The price of bitcoin has climbed substantially over the years. But until recently, average investors had few avenues though which to take advantage of rising rates. Now, an increasing number of forex brokers are adopting bitcoin-based currency pairs, making bitcoin as easy to trade as fiat currencies.
Which forex brokers offer bitcoin trading?
Bitcoin forex trading has been around for some time on an international level, but has largely remained the realm of specialized online brokers.
Bitcoin brokers like Bity and Bitcoin Suisse have made buying and selling bitcoin in Switzerland relatively easy, but they are not well suited to forex trading. Swissquote became the first Swiss forex broker and Finma-licensed Swiss bank to offer bitcoin currency pairs in July, 2017.
A number of foreign online brokers – including Bitstamp (Luxembourg), Kraken (USA), OKCoin (China), and BTC-E (Russia) – have already offered bitcoin forex trading for several years.
The costs of bitcoin trading
Costs are an important consideration when choosing a bitcoin broker because they can cut into your profits. Swissquote charges a brokerage fee equal to between 0.5% and 1% of each BTC/CHF position. You can see how Swissquote fees compare to those of other Swiss brokers in the moneyland.ch online broker comparison.
Some foreign brokers charge lower brokerage fees. For example, BTC-E charges a brokerage fee of 0.2%. Bitstamp charges 0.10% (EUR 18 million+) to 0.25% (less than EUR 18,000) of BTC/EUR positions. OKCoin charges a maker fee between 0.15% (BTC 5000+) and 0.20% (BTC 0 or less), and a taker fee of 0.20%. Kraken charges a 0.16% maker fee for XBT/EUR positions worth less than EUR 50,000 and 0% for positions worth EUR 10 million or more. Its taker fees range between 0.10% (EUR 10 million+) and 0.26% (less than EUR 50,000).
You should note, however, that money held in foreign brokerage accounts is not protected by Swiss bank deposit guarantees. You may also pay money transfer fees, foreign exchange fees and a currency exchange spread when you transfer money to foreign trading accounts. In addition to the standard costs of forex trading, you should account for the additional costs of trading with a foreign broker in order to accurately compare costs.
The risks of bitcoin trading
Bitcoin is more volatile than major fiat currencies like the USD, EUR, CHF or GPB. Because bitcoin prices are fueled entirely be supply and demand, fluctuations in bitcoin rates can be far more drastic than what you may be used to from trading major currencies.
For example, the value of 1 bitcoin dropped from 2400 Swiss francs to just over 2250 francs in the second week of July 2017 – a loss of 150 Swiss francs per bitcoin in a single week. Over the long term, however, bitcoin rates have increased phenomenally.
If you plan to trade bitcoin, it is advisable to keep your margin as wide as possible in relation to the sizes of your positions and be ready to deposit more money into your trading account in the event of margin calls. Using limit orders and stop orders can help prevent heavy losses.
You do not own the bitcoin
When you open a trading position with a forex broker, you do not actually own the currency involved. For example, if you open a BTC/CHF position for 10 bitcoin, you do not actually own 10 bitcoins. You simply bet on the value of those bitcoins using contracts for difference (CFDs). You cannot withdraw the bitcoin or transfer it to your bitcoin wallet.
If you want to actually own bitcoin, you will have to buy it and hold it in a bitcoin wallet. Read the moneyland.ch guide to buying bitcoin in Switzerland for more information.