•Benefits of Trading Forex With Bitcoin

Decentralized Valuations: A major advantage of trading forex with the bitcoin is that the bitcoin is not tied to a central bank. Digital currencies are free from central geopolitical influence and from macroeconomic issues like country-specific inflation or interest rates.

High Leverage: Many forex brokers offer leverage for bitcoin trades. Experienced traders can use this to their benefit. However, such high margins should also be approached with great caution as they magnify the potential for losses.

Low Deposit Amount: A trader can start with as little as $25 with some bitcoin forex trading firms. A few forex trading firms have even offered promotions like a matching deposit amount. Traders should check that the broker is legitimate and appropriately regulated.

Low Cost of Trading: Most forex brokers that accept cryptocurrency are keeping brokerage costs very low to attract new clients.

Security: You don’t need to reveal your bank account or credit card details to make a bitcoin transaction. This is a big advantage in terms of cost and financial security.

No Global Boundaries: Bitcoin transactions have no global boundaries. A trader based in South Africa can trade forex through a broker based in the United Kingdom. Regulatory challenges may remain a concern, but if both traders and brokers are willing to transact, there are no geographical boundaries.

•Risks of Trading Forex with Bitcoin

Different Exchange Rates: Bitcoin trades on multiple exchanges and exchange rates vary. Traders must ensure they understand which bitcoin exchange rates the forex broker will be using.

U.S. Dollar Rate Risk: While receiving bitcoin deposits from clients, almost all brokers instantly sell the bitcoins and hold the amount in U.S. dollars. Even if a trader does not take a forex trade position immediately after the deposit, he or she is still exposed to the bitcoin-to-U.S. dollar rate risk from deposit to withdrawal.

Danger of Volatility: Historically, bitcoin prices have exhibited high volatility. In the absence of regulations, volatility can be used by unregulated brokers to their advantage and a trader’s disadvantage. For example, assume the intraday bitcoin rate fluctuates from $5,000 to $5,300 U.S. dollars per bitcoin. For an incoming deposit of 2 bitcoins, the unregulated broker may apply the lowest rates to credit the trader $10,000 (2 bitcoins * $5,000 = $10,000). However, once the trader is ready to make a withdrawal, the broker may use the lowest exchange rate. Instead of the original 2 bitcoins deposited, the trader receives only 1.88679 bitcoins ($10,000/$5,300 = 1.88679 bitcoins). The unregulated broker may be exchanging bitcoins and dollars at, say, $5,150, and pocketing the difference at the expense of the client.

Security Risks Inherent to Bitcoin: Deposited bitcoins are prone to theft by hacking, even from a broker’s digital wallet. To reduce this risk, look for a broker who has insurance protection against theft.

Risk of Leverage: Using leverage is risky for new traders who may not understand the exposure. This risk is not unique to cryptocurrency forex trading and comes into play in traditional forex transactions as well.

Asset Class Mixing: Cryptocurrency is a different asset class altogether and has its own valuation mechanism. Trading forex with bitcoins essentially introduces a new intermediate currency which can impact profit and loss in unexpected ways. Any money that is not locked down in a trader’s base currency is a risk.