to create a trading account with the broker. There are different account types available for retail traders. It depends on the amount of capital or your trading behavior. Choose from a micro, mini, or premium account. Once you have selected your broker and the account type, you must deposit money into the account. You can choose different ways of funding it. Some offer online or physical bank transfers. Others allow linking of your credit card or debit card to the account. Still, others accept digital wallets. It is the option where you can use bitcoin to transfer money to your trading account. Remember that not all brokers will use bitcoin, so check the details before signing up with any broker. Use their 24-hours customer support to ensure that your bitcoin is valid as a means of funding your account.    

What is the best broker for bitcoin forex trading?

Forex trading using bitcoin is a complicated topic. First, bitcoin is viewed differently by many countries. In the USA, state regulator CFTC (or Commodity Futures Trading Commission) considers bitcoin a commodity. And not a currency. In addition, individual states have different laws regarding cryptocurrency trading. In 2014, Hawaii banned the use of bitcoin for any transaction. And though it has relaxed this rule, it still has strict monitoring of the cryptocurrency market. Other states like California and Texas have welcomed bitcoin into their territory. Some states like Colorado even have laws that exempt these currencies from state securities payment. In Canada, bitcoin is also part of the commodity market. And that all transactions involving it will be considered a barter deal, subject to duties and taxes. In Europe, the UK sees it as property and not a currency. In Russia, you cannot use crypto as a mode of payment. It is because this currency is not from a sovereign state. In China, it is impossible to use cryptocurrencies since virtual currencies are not allowed anywhere. Also, the Chinese government ruled that no banks and payment gateways should accept bitcoin for online or QR code payments. The only country where you can freely use bitcoin is El Salvador in Central America. It passed legislation in the middle of 2021 acknowledging bitcoin as a legal tender. So, before using bitcoin for forex trading, make sure that it is legal to do so in your country.

Another concern is that not all forex brokers accept bitcoin as a currency for forex trading. If you have been trading for some time now, you will be unhappy to know that you will have to ditch your current broker to find a new one that offers cryptocurrency pairings. It can be a difficult and emotional decision, especially if you have been using this broker for some time already. And if it has given you winning trades in the past, then you will have to think twice before moving to another broker. If your current broker offers cryptocurrency, then it’s all good. But you must check their fees and spreads. Most brokers will have different commissions and fees for fiat currencies and cryptocurrencies. Also, if the company is new to bitcoin trading, you will be better at dealing with experts in the cryptocurrency market.   

Brokers in the cryptocurrency market are not usually called forex brokers. But bitcoin exchanges (or cryptocurrency exchanges). The main reason is that big markets such as the US and UK look at it as commodities or properties. Not as currencies. In choosing the best exchange, use the same guidelines you used in selecting your forex broker. First, look at regulation. Is it allowed by the authorities to operate and offer crypto trading in your country? Second, examine the fees and commissions that they charge clients. Do they charge commissions for every trading activity? Do they make money every time you deposit and withdraw funds from your account? Do they charge retainer fees or maintenance fees every month? Third, test the trading platform. Is MetaTrader 4 and 5 part of the trading systems that they use? If they have their trading platform, is it accessible through my mobile phone? Next, check their customer service support. Is this exchange offering a 24-hours chat support system? Finally, measure how compatible you are with the company. Is your trading style a fit to their values and offers?    

Coinbase is one of the biggest cryptocurrency exchanges today, with over 68 million users. It operates in over 100 countries and trades almost $500 billion worth of transactions per quarter. It is a marketplace where you can buy and sell digital money anytime and anywhere through a mobile app. Coinbase also has top-of-the-line security protocols and up to $250,000 insurance for the crypto assets of each client. One of its unique offers is the recurring buy feature. It allows you to schedule your trading daily, weekly, or monthly. Also, Coinbase has several resources available from new traders in cryptocurrency that will help you understand the basics of this market. But this exchange has one of the most expensive fees in the market today. Aside from a fee for every trading transaction, you will also get charged a fixed cost. Customer service is also not ideal as chat support is not available round-the-clock.

Can you trade bitcoin on forex?

Yes. But, get a broker that offers bitcoin or BTC in its currency pairings. Not all brokers will have bitcoin. And not all countries will allow bitcoin on forex trading. Some countries classify bitcoin as a commodity. Others think that it is property. To be sure that bitcoin is available in your country, check with your broker or cryptocurrency exchange. You can also call the regulator that has jurisdiction in your countries like the FCA or CFTC.

What is Bitcoin and forex trading?

Bitcoin, or BTC, is a virtual currency that works like your cash but in digital format. It is also called cryptocurrency, from the secure encryption method of cryptography. A bitcoin allows you to buy products and pay for services from virtual stores or physical shops that accept this payment method.

Forex trading is the exchange of one currency with another. The goal of forex trading is to make money every time you buy and sell these currencies. But the risks that come with the forex industry are high. Research data confirm that two out of three traders fail to achieve their profit targets. Everybody loses money in forex trading, including professional traders.

Which is better, forex or bitcoin?

Forex is a better choice than bitcoin when it comes to trading. Forex is the number one market by volume, with trillions of dollars in transactions happening in a single day. The cryptocurrency market has billions of dollars per trading day under its belt. Though this is huge, it pales in comparison with the forex market. The trading volume in forex translates to higher liquidity that allows a trader to buy or sell currencies fast, almost instantly. For winning trades, it means receiving your profits quicker. For losing trades, it means limiting your monetary losses.

Is trading in Bitcoin safe? 

Yes. But as a trader, you must ensure that you protect your investment. Also, your identity must remain secure to avoid theft and scams. Choose a broker or exchange that gets regulated by the authorities. Its trading platform should have a high level of security. And this applies to all devices such as a web browser or mobile app. Some companies also have insurance protection as high as $250,000 per depositor. By using this checklist, you are sure that your bitcoin transactions are legit and safe.