The world of trading can sometimes be a confusing place; however, thanks to the evolution of technology and the growth of the internet, it’s never been easier to trade in stocks, shares, and ETFs online or even via apps. Therefore, there are a lot of choices out there. You could, for example, start looking for forex brokers at Leaprate.com if you’re unsure of who to trade through.
Many traders are now investing in cryptocurrencies, such as Bitcoin and Ethereum, as well as stocks. While the two trading worlds are often quite disparate, it’s not unheard of for people to trade cryptocurrency through forex brokers and platforms. But how does it work? Is it markedly different from traditional trading?
Two things we always have to remember when it comes to forex is that it’s generally wide open. Forex brokers and trading platforms will allow you to trade with almost any currency. That, in some cases, includes cryptocurrency. However, the other point we need to keep in mind is that crypto is not as widely adopted through forex brokers as you may expect. The volatility of Bitcoin, for example, is likely to be the reason for some platforms holding back.
However, for those forex broking services actively and happily welcoming Bitcoin and other cryptos, there are a few things we need to know before getting started.
How forex and crypto work together
On the face of things, forex and crypto go hand in hand when working together. That is because forex by its very nature is decentralized, though there is still some backing from financial institutions. There has to be for trades to go ahead. Cryptocurrency is also largely decentralized. It is this which can impact profoundly on the way it is perceived by mainstream financial bodies and banks.
Forex trading relies on a pair system, which means that you will generally trade in a pair of currencies – one trading out, and one trading in. For example, you could choose to trade in a USD/GBP pairing, which means you will receive British currency in return for US capital. The same, in theory, happens with crypto.
However, as mentioned, a lack of centralization can make crypto such as Bitcoin extremely volatile. That means it is at risk of regularly spiking high and dipping low within a short space of time. Therefore, some platforms and forex services avoid talk of crypto altogether. Trading in crypto is, to many traders and investors, seen as a high-risk maneuver, especially when you may be working with something as stable as USD, the global standard.
That said, there are still platforms out there that openly allow you to use crypto in pairs. How do they navigate what’s widely seen as a risky move, even in decentralized markets?
You might not trade in crypto as-is
One clear way around this scenario is that, with some forex platforms, you don’t receive the digital currency as-is. Instead, for additional support and protection against risk, you will be investing in CFD contracts. That means that no Bitcoin, for example, is trading hands. It means that you are, instead, investing in the promise of Bitcoin. This helps to ensure that you, as a trader, don’t receive a sudden drop in crypto value you expect from your trade. Twenty-four hours is a very long time in crypto trading, meaning that anything can happen.
There’s no need for wallets
If you’ve already started trading cryptocurrency elsewhere, then you may already have a digital wallet, programs that act as a digital repository for all the coins you trade or buy. When you trade cryptocurrency via forex, however, there’s no longer a need for you to have such a program to hand. Much of the trading takes place as-is through a forex platform.
That might appeal to many people as it can make life a lot easier, but many people also prefer wallets as they get to keep control of their coins. The fact that you are more likely to be trading in CFDs than actual digital currency through forex renders the need for a wallet null and void, in any case.
Your pairs are interesting
What some traders may find when they trade crypto outside of forex is that they can only pair up their coins with other types of crypto. This, while useful in many cases, is not always appealing because some traders may choose to actively head to forex to look for lucrative fiat pairings.
For example, instead of sticking to well-trodden pairings such as LTC/BTC, you can mix things up with BTC/USD. This particular pairing might be interesting to anyone looking for a little stability when dealing in Bitcoin at all, as USD is seen as a global, stable choice.
Deposits and withdrawals remain fiat
A potential downside for some traders is that you will only ever be able to pay in and cash out through fiat currencies with a forex platform. That might actually be desirable to some traders however, particularly as there is no risk of you taking away digital currencies. Fiat money such as USD is stable in, and stable out – you are merely taking full advantage of the incredible spikes that crypto such as Bitcoin is well known for.
Things to look out for
In traditional markets and trading, you’d normally need to keep a look out for political or global moments that sway the value of fiat money. However, when it comes to cryptocurrency, there’s less need for you to worry about this side of things.
However, do always be careful when trading in crypto via forex. It can be very lucrative! However, when significant issues such as hacking events and negative news about technology enter the global press, there is always a chance that crypto will start to dive in value.
That said, crypto is by its very nature volatile – you must be ready and fully prepared to deal with spikes, dips, and everything in between. Be sure to do plenty of research!