Cryptocurrencies have become incredibly popular in the last few years. Despite the inherent risks and lack of conceptual understanding, many people are willing to use them for regular transactions. Among others, we’re now seeing a trend where people use crypto as a base currency for their Forex pairs.
While these digital assets are generally more flexible, they also come with lots of risks. Let’s see what makes cryptocurrencies unique during Forex trading and what type of issues you can expect.
Advantages of Using Crypto for Forex
- Barrier to Entry
People with cryptocurrency wallets can start trading almost immediately. Unlike traditional trading, where you need a minimum account balance and proof of identification, digital assets allow you to invest with barely any funds.
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- Full Market Access
Bitcoins and other cryptocurrencies are being traded around the clock. This sets them apart from traditional Forex, which doesn’t work during weekends. The option to trade during weekends gives you a strategic advantage that can have a major impact on your profits.
- Crypto Appreciation
Basing your investment on cryptocurrencies allows you to benefit from volatile fluctuations. Given that these assets have enormous potential, you can gain money just by holding a long position against the Euro, dollar, and other traditional currencies.
- More Privacy
Whether we’re talking about Forex trading or some other transactions, nothing can beat cryptocurrencies in terms of privacy protection. As you don’t have to leave any personal information when investing, no one will know your identity. This is especially important for people who could be scrutinized for their background.
Disadvantages of Using Crypto for Forex
- High Volatility
As mentioned, cryptocurrencies are extremely volatile assets, making them ideal for risk-takers. Unfortunately, this is also one of their biggest drawbacks. People who use Bitcoin or Ethereum for its pairs can lose a fortune in a single day of trading. This is why many investors still stick with the dollar even when its outlook is bleak.
- Lacking Regulation
The legal status of cryptocurrencies is still in the air. While investors are allowed to perform financial transactions with them, we don’t know if future regulation will affect their status. In fact, some governments have already limited their potential as financial exchange assets.
- Potential Theft
One of the biggest issues surrounding crypto has to do with their safety and availability. These assets don’t have the same FDIC protection like the traditional currencies, and have been targeted by hacks in the past. While security measures have improved as of late, investors still bear a major risk.
- Tax Issues
While it’s rather easy to enter the market using cryptocurrencies, exiting is a different story. Given that most investors perform numerous quick trades, calculating taxes is a tedious job. So, unless you’re willing to hire a financial consultant, you’re at risk of miscalculating your taxes and paying penalties.
Final Verdict
Even with all the issues, there are still some positives ahead of us. People are generally interested in using these assets, which will likely speed up the creation of suitable laws.
There are also many FX brokers that accept Bitcoin deposits and withdrawals. This makes it easier to perform transactions, no matter where you live.
Benefits and Risks of Trading Forex With Crypto
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