Have you ever thought you’d like to grab a bit of this cryptocurrency craze, but found the idea of it all a bit overwhelming?
Forex trading is a scary word to a lot of people. And, in fact, it’s certainly one of the most difficult investment vehicles out there.
That being said, it’s also one of the most rewarding.
Today, we’re going to be talking about trading in forex using cryptos. If you’ve never heard of Forex trading or cryptocurrencies before, don’t worry. These are actually pretty easy concepts to understand — probably easier than investing itself!
By the end of this guide, you will know everything you need to start trading — from downloading your first crypto wallet, to opening your first Forex account — we’re going to walk through it all.
Let’s starts with the basics:
Disclaimer: No information or opinion contained on this guide should be taken as a solicitation or offer to buy or sell any currency or other financial instruments or services. Before deciding to invest in foreign exchange, or any kind of trading you should carefully consider your investment objectives, level of experience, and risk appetite.
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Table of Contents
What is Forex trading?
Forex is short for foreign exchange, also known as FX or currency trading. In a nutshell, forex trading involves buying and selling world currencies in order to profit from changes in the value of these currencies.
Now, to understand how Forex trading works in a larger context, we need to look at the foreign exchange markets:
These markets assist in the transfer of currency from one country to another. In most cases, this happens for commercial and business reasons.
For example, if you are an American company that imports Australian beef, you will have to pay the Australian exporters using their currency. This means that you will need to purchase Australian dollars in order to make that payment.
As a result, there is a demand for AUD (Australian Dollars) by people that wish to pay for goods from Australia or invest there and need the local currency. The same can be said for any other country – when we buy a product or service from abroad, we need to use their local currency.
When there are more people wanting to buy a particular currency than sell it, its value increases. When more people want to sell rather than buy a particular currency, its value decreases.
The market in which currencies are traded is called “the Forex market” and it is open 24 hours a day during weekdays (so you can trade Forex around your schedule).
In this market, traders and speculators buy and sell various currencies based on whether they think the currency will appreciate or depreciate (increase or decrease)
Major currencies include the U.S. dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF) and Australian dollar (AUD). The USD is by far the most traded currency, making up close to 85% of all trades, followed by the euro, the yen and sterling.
In the past, forex traders only participated in forex trading through banks that transacted large amounts of currencies for commercial and investment purposes.
Nowadays, with electronic trading platforms anyone can trade forex online. You can just open an account with a forex broker/dealer, and start buying and selling different currencies.
How does forex trading work?
Here’s how it works:
When you trade in the forex market, you buy or sell in currency pairs.
Let’s take the most popular currency pair as an example, EUR/USD.
Imagine each currency pair constantly in a “tug of war” with each currency on its own side of the rope. The first currency (Euro in this case) is called the base currency and the second (USD) is called the quote currency.
- When you buy a currency pair, you buy the base currency and implicitly sell the quote currency. In our example above, you would want to sell U.S. dollars to purchase euros.
- When you sell a currency pair, you sell the base currency and receive the quote currency. In other words, you would sell euros and purchase U.S. dollars.
The price that you see next to a forex pair indicates how much of the quote currency you will receive for selling one unit of the base currency. This is known as the exchange rate:
EXCHANGE RATE = QUOTE CURRENCY / BASE CURRENCY
You also might have heard traders talk about having a long or short position in a certain currency pair. The terms “long” and “short” refer to whether a trade was initiated by buying first or selling first.
A long trade is initiated by purchasing with the expectation to sell at a higher price in the future and realize a profit. On the other hand, a short trade is initiated by selling, before buying, with the intent to repurchase the stock at a lower price and realize a profit.
When you go long on EUR/USD, for instance, you are hoping that the value of the Euro will increase relative to the U.S. Dollar.
Conversely, when you go short on EUR/USD you are hoping that the value of the U.S. Dollar will increase (or that the Euro will fall) relative to the Euro. In other words, you believe that EUR is going to get weaker against USD.
Now, where does your profit come from?
You take one currency and hope its value goes up, then sell when you think the price has gone up enough, and that’s your profit right there.
For example, if you were trading the GBP/USD currency pair and you thought that the value of the pound was going to increase against the US Dollar, then you would buy it.
If you were right, your profit would be the difference in price between when you bought it and when you sold it back again.
If you were wrong and the price decreased, then your losses would be based on how much that price had fallen.
Where to learn about forex trading in 2022
- Project 303 – Project303 is a copy-trade program where you can learn all about trading shares online replicating its founder’s (Andrew Keene) strategies.
- Prosper Trading Academy – Prosper Trading Academy offers classes on financial markets that are designed by professional traders. If you’re interested in trading equities, options, futures, cryptocurrency and/or forex, this program has classes to help you get started.
- Option Profit Accelerator – Jeff Bishop’s ebook, Option Profit Accelerator, is a step-by-step guide on how to trade options. He has been using this strategy himself, and he has seen great success with it.
- iMarkets Live – iMarketsLive is a set of applications that you can use to monitor and manage your investments.
- Profits Unlimited – Profits Unlimited is a monthly investment newsletter published by Banyan Hill Publishing. Every month, Profits Unlimited gives readers Paul Mampilly’s take on the current state of the market, including professional-grade insights and analysis.
- The Millionaires Group – Jordan Benford’s Millionaires Group is a binary trading system that claims to show you how to earn money if you have no experience in the financial industry.
You can also check out our top 6 day trading courses and get a more detailed insight of the forex market.
Pros and cons of forex trading
- Accessibility: Unlike other asset classes such as equities or commodities where an investor can only trade during normal business hours, the forex market is open 24 hours Monday to Friday around the world. This means you can trade almost any time of day or night if you want to.
- Huge market: The forex market is the largest financial market in the world with a daily trading volume of over $5 trillion, dwarfing the global bond and equity markets combined. This means that there are huge quantities of information available to traders at any one time which can be used to inform a trading strategy.
- Low start-up costs: Unlike stock markets, which have high barriers to entry and often require massive capitalization (to buy enough stock to make decent money), the forex market requires much less initial capital. To open a mini account you could start with as little as $250 at some brokers and up to $2,500 at others. For a standard account, you could start with up to $5,000 at some brokers and $10,000 at others. That means it can be more affordable to get your feet wet!
- No commissions and low spreads: When you’re trading currencies — unlike stocks — you don’t have to pay a commission on every trade. Spreads are the cost of trading, which is the difference between the bid price and ask price of a currency pair. The smaller this spread is, the less you’ll pay when buying or selling currency pairs. For example, if a broker has a 3-pip spread on EUR/USD (Euro/US dollar), your cost will be $0.0003 per unit traded if you buy one standard lot (100,000 units) of EUR/USD. This means that your broker keeps $3 from your money each time you make this trade. In the absence of any commissions, this is all that matters when calculating trading costs for major currency pairs.
- Leverage: Leverage is a facility offered by forex brokers to enable you trade with more money than what’s actually in your account. For example, if you use a leverage of 1:100 and you have $1,000 in your trading account, it means you can trade up to $100,000.
With the high levels of leverage offered by forex brokers, it is possible for traders to trade on margin. With this type of trading, you only need to deposit a small percentage of the full value of your position to set a foreign exchange trade.
- Global market movements can be unpredictable: Currency exchange rates are constantly changing, which means you have to stay on your toes and monitor these changes to make the most of your investments. Traders may find that they need to do some homework on world affairs if they want to improve their chances of making a profit.
- The learning curve is steep: For many traders, the biggest negative about forex is that it can take a long time to understand. Because of its different underlying principles from stock trading and the sheer number of variables affecting forex prices, it takes a lot of work to learn the ins and outs of the market. You need to learn how to manage risk effectively, trade different currency pairs and apply hedging strategies. All this requires a steep learning curve before you’re familiar enough with forex trading to make consistent profits.
What are cryptocurrencies?
The cryptocurrency markets have evolved from the pioneering days of Bitcoin to a booming industry with hundreds of digital currencies. Crypto is now being used to pay for goods and services, to trade as an asset, and also as a new way to trade forex.
Basically, cryptocurrencies are a medium of exchange, similar to the U.S. dollar, but with many additional benefits.
Here’s how they work:
Most currencies use a centralized system where transactions are monitored by a third party (such as a bank or credit card company).
Cryptocurrencies use a decentralized system that allows users to transact directly with one another without needing an intermediary, like a bank.
These transactions are very secure and can be tracked in real time using blockchain technology.
A blockchain is a continuously growing list of records called blocks which are linked and secured using cryptography. Each block typically contains a link to the previous block, timestamped transaction data and information about who is participating in the transaction.
This means that every cryptocurrency transaction is transparent and traceable — if someone sends you money through a cryptocurrency, there will be an unbroken chain or record showing that the transaction took place.
The main difference between cryptocurrency and fiat money (this is the traditional money) lies in the fact that fiat money has been assigned value by central banks, governments and other regulatory authorities.
Cryptocurrency has value because it has been given value by its users. So they derive their value from the simple fact that people believe in them and treat them as valuable.
The top cryptocurrencies by market capitalization are Bitcoin, Ethereum, XRP, Bitcoin Cash and Litecoin.
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Where to learn about cryptocurrencies in 2022
- Cryptocurrency Investing for Dummies – This book walks you through the process of choosing an exchange, buying your first coins, storing them safely, and then trading them for other cryptocurrencies or traditional currency.
- The Palm Beach Confidencial – Teeka Tiwari’s Palm Beach Confidential is a crypto newsletter that provides you with 12 monthly newsletters as well as training videos.
- Prosper Trading Academy – As we mentioned above, this academy offers courses on cryptocurrency. Courses range from 3-months to 2-years in length depending on your goals as a trader.
Can you trade cryptos in the forex market?
The short answer is yes, you can trade cryptocurrencies in the forex market.
In fact, it’s quite easy to do so, but keep in mind that every broker has its own policy when it comes to trading with cryptos.
Some brokers offer their clients cryptocurrency-based CFD trading instruments (which is illegal in the US); while others allow trading in crypto pairs (e.g., BTC/USD).
So if your broker doesn’t offer crypto CFDs- don’t worry. You can still invest your money into cryptocurrencies via exchanges like Binance or Coinbase.
But before we delve into the details of trading cryptos in the forex market, let’s briefly take a look at the pros and cons of cryptocurrencies:
Why trade forex using crypto?: Pros & Cons
Pros of cryptocurrencies
The advantages of trading forex with crypto are numerous, but here are some of the most popular reasons for doing so:
- No centralized control: Unlike fiat currencies, which are controlled by centralized institutions, cryptocurrencies are decentralized. There is no single entity or group of entities that have control over the currency. Instead, it is managed by a group of volunteer coders and run by an open network of dedicated computers spread around the world.
- No minimum deposits: Cryptocurrencies are becoming more popular day by day and forex brokers have noticed this and now they have made it easier for traders to open an account using crypto currencies as the base currency of their trading accounts. Some forex brokers are even offering zero spread accounts in different crypto currencies like BTC, ETH, LTC etc.
- No middleman intervention: The first obvious advantage of trading cryptocurrencies is the absence of a third party. As we all know, in forex, there is always a middleman, who is responsible for the execution of your trade. But with cryptocurrency, you are your own bank and can easily carry out transactions on your own.
- Anonymity of transactions: All transactions with cryptocurrencies are anonymous. Although detailed information is available about the total number of coins in a particular cryptocurrency, no one knows who owns them and how many of them he or she owns.
- Less restrictions: When you use a bank to trade forex, your funds have to go through a multi-day clearing process before they can be used for trading. This is because banks are regulated institutions and have many rules which govern how they operate.
With crypto, there is no clearing process and this means that you can access your funds almost instantly after depositing them into an online wallet.
Cons of cryptocurrencies
- Highly volatile: For example, the price of Bitcoin may go up or down depending on the demand for it at any given time; whereas the value of the US dollar is backed by gold reserves, which means that its value won’t change drastically within a day unless something dramatic happens to those reserves (e.g., war).
Therefore, cryptocurrencies are considered more volatile than fiat currencies.
How to start trading in Forex using crypto: 6 easy steps
So now that you’re armed with the basics, let’s look at what you need to know to start trading.
Step 1: Create a Coinbase account and connect it to your bank account or a credit card.
So, the first step is to set up an account with Coinbase, a cryptocurrency exchange. This is where you buy and sell the various cryptocurrencies in exchange for USD or other currencies
This is the crypto exchange we recommend, because it’s safe, easy, and has many different currencies you can buy and sell with US dollars.
However, there are more, such as Binace, Kraken or eToro -if you decide to do your own research, make sure you end up choosing a secure, low-cost crypto exchange platform.
To sign up for a Coinbase account, click here. You will be asked to provide an email address, password and phone number.
Once your account is created, connect your bank or credit card. Coinbase will charge you a 1.49% fee when you buy Bitcoin with your bank account, and 3.99% if you use a debit or credit card.
Step 2: Buy Bitcoin, Ethereum, or Litecoin on the exchange with your fiat currency.
The next step is to buy your first Bitcoin, Ethereum, or Litecoin.
Once you’ve signed up, you should see an option on the screen that says “Fund,” “Deposit,” “Buy Crypto,” or something similar.
Select the amount of Bitcoin, Ethereum, or Litecoin you want to buy from the drop-down menu — you can choose from BTC, ETH, BCH, LTC, XRP, and USDT — type in how much of your fiat currency you’re willing to spend (minimum purchase amounts will vary between exchanges), and click “Buy.”
You can also buy Bitcoin with a credit card or debit card without having to register first using platforms like CEX. You’ll need to verify your identity (with passport or driver’s license) before being able to complete your purchase though.
If you’re not based in the U.S., then another good option is Coinmama, which accepts residents from most countries around the world as long as they have a credit/debit card (MasterCard/Visa).
Step 3: Withdraw the crypto assets to an external wallet.
Now you can’t just leave your assets on an exchange, as this is extremely risky. Even though the assets are safe on the exchange, if a hacker gets access to your profile, they will be able to steal them.
In addition, the exchange can get hacked and you will lose your assets. This situation has happened before (e.g., Mt.Gox and Bitfinex).
To withdraw funds, go to ‘My Account’ and select ‘Withdraw’ in the menu on the left.
Choose the required asset and enter your wallet address. Some great external wallets are Exodus, Ledger Nano X and S, or Mycelium -but this is up to you, just make sure again you’re going with a crypto wallet with a solid security framework.
The withdrawal process can vary, depending on the site and the type of asset. Most sites, however, simply ask you to enter your external wallet address and the amount you wish to withdraw.
Note: You need to be careful here. For example, some exchanges use different addresses for deposits and withdrawals, and if you mix them up you’ll find yourself in big trouble.
It’s also worth noting that withdrawal fees are usually higher than deposit fees, so it’s more cost-effective to deposit larger amounts at a time rather than withdrawing smaller amounts more frequently.
Step 4: Install MetaTrader 4 on your phone or computer.
Before you can start trading, you will need to install a trading platform on your phone or computer.
We recommend using MetaTrader 4 (MT4) because it is the world’s most popular trading platform and is provided by the majority of Forex brokers.
This means that you will likely not have to change your trading platform if you ever decide to switch brokers. MT4 is also highly customizable and full of advanced charts and other analytical tools that make it easy to adapt your strategies as you become more experienced.
Downloading MT4 is simple, but since steps may differ depending on which broker you choose, we recommend visiting their website for instructions.
Step 5: Add your new wallet address to MetaTrader 4 as an expert advisor.
You can add your new wallet address to MetaTrader 4 as an expert advisor (EA). This is a special piece of software that automatically trades for you.
When you set up an EA, you’ll be able to trade on a demo account, which allows you to practice trading without risking any real funds.
Once you’re comfortable, you can move onto live trading and start making money.
Step 6: Use the broker of your choice with MetaTrader 4 to start trading Forex with crypto!
In the last step we set up a demo account with MetaTrader 4, but you won’t be able to trade until you connect it to a broker.
So, without further ado, let’s take a look at how to do that:
To use the broker of your choice and get started trading, you’ll need to open a live account with a broker that supports MetaTrader 4 (or your chosen trading platform).
Some good examples are AvaTrade, Eightcap or eToro. Here’s how to do it:
- Click on ‘File’ in the upper left-hand corner of the MetaTrader 4 platform and then click on ‘Login to Trade Account’.
- A new window will open, where you’ll be prompted to enter your trading account login details. The login details are the same as those you received when you opened your account with the broker. Once you have entered your login credentials, click ‘Next’.
- If there is a prompt for server selection, select the server with the name of your broker and then click ‘Next’.
- If you do not see a prompt for server selection, it will automatically connect to the server with the name of your broker. If this happens, simply click ‘Next’.
- You will then see a notification that you are connected to your broker’s server and are ready to start trading!
Please note that not all brokers offer the same conditions and fees, so be sure to read the terms and conditions carefully before signing up!
Now, once you’re done setting up your live account, it’s time to start trading. Follow these steps:
- Go to the “Trade” menu and select “New Order” in the top left corner.
- Choose the volume of your trade (depending on the balance available) and enter the stop loss and take profit levels according to your trading strategy. For example: buy 1 lot EUR/USD at 1.26500 with a stop loss at 1.26000 and take profit at 1.27000.
- Confirm your order by pressing “Buy”.
Bonus: Tips to keep in mind when trading with crypto
A few more tips to keep in mind when trading with crypto…
- Make sure to be aware of the new rules and regulations. When it comes to trading crypto, there are new rules and regulations that come out all the time. It’s important for traders to be aware of these changes so they can trade accordingly.
- Only invest what you can afford to lose. Cryptocurrency prices are extremely volatile, and as we mentioned at the beginning, it’s not unusual for a coin’s value to jump or drop by 10% or more in a single day. While this can result in some significant gains for investors who buy at the right time, it also means that any money lost is usually lost for good. If you don’t have extra cash to spare, trading with cryptocurrency isn’t for you. You need to be prepared for the possibility of losing all of your investment.
- Have an emergency fund ready in case something goes wrong during a trade. This is correlated to what we just pointed above. Cryptos aren’t exactly stable, so you should have at least enough fiat set aside for your daily expenses plus a little extra just in case something happens.
- Understand the broker’s terms and conditions. This is especially true if the broker requires you to fund your account with fiat before trading cryptos. You need to understand upfront what kind of crypto payment services they offer, how long it takes for deposits or withdrawals to go through, and whether or not there are any fees involved.
It’s also a good idea to do some research on the broker’s customer service department. You don’t want to get stuck with a slow response time during a critical trading moment.
Takeaway: Trading forex using crypto is possible
There you have it -trading forex using crypto is completely possible! However, it’s important to remember that forex trading and cryptocurrencies aren’t a game.
They’re legitimate forms of investment and trading, but it is not something you should go into just because you think it will make you rich overnight.
This guide has outlined the basics steps you need to follow if you want to try your hand at forex trading using cryptos, but we recommend you to take your time and learn as much as possible before jumping in with real money.