The sharp rise in the price of Bitcoin has led many Forex traders to try to trade in Bitcoin and other altcoins. Indeed, if there is a financial asset that demonstrates a decent return, why not profit from it? We will explain the most important points you need to know in order to trade Bitcoin and other cryptocurrencies.
Cryptocurrency is a type of digital currency, in transactions with which security is ensured through the use of cryptography methods. Cryptocurrency has a characteristic feature - it is released and maintained decentralized, with the help of Internet users. Thus, a cryptocurrency differs from conventional electronic money in that it is simulated online and is in no way connected with any of the state monetary systems, i.e. does not depend on fiat money. Digital currencies are a relatively new phenomenon in the financial world. Since its inception, cryptocurrencies have begun to rapidly gain popularity and are currently among the most sought-after trading tools.
Some of the most popular cryptocurrencies for forex trading are Bitcoin, Bitcoin Cash, Dash, EOS, Ethereum, Ripple and Litecoin. But the two cryptocurrency pairs most often found in forex brokers’ arsenal are BTC / USD and ETH / USD. Altcoins call all cryptocurrencies that appeared after Bitcoin. At first they were only copies of the most famous cryptocurrency. Currently there are already several thousand of them, and their number is constantly growing. Please note that the presence of a particular cryptocurrency in the cryptocurrency exchange listings is not the main criterion for the attractiveness of this cryptocurrency as an investment tool. A more important indicator is the trading volume that this cryptocurrency generates on the exchange.
Usually during the day, prices for Bitcoin fluctuate between $ 5- $ 35 per coin, but there have been changes of more than 2000 points in one day. In 2013, the bitcoin rate increased by 5580%. To conclude a transaction on the trader's account must be at least 20% of the current market price of Bitcoin. For example, to conclude a deal to buy or sell at a price of $ 240 coins, a trader must have a minimum capital of $ 48.
Trading cryptocurrencies in the financial markets opens up unlimited opportunities for earnings: you can make profit both on growth and on lowering quotations. The cryptocurrency market has a number of distinctive features, such as round-the-clock work seven days a week, which allows you to carry out transactions at any convenient time. In addition, low liquidity often causes high volatility, which can lead to rapid emptying of a trading account.
The advantages of trading cryptocurrencies on forex:
- Investment alternative to familiar trading tools
- Most forex trading strategies are applicable for trading cryptocurrency pairs, but strategies for cryptocurrency trading have their own characteristics that need to be taken into account
- Reliability and transparency of decentralized cryptocurrencies
- Prospective investments and risk diversification
- High volatility cryptocurrency opens up opportunities for rapid earnings
- Margin trading provides an opportunity to make a profit on the growth and on the fall of the course
- Hour trade (even on weekends)
- Lack of influence on the course by financial institutions
- The rate is determined by the level of demand of participants in financial markets.
Disadvantages of cryptocurrency trading
- High volatility can lead to a quick and complete loss of the deposit.
- Low leverage offered by most brokers
- Most brokers offer quite a small selection of cryptocurrency for trading
- Impossibility of scalping due to high spread
Many Forex brokers offer their clients cryptocurrency trading through the terminal. But as a rule, they have about 2-3 currency for trading. The most common trading terminal for trading cryptocurrencies is MetaTrader5, but some brokers offer their clients their own trading software.
Features of trading cryptocurrency pairs:
- If you use technical as well as fundamental analysis, the cryptocurrency shows itself perfectly.
- Analyzing news of financial markets, it is not difficult to accurately predict the fluctuations of cryptocurrency rates.
- It is profitable to use them for long-term investments, because most cryptocurrencies belong to a long-term uptrend.
- They can be used in trading continuously, because they do not depend on traditional trading sessions.
- According to the degree of protection, cryptocurrencies are equal to gold, and the purposes of their use are almost identical.
- For a bitcoin / dollar pair a large enough spread is established. This makes scalping impossible. For trading it is recommended to consider timeframes from H1 and older.
- For bitcoin, day division into trading sessions does not work. Bursts of activity in a pair of BTC / USD can occur at any time of the day.
- Due to the lack of liquidity, especially before the release of important news, a gap can be formed in a pair of bitcoin / dollar.
As a rule, most traders open a trading deposit in dollars. However, some forex brokers provide an opportunity to open a deposit in bitcoins. Trading a pair of BTC / USD is technically no different from trading conventional forex currency pairs. In the same way, deals for buying and selling are opened, stop loss and take profit orders are set. The key principles of technical analysis work in a pair of bitcoin / dollar, you can build trend lines, support / resistance levels, technical analysis figures and candlestick patterns. For trading Bitcoin on Forex, you can use the same technical indicators and trading advisors as for ordinary currency pairs.
When choosing a broker for trading cryptocurrency pay attention to the following points
- Spread size
- The size of the minimum deposit
- The need to create an electronic wallet for cryptocurrency
- The size of the commission to replenish the trading account and withdraw profit
- Free demo account
- Protection against negative balance
- Broker's license of major international financial regulators
The most promising cryptocurrencies for forex trading in 2019 are:
- Bitcoin. With Bitcoin, we have witnessed dark times and sunny days; now the price is characterized by a pronounced upward movement and there is no reason to expect a change in trend.
- Ethereum. Technical analysis signals that the market demonstrates all the prerequisites necessary for growth. First of all, it is worth noting that the quotes are in a very narrow range, in which a large volume of transactions is accumulated, so as soon as the price goes beyond the range, we should expect a strong impetus for the price movement.
- Monero. Once this coin has demonstrated excellent movement, adding more than 300% in just a few days. After the initial upward movement, a long period of consolidation followed. This is one of the overvalued cryptocurrency, which primarily suffers from increased interest in Bitcoin. It is possible that interest in Monero will increase again.
- Bitcoin Cash. This cryptocurrency has been growing at a faster pace lately than bitcoin itself, so it’s definitely worth a closer look at it. Bitcoin cash also expects the fork in November, at least this is justified by the increased interest.
Though still very young compared to traditional currencies, cryptocurrencies are often called the future of trading. The popularity of digital money has not yet reached its peak and is growing daily, while services for crypto traders are improving and developing at fast pace. If you are interested in making profits on the development of technology, you can safely invest in cryptocurrency. Now quite a few forex companies offer trading in cryptocurrencies and Bitcoin, in particular, and also open an account in Bitcoins. But before choosing one or another broker for trading cryptocurrencies, as well as a trading platform, we recommend that you familiarize yourself with the feedback from traders, this will allow weed out the most losing options in advance.
Author: Kate Solano, Forex-Ratings.com