Cryptocurrency – as an instrument of trading at Forex market
The information noise around the cryptocurrencies, the first and most popular of which is called Bitcoin, has reached almost everyone’s ears. Approximate turnover from different sources ranges from 300 to 400 million U.S. dollars per day. The popularity of electronic money is growing exponentially. To date, more than 275 varieties of anonymous electronic money are known. The most common are Bitcoin, Litecoin, Ripple, Darkcoin, Peercoin… And each of them has its own peculiarities. The popularity and cost of each individual depends, of course, on demand and, as a consequence, on the volume of trading. There is even an opinion that the cryptocurrency is capable of shattering the influence of the state on a person in the economic sense. In his article, Andy Greenberg, also editor of Forbes magazine in the U.S., made it clear that if the creators of the first cryptocurrency – Bitcoin, will be able to implement all that they planned, that is, the probability that the U.S. dollar may depreciate. So what kind of currency is this, with such power and popularity? Let’s get this straight.
Cryptocurrency is electronic money that cannot be faked, that does not have an emission center, but at the same time, everyone, with the help of computer power or a specialized board, can mine these cryptographic coins independently. And their value will be exactly the same as that of other electronic units. This money is stored in a wallet, in a file on the computer. Digital currency transfers are made between these wallets. That is, only two of these wallets are enough for this system to function.
(For a complete list of proven Bitcoin brokers, please go to the Bitcoin Brokers section.)
The value of an electronic tool is demand-driven. The demand in this case can be divided into 3 components:
1) Speculative-investment (buy cheaper, sell at a higher price)
2) Purchase of goods (for digital coins, as this instrument is anonymized, i.e. transactions are public, but not personalized)
3) Currency transfer from one wallet to another (in this case the commission is not charged or is less than 0.1%)
We, traders, of course, are interested in the first item. As I mentioned earlier, the speculative demand for the most popular, but far from being the only one, cryptocurrency is very significant. For comparison: the first batch of Bitcoin in the amount of 20 pieces was sold on the electronic platform Mt. Gox (until 25.06.2014 was the largest electronic platform for the exchange of this currency. On the morning of that day, the site officially went offline) in July 2010 for $0.99, which is one coin worth 4.95 U.S. cents. To date (30.06.2014) the average value of the rate according to the data from the 11 largest exchanges for digital coins of bitcoins (BTC) is 600.272 U.S. dollars (USD). Thus, it turns out that the price has risen 12126 times in 47 months. The maximum value of BTC reached November 30, 2013, when the rate was $1203,418 per coin. Growth is incredibly fantastic, isn’t it? But, of course, it should be understood that if the volatility of this instrument is so high, then the risks associated with the purchase/sale of cryptocurrency are just as high.
How can you make money on cryptocurrency?
There are four main ways:
1) “mine” (i.e., extract the cryptocurrency using the power of the processor or graphics card)
2) Investor coins (i.e. purchase of electronic coins in the hope that their exchange rate value will increase)
3) Speculative (i.e. buying and selling cryptocurrencies as ordinary currencies in the Forex market) It is also possible to conclude CFD contracts (Contract For Difference) and buy binary options.
4) Creation of a new cryptocurrency (with sufficient funding, computer and cryptographic literacy)
I will tell you a little more about cryptocurrency trading at Forex market. Let’s consider a Bitcoin tool from one of the brokers, which offers its clients the opportunity to trade with Metatrader 4. Since this instrument is over-volatile, the conditions for its use in trading are slightly limited. This is primarily done to protect the interests of clients.
So, 1 lot equals 100 units. The minimum volume of the deal is 0.1 lot, and the upper limit is 1 lot. The increase of the position volume is a step in the size of the minimum volume, i.e. also 0.1 lot. Spread is $10 and does not depend on the type of trading account (floating or fixed). But given the high volatility of this instrument, the commission conditions may be subject to change. On top of that, only intraday trading is allowed, again, in order to reduce risks for clients.
All transactions are closed at the end of the trading day by force.
Trading in cryptocurrencies is interesting due to high volatility, but at the same time, it is accompanied by high risk. On June 25, 2014, i.e. 5 days after the week-long strike, the famous Mt.Gox electronic platform ceased to exist, and the rate on other exchanges sank by about $100.
It is up to you to decide whether to trade (risk) this instrument or to watch from the outside and miss a huge opportunity to earn money.