Trading Bitcoin: A new Option in the Forex Market

Bitcoin exploded into the center of global attention in 2013 when its price shot up from $10 to over $1000 an increase of more than a hundred times! Since that frenzy, bitcoin fell more than 80%, back to $200, but still long-term holders have experienced lofty gains, and the volatility in this new currency provides opportunities to short-term traders as well.

trading bitcoin

The basics of bitcoin

“But what is bitcoin?” you might ask. It is simply put, a virtual currency without a centralized system of account. The crypto-currency, as it is often referred to, promises being the gold of the digital age, without the influence of central banks. The currency has to be “mined”; in practice that means running an algorithm that rewards the miners with a pre-defined amount of bitcoin.

As its final amount is limited it has an advantage over traditional fiat currencies that can be printed limitless if needed. With Quantitative Easing programs running around the world in the most developed nations, like Japan, the United States, and the Euro Zone, the demand for such an asset might be on the rise.

Also the free payment method, called blockchain, behind the currency provides a secure, anonym method of payments for those who worry about their privacy. Some critics note that this also leads to widespread use of bitcoin among criminals and terrorist groups.

There were some other controversies like thefts at major bitcoin exchanges, where the currency is traded, which fueled the skeptic voices surrounding the new technology. An important fact about the crypto-currency that it is fully or partially illegal in some parts of the world including Russia, China, Taiwan, and Vietnam.

How to trade bitcoin?

The primary traded price, BTC/USD, is not a traditional forex pair as it is not traded in the interbank markets. Nonetheless, some forex brokers now provide the opportunity to trade with the virtual currency. You can also choose a dedicated exchange like Kraken where you are able to trade bitcoin against various currencies.

Forex brokers offering bitcoin

If you want to have a forex broker that offers the choice of trading with bitcoin there are a few options out there already, but this part of the market is quite new so be careful with the conditions. Some brokers offer CFDs (Contract for Differences) on bitcoin, and some treat it as a regular forex pair (but in reality those are also backed by CFDs).

With some brokers, you can also trade Litecoin, another newcomer to the market with the same technical background as bitcoin, but with less volume.

PLUS 500

Probably the best choice right now if you want to trade bitcoin is Plus 500. It offers a narrow spread compared to its peers (around $3-$4 or 1% at current prices). 13:1 leverage is possible with the company and you can trade BTC/USD from the same account as all the other products offered.

Note that these conditions like the spread and leverage are not fixed; if the market turns volatile they might change. This is true for every broker listed here.

AVA-Trade

The Ireland-based broker also offers an account with access to BTC and all of its other products. The offered CFD has an implied spread of around $6, a relatively high fee. There is a distinction between a continuous CFD and a weekly CFD for bitcoin (the latter expires on Fridays) with a difference in leverage (20:1 for the weekly and 2:1 for the continuous due to the fact that bitcoin has a weekend market on some exchanges).

eTtoro

With eTtoro, there are strict restrictions for trading the crypto-currency. You can take on positions only in certain times a day and there is a maximum of 4 trades per day. There is no possibility of shorting, further limiting your choices, which is a shame considering the otherwise great platform and user experience.

Other brokers

Unfortunately, none of these brokers accept US citizens as account holders and actually there is no other reputable broker that offers a wide range of products and bitcoin too, for them. The best way to trade BTC in the states is through a dedicated exchange or venue such as Bitstamp, BTC-e (with the highest volume), Kraken or Magnr.

Other brokers with BTC trading include: Fxchoice, FX-Open, SimpleFx, and VenetFX.

The future

Whether or not bitcoin will be accepted as legitimate currency later on is still a question but it offers a good investment opportunity as it might turn out to be a huge factor in the financial world. Should that happen its price has amazing prospects with the finite number of mineable bitcoins available.