Bitcoin Trading and Forex: A Deep-Dive in 2021

Traders often analyze the differences and similarities between forex and cryptocurrency. Both markets are highly volatile. Bitcoin, the most popular digital asset in the world, has been a popular investment avenue due to its capability to reach significant highs and lows within a day. Fiat currencies comparatively have less volatility in terms of valuation. But combined with leverage options in forex trading, both gains and losses can be huge. This is part of the reason day traders are expressing interest in trading in BTC, combined with another currency pair, preferably the US Dollar.

Doubts over Bitcoin Legality

The main criticism faced by Bitcoin is due to its legal stature. Unlike fiat currencies, Bitcoins are not issued or regulated by Central governments. In simplest terms, it is a digital currency backed by a decentralized P2P blockchain network. Countries throughout the world have different views towards its legality. Some nations regard Bitcoin as outright illegal. Others view it as a legal asset/commodity, but not a valid legal tender. El Salvador became the world’s first nation to officially accept Bitcoins as legal tender.

SEC Skeptical About Bitcoin

In the US, the Securities and Exchange Commission(SEC) has been skeptical of Bitcoin’s legal statute for quite some time. It has been classified by the Commodity Futures Trading Commission(CFTC) as a viable commodity with asset value. States like Texas and Colorado have indeed become very crypto-friendly. Canada, like its North American counterpart, has decided to accept cryptocurrency as a barter transaction.

Also Read: What Do The Investors Need To Know About Cryptocurrency Regulations?

Bitcoin Trading in the Forex Market

Conceptually, a person can use cryptocurrency through the foreign exchange market in 2 possible ways:
(i) Trade the crypto token as part of a currency pair(Bitcoin to USD for example).
(ii) Use the crypto token to bankroll a trading A/C.
The first option i.e. BTC/USD sounds similar to conventional forex fiat currency pairs. Like regular forex trading, BTC/USD can be referenced for placing trade actions such as buy, sell, stop loss, or taking profit orders. The challenge however lies with Bitcoin’s inherent properties, volatility, and its short period of existence(at least compared to the other fiat currencies).

Difference with Other Fiat Currencies

A primary difference between Bitcoin and any conventional central currency is the fact that Bitcoin is limited to 21 million tokens. Mining is also carried out in a fixed routine, and Bitcoin valuations depend upon its intrinsic blockchain network fundamentals. Traditional currency valuation relies upon market valuation, economic policies, GDP, inflation, PPP, and more. Due to their independence from conventional metrics, Bitcoins are supposedly “less” dynamic. Market trends however suggest otherwise.
Bitcoins have a much lesser market cap(almost a tenth) of global forex. The amounts are respectively $650 billion and $6.6 trillion. In terms of market behavior, this leads to higher liquidity in forex markets, while Bitcoins experience huge volatility.
Related: PayBitoPro Devising Innovative Forex-Cryptocurrency Links

Bitcoin Trading with Forex Exchanges

Forex trading tactics make use of derivatives and paper contracts based on Bitcoin. These contracts are limited in nature, despite permitting investors to acquire cryptocurrency on margin. The traders also frequently profit off excess OTC(Over-The-Counter) contracts spiking up their leverage.

What are CFDs?

Certain forex brokers provide the option of Bitcoin trading. Traders must be mindful and avoid CFDs- particularly in countries where it is deemed illegal(the US for example). Contract For Difference (CFD) refers to a financial derivatives trade agreement. The consenting parties settle differences between the opening and closing prices- without any transfer of securities in between.

Most reputed forex trading brands are based on fiat currencies and not on Bitcoin. Hence, crypto assets, even when traded through forex platforms, will pass through cryptocurrency exchanges. This raises costs leading to lower profit margins for forex brokers and higher intermediary expenses for the trader. Thus in all senses- a cryptocurrency exchange platform stands the best chance.

Bitcoins through Cryptocurrency Exchange

Crypto exchange platforms are online platforms. Traders exchange their fiat denominations into cryptocurrency and vice-versa. Operating on decentralized networks, a crypto exchange is the best place to trade bitcoins with fiat currencies. Most exchanges feature much lower transaction charges- making it a huge plus. In addition, users can also dabble in other popular cryptocurrencies.

Advantages of Crypto Exchanges

The Crypto Exchange industry is growing, and the key players help others grow. Global digital assets exchange PayBitoPro offers their award-winning White Label Bitcoin and Cryptocurrency Exchange Platforms to brokerage firms across 5 continents.

The main advantages of a crypto exchange include:

(i) Fractional Purchasing

Bitcoin is expensive. Unlike traditional stock or forex exchanges, users can buy a fraction of the bitcoin- depending on the capital they want to invest.

(ii) Trading 24×7

Crypto exchanges feature 24×7 active markets- Conduct trades whenever and wherever as long as there is an active internet connection.

(iii) Instant Trade Settlements

Crypto Exchange permits instant trading based on available crypto assets. The PayBitoPro Exchange features a 3 layer or point architecture.

(iv) High-Security Interface

Designed from a web and mobile perspective, crypto exchange UIs are highly secure. PayBitoPro features an advanced framework consisting of Firebase, Segwit, and BIP-32 features.

(v) Transparent Order Book

Crypto exchanges feature highly transparent order books as they mostly deal with retail traders. The PayBitoPro Exchange Platform provides Matching Engine with order books and block confirmation tracking.

(vi) Smartphone Compatibility

As explained above, crypto exchanges are easily accessible through Android and iOS smartphones, laptops, and desktops.