Bitcoin in forex trading: how it works
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Over the recent years, Bitcoin has changed into a speculative investment. Many individuals that want to get alpha from the other assets and a potential hedge against worldwide uncertainties and fiat currencies’ weaknesses go for this investment.
Some people describe Bitcoin as a digital floating exchange pegged to the dollar like in forex or foreign exchange. But unlike gold, Bitcoin doesn’t have a physical asset that people can use to base its price.
Bitcoin as a currency
Whether this cryptocurrency is a legal tender or not, it has been debated in the public domain for a long time. The Mt. Gox attack has accelerated this debate. Additionally, Bitcoin has experienced widespread adoption globally as many retailers adopt it. Compared to traditional currencies like the Euro, Chinese Yuan, and the U.S dollar, Bitcoin doesn’t have universal recognition as a currency. That’s why not all global market participants, including government officials and regulators, accept it.
Globally, most regulators don’t consider Bitcoin a currency. To most regulators, Bitcoin is an asset with value. Some regulations consider Bitcoin a depreciable investment. However, this virtual currency is different from the forex currency that trades in the current markets.
Bitcoin trading growth on platforms like the Oil Profit has led to the creation of a multi-billion industry. And this industry enables individuals to purchase and sell Bitcoin across crypto exchanges. Some brokers allow Bitcoin trading as one of their services. However, investors should understand the realities of Bitcoin and forex trading.
Bitcoin trading vs. forex
Bitcoin trading and forex trading have some differences. In both Bitcoin and forex trading, global demand and supply metrics form the basis for digital currencies and paper currencies. Thus, the price falls when demand drops.
Nevertheless, the supply uncertainty that central banks create does not affect Bitcoin. This cryptocurrency has a predictable mining rate. Unexpected monetary policy shifts, such as the decision by the Swiss National Bank to unpeg the country’s currency from the Euro back in 2015, can lead to significant price swings.
Bitcoin’s value depends on the cryptocurrency ecosystem’s fundamentals, while individual nations, economic conditions, decisions, and currency affect forex matters.
Bitcoin trading happens like anything else that occurs in an exchange. People trade euros for dollars via forex. On crypto exchanges, people trade dollars for Bitcoin units. Thus, the operations are similar though dependent on the idea that people use the actual currency to trade the cryptocurrency.
What makes Bitcoin different is its unavailable in a physical form. Thus, some people feel like they are not dealing with the real thing. While some people see Bitcoin as a currency, others don’t think it feels like trading traditional currencies. For this reason, they say there is some disconnect.
How people trade currencies is also another issue. Apart from the potential of one-to-one trading, currency traders boost leverage with derivatives and paper contracts that increase returns. Some brokers underwrite contracts that facilitate an economic force in the Bitcoin sector. However, these contracts are yet to grow. Thus, Bitcoin trading compares to equity ownership on a stock exchange.
Bitcoin trading on forex
Some brokers allow individuals to deposit, withdraw and even trade with Bitcoin-based accounts. But, these brokers and their functionality can face legal implications. That’s because the United States does not allow CFDs. What’s more, the Financial Conduct Authority, the financial regulator in the United Kingdom, has warned investors against using such platforms.
While some brokers claim to have included Bitcoin trading, they also trade traditional currencies. Thus, it’s unclear whether they allow customers to use their platforms to purchase or sell Bitcoin via their current exchanges.
Bitcoin’s popularity is growing, with some people seeing it as an alternative investment. And this has captured the attention of players in the global financial system. However, whether Bitcoin will eventually become an acceptable currency in the forex markets remains to be seen.