The listing of other assets such as indices, stocks and commodities, paved the way for the inclusion of futuristic assets on the MT4 forex platform. So when some forex brokers started listing the commonly traded cryptocurrencies on forex platforms such as the MT4, it was not entirely a surprise.
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It is now possible to trade Bitcoin, Litecoin, Ethereum and other cryptocurrencies on the forex platforms, and profit from the price movements to the upside and downside.
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We shall examine some aspects of cryptocurrency trading on forex platforms.
- The basis of cryptocurrency trading on forex platforms
- The commonly traded cryptocurrencies
- Technical and Fundamental Factors
- How to Trade Cryptocurrencies on Forex Platforms
- Cryptocurrency Trading: Forex platforms vs Cryptocurrency Wallets
The Basis of Cryptocurrency Trading
For an asset to qualify to be traded, it must have the following characteristics:
- Volatility: the price movement of the asset must be volatile enough to create a differential, which can be traded for profit.
- Liquidity: The asset must be able to attract a reasonable amount of liquidity.
Liquidity comes when there are many traders actively trading the asset.
It makes no sense trading an asset with only 10 participants and very low trading volume.
- Acceptability: Many traders must be willing to buy and sell the asset for money.
- There has to be a way to standardize contracts and make these available all over the world.
Cryptocurrencies have these characteristics and are therefore amenable to trading on forex platforms.
Commonly Traded Cryptocurrency Pairs
There are several cryptocurrencies today, but the ones commonly listed for trading on forex platforms are Bitcoin (BTC), Litecoin (LTC) and Ethereum (ETH).
They are paired most commonly with the Euro, Japanese Yen and Chinese Yuan.
Technical and Fundamental Influences
The major influences of price movements of cryptocurrencies appear to be the following:
a) Endorsement by Global Powers
So far, the greatest mover of cryptocurrency prices from a fundamental point of view seems to be acceptance of the cryptocurrency by major political and economic figures.
Ethereum’s upward push was in no small measure, a fallout from the meeting between its founder and Russian president Vladimir Putin.
Cryptocurrencies have moved from a stage where a founder had to remain anonymous, to one where founders now have audiences with presidents; something most of us will never experience. Some countries have accepted cryptocurrencies in various degrees, and these are seen as discrete endorsements that will surely cause cryptocurrencies to become a permanent feature of our lives.
b) Increasing Demand by Speculators and Exchangers
The supply of Bitcoin and other cryptocurrencies is finite.
When the supply of an item is restricted and demand starts to bludgeon, prices will increase. When speculation is added to the mix, then we will see more of the steep rise-fall patterns which have been seen on the charts in 2017.
What currencies should you trade for?
Furthermore, the exchange of cryptocurrencies for money is a growing business that is spreading to areas of the world where they were completely unknown a few years back. With more people placing demand on Bitcoin, Ethereum and other cryptocurrencies, there will surely be demand-based price movements to the upside and downside.
Cryptocurrencies can also be traded using the time-tested methods of technical analysis.
In this snapshot, we can see the double bottom formation on the Bitcoin/USD chart, which is amenable to a long entry as displayed.
Trading Cryptocurrencies on Forex Platforms
Not all forex platforms feature cryptocurrency pairs for trading, so you have to take some time to pick one that does if you want to trade cryptocurrencies on forex platforms.
If you have found one, especially one which is offered on the MT5 series, then you can simply open an account, fund it, practice on demo and later on, start trading with real money.
Here is a walk-through on how to setup your cryptocurrency trading on the MT5.
We will use MT5 because updates for the MT4 are no longer supported, as part of changes by Metaquotes to wind down the MT4 and promote the usage of the MT5.
a) Open a demo and live account on MT5 on your regulated broker’s website, (make sure your broker already provides Cryptocurrencies trading, Like Instaforex Broker) then download the MT5 platform using the link sent to your email after registration.
b) Open the MT5 and login with your details.
c) Click “View” and then “Symbols” on the top navigation window, or simply press Ctrl + U on your computer.
This shows the assets listed in the platform.
d) Click on the + sign beside ‘Crypto’.
The Basis of Cryptocurrency Trading
This opens the list of cryptocurrencies. Click on “Crypto” to select all the cryptocurrencies, and click on “Show” to display them all in the Market Watch window.
You can also select each cryptocurrency pair individually.
These cryptocurrency pairings will be available for trading once this process is completed.
Cryptocurrency Trading: Forex Platform vs Wallet Trading
Some speculators are involved in cryptocurrency exchange business.
Here, they exchange cryptocurrencies from their wallets to those of other traders when prices are high, and buy them again when prices have fallen.
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In this manner, they aim to make a profit. However, this method presents a lot of risks.
- Nobody under the sun knows when prices of an asset will peak and when they will bottom out.
It is therefore very easy to lose money by simply relying on price information to buy low and sell high. Without tools to analyze price action, the exchanger is basically trading blind.
- It is getting increasingly harder to get fast confirmations that will help the trader beat the volatility of the cryptocurrency assets.
Many wallet providers now charge money to prioritize confirmations from vendors.
This fee can eat into any profits an exchange vendor may hope to make.
When you trade on forex platforms, many of these risks are reduced to the barest minimum.
- As a trader of cryptocurrencies on forex platforms, you have access to charts and tools of analysis to help you make informed decisions.
- Cryptocurrency trading on forex platforms provides an opportunity to make money whether prices are rising (using long entries) or falling (using shorts).
You would not need to develop the kind of blood pressure problems many exchangers experienced when Bitcoin prices fell from $2,972 to as low as $1,824 between June 9 and July 16, 2017.
- You get instant executions for your trades without waiting on a confirmation queue for hours on end.
The benefits are very clear.
If you should trade cryptocurrencies, do it from a forex platform.