Fore with Forex
Forex is the largest and most liquidity saturated market at the moment, and it never sleeps, anywhere. The advent of cryptocurrencies has added a completely new dimension to currency trading. Few brokers are now trading BTCs or other cryptos, but the issue remains hot and many are willing to make a quick buck on Forex by injecting their Bitcoins and Ethers into the mix.
Forex trading works much like any other exchange. Let us say we have a trader betting on the British pound/U.S. dollar currency pair (GBP/USD). The trader deposits $100 at the broker. For the sake of the example, the rate is a nominal $1 = £0.5, or £50 for $100. If the GBP/USD rate changes to 0.45, the trader will close at 50/0.45 = $111.11. 11.11% profit over the initial $100 deposit. Sounds simple, but the shift was due to a multitude of factors, from political and socioeconomic to basic insider trading.
In Bitcoin Forex trading, the trader must open a forex trading account with a broker who accepts bitcoins (AvaTrade, eToro, Liteforex). Again, let us take an example and deposit 2 Bitcoins from a digital wallet like Lykke to the Forex broker’s digital wallet. Again, let us assume the Bitcoin to U.S. dollar rate is 1 Bitcoin = $10,000, then the deposit of 2 Bitcoins is equal to $20,000. Let us assume the British pounds position once again for the sake of the example. If the exchange rate is £0.5 = $1, the trader receives £500. After the involvement of some factors, the GBP/USD rate changes to 0.45, and the position closes, assuring $1,111.11. profit in the trader’s account. However, now the Bitcoin to U.S. dollar rate has changed to 1 bitcoin = $11,200. When the trader withdraws in Bitcoins, the profit is ($1,111.11/$11,200) = 0.09920625 Bitcoins. Despite the 11.11% profit (from $1,000 to $1,111.11), the fluctuation in the Bitcoin to U.S. dollar rate means that you still sustain a loss of .016 bitcoin, or -0.8%. However, had the Bitcoin to U.S. dollar exchange rate changed to 1 Bitcoin = $9,500, the profit from both the Forex trade and the Bitcoin exchange would have been ($1,111.11/$9,500) = 0.116958 Bitcoins, a profit of 16.95%.
There are some benefits to trading with Forex, for instance high leverage as most Forex brokers offer high leverage ranging up to 1:1000 for Bitcoin trades. Though most traders can use this to their advantage, such leverage options should be looked at skeptically. Another advantage is the lack of transaction costs, which leads to higher profits. The low cost of trading is a natural result as most Forex brokers that accept cryptocurrency are keeping brokerage costs very low to attract the new Bitcoin-trading clients. Many fear security issues, but with bitcoin transactions, the trader does not reveal their bank account or credit card details.
However, there are also risks associated with the trade of cryptocurrencies on Forex. Exchanges rates vary and the volatility of Bitcoin rates has surpassed all expectations recently. Also, Bitcoins are the target of theft by hacking, even from digital wallets. To cut down on this risk, look for brokers who have insurance protection against theft.
Though the crypto market is still relatively new and lacks many of the traditional institutions of a civilized market, there are projects on the market that seek to indemnify or mitigate the associated risks that investors take when deciding to invest in projects. Cryptics is one such project that seeks to offer the necessary instruments for alleviating the situation with uncertainty. The concept behind it is to support market participants by providing liquidity on exchanges and a safety cushion for retail investors by creating a platform that connects market players and develops algorithms to predict changes in the value of cryptocurrencies. Such instruments based on highly advanced scoring models involving machine learning and AI are incomparable with human intuition that even the luckiest and most prudent investors could ever be endowed with. The multitude of factors involved in predicting a cryptocurrency’s rise or fall are all taken into account by the algorithms that Cryptics employs. Investors should consult such projects as the expense is well worth the ensured profit and peace of mind.