Before we understand the benefits and risks involved in forex trading with bitcoin let’s understand briefly about forex trading. Some people are beginners but, if you already know you can skip it. Forex trading involves the buying and selling of currencies in the global marketplace.
Forex trading includes currency pairs for example INR/USD, EUR/USD, GBP/JPY. Where one currency is exchanged with another. The first currency is termed as base currency and the second is known as quote currency.
The forex market operates five days a week, allowing for trading 24 hours a day at almost any time. Weekends are considered off unlike crypto trading.
Many people choose forex trading because it has a high liquidity and also the biggest financial market, which means traders can buy and sell currencies quickly without significantly affecting the price.
Central banks, individual traders and other financial institutes take part in forex trading.
Forex trading can be considered advantageous if you gain but if you lose it can amplify the loss as it has leverage. Which means traders with a small capital can also control a large stake position.
Before anyone jumps into forex trading technical analysis is must. Analyzing the chart, checking out economic indicators and staying up to date with the news events can provide a broader perspective about the price of currency.
There can be various purposes of Forex Trading; some try to gain profit from the price difference of the currency pairs or can be the same coin in different markets. For example; the value of $1USD is Rs.84.07 today and this value can be speculated depending on many factors in the market. When the value increases to some extent the trader sells it gaining some profit.
What are the Benefits of forex trading with Bitcoin?
- High Volatility: Bitcoin has its history of price fluctuations, As the price fluctuates rapidly it creates opportunities for traders to gain profit. For example the price of bitcoin today is $60578.78 if the price rises to $65000 within a few hours the trader can earn a profit of $5000. But, if the price drops to $55000 the trader has to carry the loss of $5000.
- 24*7 Market Open: The bitcoin market is open 24*7 Unlike traditional forex markets that have specific hours. It allows traders to trade anytime and save themselves from any kind of loss.
- Decentralized system: In a decentralized system the transaction can occur without the involvement of the banks. Bitcoin operates on a decentralized network, which can reduce reliance on banks and traditional financial institutions, potentially lowering fees and increasing transaction speed. Decentralized system operates on Blockchain Technology which makes the process more transparent and reduces the risk of banking fraud or hacking.
- High return potential: As the price of bitcoin keeps on fluctuating. Traders can gain a handsome profit keeping an eye on substantial growth of price.
- Diversification: Trading with Bitcoin in the forex market reduces the risk factor. Let’s say, the price of USD declined due to various influences on the American market. But, the price of Bitcoin will not get affected due to no correlation with the traditional market. Thus, Diversification helps in risk management and stabilizing the overall portfolio.
- Global Accessibility: Due to Bitcoin’s global accessibility traders from any region can easily choose to trade and earn.
These benefits can make anyone get thrilled to start forex trading with Bitcoin though it’s essential to also consider the associated risks.
What are the Risks involved in forex trading with Bitcoin?
- High Volatility: The way price fluctuation creates opportunity for profit it can also be the reason for loss. The price of bitcoin keeps on fluctuating dramatically every now and then. If traders are not alert enough and doesn’t manage the trade carefully the risk of loss increase to higher extend.
- Rules and Regulatory concerns: Various countries have different norms of cryptocurrencies. In some countries bitcoin is not legal, whereas in some countries like India charges 1% TDS (tax) for every trade in any legal exchange.
- Security: Many traders choose vulnerable exchanges for trading, if hackers break the security of the exchange all the funds can be lost. Recently WazirX was hacked and many assets were lost till now the consumers and the exchange owner are fighting to get back the asset in Singapore court.
- Emotional Trading: Many impulsive traders make emotional decisions based on the prediction of their gut feeling. This can lead to high risk exposure.
Strategies for Profit in Forex Market
Technical and Fundamental Analysis:
Traders need to analyze the chart and indicators such as Moving Averages, RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence) to understand the price movements.
Staying up to date with news, GDP, inflation rates and geopolitical issues can help to get an idea of the price prediction. These are the factors which certainly affect the market volatility.
Diversification:
Sometimes when the euro market declines the USD or AED doesn’t. If we choose different pairs of currency rather than choosing just one we can take advantage of different market conditions. It can lower the risk of loss and increase potential gain.
Automated Trading:
Trading bots these days are very popular for their low risk algorithm and strategies made out from a lot of analysis of different charts and trends. I wouldn’t suggest you directly trade with bots but it can help you to make decisions and remove the urge to make impulsive decisions.
Continuously Learning:
If you keep yourself engaged in learning new strategies and educate yourself on geopolitics it can help you trade better. Also, join a trading communities in social media you can sometimes get useful information from your pals.
Conclusion
In summary, forex trading with Bitcoin can be both exciting as well as significantly risky. The dramatic fluctuation of the Bitcoin market can create potential gainer, but it can also lead to loss. Traders can leverage these aspects to diversify their portfolios, reduce risks, and take advantage of rapid price fluctuations.
However, it’s crucial to approach this market with caution. The same volatility that allows for quick gains can also lead to significant losses if not managed properly. Regulatory uncertainties, security vulnerabilities, and the emotional nature of trading further complicate the landscape.
