In Forex trading, cryptocurrencies are often used to deposit and withdraw funds or to trade with as part of a pair, against other cryptocurrencies or currencies. Many brokers offer for example Bitcoin or Ethereum CFD trading which can be traded as part of the following currency pairs: BTC/EUR, BTC/JPY, ETH/USD, or ETH/EUR to name a few. With forex trading gaining popularity and more traders wanting to participate both in the cryptocurrency and forex market and explore more market opportunities, both digital currencies and forex have attracted more interest. Beginner traders and more professional traders are looking for new ways to expand their portfolio while making potential profits.
While the cryptocurrency universe and bitcoin trading appear fascinating, traders should do their research, understand the dynamics between forex and crypto so they can make informed trading decisions.
Before we continue, let’s have a quick look at what cryptocurrencies are and how they work.
What are cryptocurrencies?
Cryptocurrencies are digital currencies that use cryptography to ensure that financial transactions are secure and to verify asset transfers. Bitcoin is the first and most popular cryptocurrency, but after 2009, many others have followed including Ethereum, Litecoin, and Ripple. Cryptocurrencies are able to be exchanged and circulated on the internet on decentralised networks using blockchain technology.
CFD Trading
Traders can participate in the forex market through trading CFDs on a number of currencies, including cryptocurrencies. CFD trading is based on the idea that the trader can make profits by speculating on the price changes or movements of a currency or cryptocurrency without having to own the underlying asset. CFD trading provides traders with more flexibility as they can trade both directions, while the availability of leverage allows them to put down part of the final trading amount, as they borrow the rest from the broker. In this respect, since the trader doesn’t own the underlying asset but merely speculates on its price through an agreement with a broker, CFDs are described as derivative products that derive their value from the underlying asset.
CFDs are contracts between traders and brokers to exchange the difference in the value of an asset from the time the contract is opened to the time the contract is closed.
Combining cryptos and FX
While forex is a massive market and the cryptocurrency market is buzzing with the promise of the new, combining the two opens up the space and creates more opportunities for traders. Both markets may be volatile but may provide plenty opportunities to traders who are careful and take the necessary risk management measures.
Why should I trade CFDs on cryptocurrencies?
Trading cryptocurrency via CFDs gives traders access to a large number of cryptocurrencies, allowing them to diversify their portfolios and branch out into other markets. The use of leverage also is an attractive aspect of CFD trading, as it can help traders multiply their positions and potentially increase their earnings. At the same time, it can also increase losses if the market moves against them.
CFDs can be initiated or cancelled quickly, allowing traders to quickly react to market movements. Trading CFDs through the standard MetaTrader 4 (MT4) trading platform is preferred by many traders as it gives them access to a series of advanced and complex trading tools, live market data, and risk management tools that help them identify and grasp opportunities.
Understanding the risks involved
While trading cryptocurrencies via CFDs can provide traders with plenty of opportunity, it is important to also be aware of the dangers involved. The crypto market is very volatile and price changes can happen very quickly and sharply, which can lead to massive losses or gains. These losses or gains can also be magnified by the use of leverage which in forex trading can be quite flexible and reach up to 1:1000. Traders must be careful and protect their accounts and minimise exposure by using risk management techniques such as stop-loss orders and position diversification.
Education
Traders should read widely and educate themselves so they are able to understand the link between cryptocurrencies and CFDs. Having a good grasp of of cryptocurrencies, how they work and how their price movements can be influenced by market news and other factors will provide some more clarity to traders. By following market news and trends, reading daily updates and regulatory developments will help traders keep ahead of the news and make better and more sound trading decisions.
Traders can also use technical analysis to analyse the financial markets, including cryptocurrencies. If you are familiar with technical analysis, you can use your knowledge when trading crypto CFDs. Analysing stats and trends, and identifying opportunities through the use of trading systems to forecast price movements, traders can understand market sentiment and grasp opportunities. Trading platforms such as the MT4 offer access to technical analysis tools, allowing traders to expand their skills and trade more effectively.
CFD brokers provide access to a wide range of cryptocurrencies, including Bitcoin and Ethereum. Any trader, from the comfort of their own home can now trade the global markets and participate in the crypto market with a relatively small capital through the use of CFDs. Traders can trade crypto CFDs 24/7, and enjoy uninterrupted market access. Whether you are trading crypto, you have the ability to trade any time you want and go after price fluctuations based on your own analysis and regardless of your time zone.
CFDs have opened the market to an increasing number of traders, allowing them to explore both CFDs and forex, bridging the gap between forex and digital currencies and opening up the space of online trading. Cryptocurrencies have attracted a new generation of individuals who are now interested in online trading and want to partake in the market and explore trading on their own terms. This younger generation is also treating trading as an opportunity and is less interested in separating cryptos from forex. Rather, they see forex and crypto interchangeably, as assets which they can trade and make potential profits. As long as traders remain cautious and trade based on their analysis, using risk management tactics, they will manage to navigate successfully the interesting convergence and opportunities given by cryptocurrencies, forex and CFDs.
