One of the questions that many people ask about the forex market is whether you can trade crypto in this market. For instance a lot of people wonder if it is possible to trade Bitcoin or use Bitcoin in trading in the foreign exchange market.
To answer this question we need to take a look at the working mechanisms of trading in this market and how brokers function. But technically speaking trading in the forex market is a possibility with the help of Bitcoin but there is so much nuance and detail that you need to keep in mind. So read on as we discuss the use of Bitcoin and potentially other cryptocurrencies for trading purposes in the forex market and the special features of this type of trading.
You should read: What is risk free in forex? How to set a loss limit?
Is It Possible to Use Bitcoin in Forex Trading?
There are two answers to this question. We can say both yes and no. Let’s see how.
Bitcoin itself cannot be traded in the forex market. This is actually quite understandable since the forex market is literally the foreign exchange market and thus it is a market in which the main financial instruments are currencies. This means Bitcoin, and by extension of course other cryptocurrencies, are not themselves financial instruments in the forex market where you can trade them directly.
But there is another way that you can actually use such digital currencies in relation to the foreign exchange market. And the way you can use Bitcoin trading in forex is to use such cryptocurrencies as your method of deposit into your trading account.
When you first open an account with any broker, you need to deposit money into it as your trading deposit. You can use this money for trading. So without first depositing money in your account, you will not be able to trade in the forex market.
This deposited money is in the form of something known as account base currency. So for instance the base currency for some broker might only be the US dollar while others might also offer other currencies such as Euro or the British pound among other currencies.
However, there are certain brokers that also accept digital currencies as their means of deposit. This means instead of using fiat currencies such as the US dollar and other currencies, you can use cryptocurrencies to deposit money.
Now the question is which cryptocurrencies you can use. Well, the answer to this question is completely up to the broker that you are using. But most brokers that accept crypto also accept Bitcoin as it is the most well-known cryptocurrency in the world.
This is how Bitcoin trading is possible in forex. You first deposit the crypto and then you will be able to trade the equal amount in the dollar value or other fiat currencies.
And it is exactly because of this exchange that takes place that you need to know how this works and how to use it properly.
You should read: How to read symbols in the forex market
The Techniques of Using Bitcoin in Forex
So far we learned that it is indeed possible to use Bitcoin and possibly other cryptocurrencies to trade in the forex market. This is possible through deposits that you make to your trading account and the capital you use for trading.
But because there is an exchange taking place right from the start, you need to be careful not to lose money before you even start trading!
Consider this situation. You decide to deposit some Bitcoin or any other cryptocurrency that is accepted by your broker to your trading account. Once you do so and you are allowed to trade with the equal dollar amount, the value of Bitcoin decreases. Right then and there you have lost money. You have lost money even before you started trading in the forex market.
So this is the first thing you need to keep in mind. The first exchange takes place when you deposit Bitcoin in your account.
But there is a second exchange that will ultimately take place and that is when you decide to withdraw your profits from the broker. Now consider this situation. You have deposited Bitcoin and began trading with it. Things went well and you made profits through your trades. But when you withdraw the money which has to be once again exchanged back to the base currency of your account, which was Bitcoin, there is a chance that you might lose some of that profit as a result of exchange rates.
So when you are trading with Bitcoin in the forex market, everything is doubled – most importantly the price fluctuations that you need to be aware of and take into account.
You should read: What is the traditional account (Cent Account) in Forex?
Can Bitcoin Trading in Forex Be Dangerous?
While there might be some advantages in using Bitcoin or other cryptocurrencies as the base currency for depositing into your trading account, there are some possible threats associated with it as well. For instance because the crypto you deposit will be exchanged and then exchanged back once more when you withdraw, you might be faced with extra and sometimes even certain hidden fees and commissions.
This way, if you are not familiar with such fees then you will sustain losses.
On the other hand, because you are using Bitcoin or other crypto, and there is a high degree of risk that goes along with the anonymous nature of crypto transactions, then there is a chance that you might lose your money due to fraudulent activities and scammers. So before you deposit Bitcoin or any other crypto that is acceptable by your broker, make sure to check the security mechanisms that ought to be used.
You should read: Top dollar currency pairs in forex
Conclusion
Bitcoin and other cryptocurrencies are not directly tradable in the forex market. However there are ways you can engage in Bitcoin trading in forex. You can deposit your account balance in the form of Bitcoin or other cryptocurrencies and trade Bitcoin in the forex market by proxy. In this article, we discussed the different aspects associated with Bitcoin trading in forex.
