What Bitcoin Can Learn From the Foreign Exchange Market
The Forex market has been active in some form or another since bartering began. What was trading gold for silver, after all, if not Forex trading? Of course, it has changed drastically since then, and foreign exchange trading can expect to change even more in the future. With technology evolving at a remarkable pace, it’s hard to see what innovations will be made in the next year alone.
Bitcoin is one of those innovations which could completely alter Forex trading. Bitcoin is an entirely digital currency, which has been gaining traction in the mainstream since it was created in 2009.
Now, Bitcoin has become part of the Forex market. Nonetheless, it does not work exactly like foreign exchange trading, and has a lot to learn from the market.
Bitcoin is an almost futuristic concept. Its creator’s identity is a mystery, making it seem even more like the plot of a science fiction movie. But Bitcoin is very real, and is possibly the future of all currency.
It has the advantage of being truly international. While other currencies are regulated by a regional authority, Bitcoin is decentralised, meaning its regulation is not based on region, and it retains the same value no matter where you are in the world.
Trading Forex with Bitcoin
The differences between trading Forex and trading Bitcoin may seem minimal. After all, Bitcoin is a currency, and follows similar exchange rules when trading with other currencies. It follows the supply and demand model. When demand increases, the price increases. When demand falls, the price falls.
However, a major difference is that Bitcoin is not subject to supply uncertainty created by centralised banks. This can be an advantage, but it does not always lower the potential of high volatility, which we will see can be overwhelming.
Bitcoin works almost like a commodity, rather than a currency. Trading through a Forex broker is essentially not required, although it lowers the risks substantially. The problem with trading Bitcoin as a commodity is that it then falls under commodity regulations, which are not ideal for Forex traders.
Another difference is that currency traders can trade in the one-to-one context, boosting their leverage through derivatives and other paper contracts designed to boost returns. While brokers are underwriting contracts to boost leverage in the Bitcoin sector, these are fairly new. Bitcoin trading has been compared to owning equity on the Stock Exchange.
Bitcoin’s current trajectory is in the direction of becoming more like foreign exchange trading. The same potentials that make Forex such a popular market could bring Bitcoin far more into the mainstream.
Significantly, Bitcoin is a much smaller market. While currency trading is in the trillions, Bitcoin is valued in the billions. This makes it harder to predict, with macroeconomic events causing huge price swings
Still a lot to learn
Forex has been around for so long that it is difficult to see how such a new player can force its way in. Bitcoin, however, is doing just that. It seems to be the potential future of money.
For now though, it is still very new. It has a lot to learn from foreign exchange trading. Forex traders should therefore keep an eye on Bitcoin, and possibly even dip their toes into the trading waters. In the near future, experience will be a huge advantage.