As a forex trader, broker or virtual merchant, it’s always better to be aware of the nitty-gritties involved in cryptocurrency trading, along with understanding the core aspects of Blockchain technology, how it actually works, and its overt impact on forex transactions. It is by keeping in mind the success in cryptocurrency market, Blockchain is actively used in fixed income and FOREX trading by all crypto traders and merchants. Today, it has gained wide spread acceptance, globally.
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What is Blockchain Technology? – An Expert’s Point of View
Blockchain technology is a decentralized and secure ledger system that records transactions and distributes them across multiple computers, eliminating centralized control and ensuring data transparency and tamper resistance. Encryption technology ensures transaction security. Initially designed for cryptocurrencies, it has expanded to fields such as supply chain management, voting systems, and smart contracts. Its characteristics of decentralization, transparency, security, and low-cost cross-border transactions have made it popular in the realm of currency functions, with the potential to become an alternative monetary system.
Impact of Blockchain on FOREX Trading
Blockchain offers a reliable, trustworthy, 100% secure and a permanent method of recording information, be it in the area of foreign currency rates, fluctuations, crypto transactions, and more. It offers the foreign exchange (FOREX) market, especially forex traders and brokers a perfect opportunity to decentralize its record storage capabilities, and also help enhance the availability of stored information. Today, the future of forex trading globally, is shaped by Blockchain. It is setting new standards and benchmarks in forex transactions, across the board. As the Blockchain technology is of decentralized nature, it offers the strength of innovation in forex trading, such as peer-to-peer trading.
Improved Transaction Speed and Affordable Trading Fees
With the help of distributed ledger technology in Blockchain, it is able to significantly lower cryptocurrency & forex transaction time. Moreover, it is also able to lower forex transaction charges that a vast majority of central banks and brokers levy at the point of exchange. All of this is possible due to the decentralized technology, which eliminates the need for a third party or a centralized authority. Blockchain uses a string of protocols that help regulate transaction speed and pick a network validator. This ensures faster forex transactions and crypto payments through a robust Blockchain payment gateway, without having to pay any charges to the central authority for executing transactions.
In the present times, Blockchain technology in the foreign exchange market enables large-scale transactions, as performed by multiple participants in the humongous financial domain. This eventually allows traders and brokers to take full advantage of the minimum transaction costs, thereby maximizing profit margins.
Impact of Cryptocurrency on FOREX Trading
Let’s first understand the basics. Crypto trading refers to the activity of buying and selling cryptocurrencies like Bitcoin (BTC), Ethereum Pay (ETH), Litecoin (LTC), etc. on a Crypto exchanges. Whereas, forex trading is the buying and selling of different fiat currencies like USD, GBP, EUR, etc. on the foreign exchange market. It can be both online or offline in nature, unlike cryptocurrency trading, which is totally in a digitized environment.
Forex Brokers Offering Crypto Trading
Today, a majority of global forex brokers, especially in the US and Europe are offering cryptocurency trading, as a part of their standard product offering. With the overwhelming acceptance of cryptocurrency in forex trading, it has opened up new vistas for global crypto traders. Unlike the previous traders, who could only speculate the price fluctuation of fiat currencies, today traders are able to trade fiat currencies against crypto currencies via a secure crypto payment processor that offers the best security guarantee. Now, traders can trade in pairs like Bitcoin/USD, Ethereum/USD or Bitcoin/Euro. This has vastly expanded the scope of trading options that are available to forex traders, which has eventually improved the liquidity quotient in the cryptocurrency market.
Price Fluctuations and Volatility
The overall impact of volatility in cryptocurrency, and it resultant impact on forex trading, is twofold. First of all, it offers a promising and lucrative proposition for all traders who are always searching for opportunities to earn the biggest profit margins from large-scale price fluctuations. And secondly, it can act as a sort of a deterrent for risk-conscious traders, who mostly prefer table platforms and markets. Regardless of everything, it must be understood by all that cryptocurrencies has ushered in a new era of forex trading and given a new dimension to forex traders, globally.
Market Liquidity Factors Affecting Trading Volume
The overall market liquidity and trading volume of the forex market has been positively impacted by cryptocurrencies. New traders are showing more interest and eager to join this bandwagon, due to the inclusion of cryptocurrencies and enhanced trading in digital assets. This has eventually resulted in the forex market to see and witness a sudden spurt in trading volumes, which has further resulted in better execution for forex traders.
Add to this, increased liquidity in the forex market has directly benefitted through the inclusion of cryptocurrencies. For example, a cryptocurrency like Bitcoin has a significantly high market capitalization, thus making it a highly and easily tradable asset. What’s more, cryptocurrency has also added depth to the forex trading scenario, thereby allowing brokers and merchants to carry out bigger transactions, without considerably affecting the market price. There are also regulatory challenges in the crypto and forex market, but it is taken well care of, when you’re partnering with an established broker.
Final Words
It can be concluded that the overall impact of cryptocurrency in the global forex market is somewhat noteworthy, and cannot be ignored. It has provided forex brokers with a wide array of trading options, thus increasing market capitalization, liquidity and volatility. On the contrary, it has also presented traders and brokers with regulatory challenges thus must be overcome in a legal way. Therefore, as the world of cryptocurrencies continue to expand and evolve, their profound impact on the forex market is likely to take a vertical growth, thereby shaping the future of virtual financial trading.
