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Bitcoin is a brand new financial technology that has been rapidly growing in popularity and use over the past few years. As there is a multitude of benefits associated with using Bitcoin, many industries are adopting it and putting it into use.
The financial trading sector is no different here. Traders working with standard trades as well as Forex (FX) and Binary options have started widely using Bitcoin to make their trades and establish their positions.
If all of this sounds Greek to you, don’t worry. We are going to walk you through everything step by step to make sure you fully understand what Bitcoin is and how it relates to the financial trading marketplace.
What is Bitcoin?
Bitcoin is a new type of virtual currency, often referred to as a cryptocurrency due to its anonymous nature. Bitcoins are much like any other form of currency except they are completely virtual meaning that you can’t hold them in your hands like you would be able to with a dollar bill or an actual coin (like a quarter).
Bitcoins are created by computers through a process called mining. Massive amounts of computer power are used to solve calculations that ultimately create each Bitcoin. With each Bitcoin that is made, it becomes harder and harder to create the next one until it will eventually be impossible to create anymore Bitcoins.
Once a Bitcoin is created, it can be transferred from computer to computer and is stored 100% virtually online.
You may be asking yourself why Bitcoins have any value. Much like normal paper currency, there is not much value to the actual coin. It can’t really be used to do anything with and if you “broke it down for parts” it wouldn’t really be worth anything either. The reason it has value is that it is limited in quantity and people have elected to recognize it as a valuable commodity that can be used to buy or sell goods.
Here’s a Helpful Analogy
A common analogy used to explain this is the prison analogy. In prison, cigarettes are used as currency. In reality, cigarettes are really not worth that much, but they hold a much higher value in prison. Why? There is a limited supply of them, and the prisoners have decided to recognize them as their form of currency. They are effectively the prison’s form of money because the prisoners have elected to recognize it as such. This is also like if you play poker for matchsticks. The matchsticks have no actual value, but they’re given one when you and the other players elect to recognize them as your form of currency.
Bitcoins are able to be used to purchase goods and services over the internet. More and more businesses are starting to recognize the currency and accept it on their websites. Financial trading sites are also starting to allow traders to use Bitcoin to fund their transactions and their trades.
What happens if you want to use your Bitcoin for something that does not support Bitcoin?
Simple. All you have to do is convert your Bitcoin to a different, more traditional, form of currency and you’re good to go.
This is a lot like when you are planning a vacation to a country with a different form of currency. If you want to be able to buy goods and services there, you have to convert your money into their currency. After your trip, that money won’t help you at the places at home that don’t accept it. All you have to do is go to a bank and convert that money to your traditional and preferred form of currency, and you can start using it again. Bitcoin is exactly the same except everything is done online.
The Benefits of Bitcoin for Trading
There was one thing missing from our vacation analogy that we did not point out. The reason you convert your money when going on vacation is that your current form of currency will not work there.
This isn’t the case with Bitcoin.
Any place that you are looking to spend money or anywhere you are looking to make financial trades will usually accept your traditional form of currency without it being converted to Bitcoin. So why would you ever want to go through the transaction process to use Bitcoin?
Let’s look at the benefits of using Bitcoin for financial trades. The benefits will be the same for other purchase and other uses.
Security
Bitcoin transactions allow you to make your trades and transfers without ever having to reveal your bank account or credit card information. If you are planning on dealing with foreign banks which are common with trading, this can be a huge plus.
No or Low Transaction Costs
Due to the nature of Bitcoin, the transaction process is much simpler and does not require the use of third parties. There is no need to use a bank of a clearing agency to move the money. This can make for much more cost effective transfers locally and internationally. Fees are usually non-existent or extremely low compared to other deposit and withdrawal methods.
Low Brokerage Costs
Due to the lower transaction costs and the fact that this market is emerging, brokers accepting Bitcoin transactions typically keep their fees much lower than with traditional methods.
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Elimination of Global Boundaries
Bitcoin has basically erased the country and continent lines across the globe. No longer do you have to worry about which country you are looking to do business with or make trades with. Complete freedom to do as you wish is now yours.
Low Deposit Amounts
Brokers and brokerage sites offering Bitcoin are offering extremely low initial deposit limits allowing traders to get started for cheap. It’s also not uncommon to see a lot of brokerage sites offering deposit matching and other promotional offers to new customers.
Recommended Sites for Bitcoin Trading
If you’re looking to get started trading for the first time or are looking to transfer to a site that allows Bitcoin transactions, you’ve come to the right place. We’ve done some extensive homework and vetting to find the top sites currently offering Bitcoin trading.
We analyzed the sites for security as well as trading specific amenities. If you’re ready to take the next step in your trading journey, check out some of the sites we’ve recommending below. This list is also constantly updated as we get more information on existing sites as well as sites that are transitioning to offering Bitcoin transactions.
How is it Different from Normal Trading Online?
The answer to this is very different and exactly the same.
Confused? We will explain.
When we say it is very different, we are referring to the benefits that we mentioned above. You get added security, lower fees, transparency, and ultimate freedom to make the trades you want to make.
When we say it is exactly the same, we are referring to the types of trades offered and how everything works. You will feel right at home if you’ve been trading for a while or have been studying up on traditional trading. The only difference will be the way that you fund and withdraw from your account.
A lot of people fear that this is a completely different beast and all the knowledge and experience they have already acquired will be worthless. The bottom line is that this is not the case. Once your account is funded, everything will look and feel and actually be the same.
The one caveat to this that we want to point out is that just like with any form of currency conversion, you are subject to the changing exchange rates. Let’s walk through a simplified example and a trading specific example to show you what we mean.
If you recall earlier, we said this was a lot like exchanging money when you were going on vacation. Let’s say you are from the United States and you want to exchange $500 for Euros before a trip to Europe. You go to the bank, and they tell you the exchange rate is $1USD to 0.94 Euros. This means that for every dollar you give the bank, they will give you 94 cents in Euros. So you give the bank your $500 USD, and they give you 470.00 Euros. This is effectively the exact same amount of money. If you turned the Euros back in immediately, they would hand you $500 USD.
Now you go on your vacation, and for simplicity purposes, something crazy happens, and you don’t spend any money. When you get back to the states, you see that the exchange rate has changed and now it is $1USD to 0.92 Euros. When you turn in your 470 Euros, the bank will give you $510.86. You actually made a profit on your money just because of the exchange rate. Remember that the exchange rate can go either way and sometimes you will get back a little less in this scenario. If you’ve ever converted money for a trip, you’ve definitely experienced this and know it is commonplace.
Let’s say you purchase one Bitcoin for $700 USD and deposit it onto a trading site to use for a Forex Trade. (You can purchase fractional Bitcoins so don’t worry if these numbers are a little big for you). You want to take a position on the Euro. Let’s say that exchange rate is 1 USD to .94 Euros. You put your full $700 USD on the position and receive 658 Euros.
Let’s say the rate changes as it did in our above example and went to 1 USD to .92 Euros. When you go to cash in on your position, you sell your 658 Euros and receive $715 USD. This is a 2.14% gain for you on this transaction. However, you also then have to calculate the exchange rate on the Bitcoin if you are going to exchange your money back out into your original USD. Depending on the fluctuation of the Bitcoin exchange rate, you may see a difference in your profit or loss. The point is that after all of your trading is done you are still subject to the fluctuations in the exchange rate of Bitcoin.
The Wrap-Up
Ultimately, Bitcoin is a huge win for the financial trading industry. It opens up new avenues of trading for you as well as provides additional security, protection, and transparency. If you’re curious and looking to give it a try, we recommend checking out one of the sites we’ve recommend and start small.
Start with smaller transactions until you are more comfortable and then you can start working on establishing your bigger positions. If you’re an experienced trader then, by all means, go for it! The sky is the limit when it comes to trading and Bitcoin just makes getting there that much easier.
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