You might be surprised to know that Bitcoin and Forex are two words that very rarely end up in the same sentence, however it has since become a multi-billion dollar market! Much in the same way as both retail and institutional investors buy, trade and sell foreign currencies with the aim of making a profit, the same can be done with Bitcoin and altcoins. The markets can be quite daunting at first, as forex trading is most commonly performed in an ultra-fast, high pressured environment, whereby the smallest of gains is seen as a substantial results. However, this Bitcoin forex trading 101 guide is going to give you all of the information you need to get started.
What is forex trading?
Foreign exchange, otherwise referred to as forex or simply FX, is the global marketplace where fiat currencies are traded. The types of currencies changing hands can be divided down in to three categories. Major Pairings are regarded as strong, highly demanded currencies such as the USD, GBP and EUR. These are generally less volatile and very rarely see any major overnight swings, other than when a major geo-political event occurs such as the Brexit referendum or Trump’s U.S. election win.
Next up you have minor pairings, which also refer to strong currencies, but slightly less demanded than the likes of the USD. This would include currencies such as both the Australian and Canadian Dollar and the Swiss France. The third category is referred to as exotic and will include currencies from within emerging and developing nations such as the Kenyan Shilling or the South African Rand. As one would imagine, finding any sizable liquidity for these currencies is very rare, however not impossible.
To connect two currencies together, we call this a pairing. For example, a USD/GBP pairing would see an investor speculate that either the USD is going to rise or fall in value against GBP, or vice-versa. However, the fun doesn’t stop there, as there are a number of additional financial trading instruments available, such as futures, forwards and the spot markets.
The fundamental idea is therefore simple. Predict which way you believe the currency is going to go, and choose how much you want to invest. A simple example would be as follows.
- Investor A believes that the USD will increase in value against the Japanese YEN.
- Investor B believes that the Japanese YEN will increase in value against the USD.
- We therefore have a market.
- The current market price is 1 USD = 100 YEN
- In forex terms, we can describe this as USD/YEN:1/0.01
- To keep things simple, let’s say that the Japanese YEN doubles in value against the USD. The new market price is USD/YEN:1/0.02
- Investor A has lost 50% of his investment, so cashes out at a loss, while investor B has doubled his money and also decides to cash out.
The above example details the fundamentals of a forex trade. However, the underlying markets are far more complex than this, with a significant amount of volume going through the books each and every day. In fact, the fiat currency forex markets are responsible for trillions of dollars in trade every day, which is highly significant. Interesting, although forex specifically refers to the foreign exchange of currencies, it also includes a plethora of other financial assets such as commodities, stocks and bonds. The principles are exactly the same, which leads us on to the next section.
What is Bitcoin forex trading?
In a nutshell, a Bitcoin forex trading platform allows you to trade a variety of financial products from the comfort of your home, outside of the traditional financial markets. Unlike the real-world forex markets, where you use real-world fiat currency as collateral, the cryptocurrency alternative allows you to access the very same pairings but by instead depositing Bitcoin.
For example, let’s say you are wanting to speculate on the value of Bitcoin falling against the USD. By using a cryptocurrency trading platform, you can do just that.
However, the markets are so dynamic that you can also speculate on non-Bitcoin related performance, such as the price of Oil rising or the price of Apple shares falling. The key difference is that you are able to access all of this traditional financial products just by depositing Bitcoin.
Where can I start my Bitcoin forex trading career?
Just like the actual cryptocurrency markets themselves, Bitcoin forex platforms are still a new breed. However, more and more are springing up, each offering their own unique selling point. For the purpose of this review, we have listed two of the most popular at this present time – Whale Club and Simple FX.
Whale Club are located in Hong Kong and offer a plethora of forex trading pairs, ranging from metals, major shares and both fiat and cryptocurrencies. In operation since 2014, new customers are not subjected to any form of KYC (Know-Your-Customer), meaning that you can start trading straight away. To ensure that your money is kept safe, the vast majority of customer funds are kept in cold storage. The only deposit method available through the Whale Club platform is Bitcoin, which means that moving money in and out of your account is fast, transparent and secure.
Also founded in 2014, Simple FX are an online forex platform that specialize in cryptocurrency. By depositing in Bitcoin, you have access to a significant amount of financial pairings. Also founded in 2014, Simple FX are an online forex platform that specialize in cryptocurrency. By depositing in Bitcoin, you have access to a significant amount of financial pairings.
If you are looking to speculate on the rise and fall of fiat currencies, Simple FX offer all three categories – majors, minors and even exotics. Furthermore, commodities like oil and gold are also tradable. You can fund your account with Bitcoin, altcoins and even by bank wire.