What is virtual currency FX? Thorough explanation of benefits and risks:“Cryptocurrency FX” is a service that allows you to buy and sell virtual currencies just like FX. Many people may have doubts or discomfort that the name of “FX”, which is a foreign exchange related product, is attached to virtual currency transactions.
However, with this “FX” attached, virtual currency FX has merits and features that ordinary virtual currency transactions do not have. This article will focus on the features and what you can do only with virtual currency FX and explain in detail.
Features and benefits of virtual currency FX
Cryptocurrency FX also called “Bitcoin FX” or “Cryptocurrency FX”, is a service that buys and sells derivative products linked to the virtual currency’s price, not the actual virtual currency. I think it’s hard to understand if it’s just this, so let’s explain it in more detail.
FX is a foreign exchange margin trading, which is a product that aims for profit by buying and selling derivatives (derivative products) linked to the exchange rate that is moving every moment in the actual exchange market and settling the difference.
The critical point is not “forex-trading” but “trading derivative products linked to the currencies traded in the forex market”.
Of course, since it is linked to the rate in the foreign exchange market, it is similar to the rate exchange market that is bought and sold in Forex.
However, we are only buying and selling derivative products linked to the foreign exchange market, and only derivative products can have many functions and characteristics.
Aim for more significant profits than physical transactions
Leverage is a mechanism that allows you to trade a large amount of money with a small margin. By using leverage, cryptocurrency FX can aim for big profits like FX of foreign currency trading.
On the other hand, it is next to the risk that the loss will increase when the market goes backwards, but this risk can be managed and suppressed by proper fund management like FX of foreign currency trading.
You can make a profit even in the down market.
In general cryptocurrency trading, you usually buy when the price is low, sell it when it is high, and make a profit by the difference. Crypto currency FX can be entered from a regular buy order (long), and it can also make a profit even in a down market like FX of foreign currency. Specifically, the difference will be profitable by opening a “sell position” when the market price is likely to fall and making a settlement when the virtual currency that holds the position falls.
If you open a sell position when 1BTC = 2 million yen and settle when it reaches 1.5 million yen, you will get a profit of 500,000 yen. This is called “short selling”.
If the virtual currency you are looking for is already soaring, or if the price is declining, it will be a great advantage to enter from a sell order. Also, if you have a position in both long (buy) and short (sell) denominated, you can reduce the loss even if the price movement is contrary to your expectations.
Let’s make the best use of the characteristics as Forex, and when the price movement is violent, let’s think that both soaring and plunging are opportunities.
Risks and disadvantages of virtual currency FX
Although it is a virtual currency FX with many merits, we will explain the risks and disadvantages on the contrary. If you are considering investing, I would like you to pay particular attention to this.
Not suitable for long-term holding
As a general rule, virtual currency FX is a product that assumes profits through short-term trading. If you trade a large amount of money using leverage, you can increase the profit amount even if the price range is tiny, suitable for short-term trading such as day trading and scalping.
The reason it is not suitable for long-term holding can be seen not only in the trading method but also in the rules of virtual currency FX.
If you hold a position over a day in cryptocurrency FX, you will be charged a leverage fee.
This can be the share of the business that provides the virtual currency FX, so it occurs in most companies.
For example, GMO Coin charges a leverage fee of 0.04% per day, so the longer you hold a position, the more this fee will increase, which is a disadvantage.
There is a risk that the loss will increase.
Leverage is a double-edged sword that allows you to make significant transactions with a small margin. While you can aim for big profits, the loss will be substantial if the market goes backwards, resulting in high risk and high return.
There is a risk due to price fluctuations.
Cryptocurrencies are volatile, which is also the fun of investing.
However, since the leverage can be utilized in the virtual currency FX, it is more affected by the virtual currency whose price movement is already rough. Keep in mind that the profits when the market moves as expected are huge, but vice versa.
There is a possibility that the transaction will be terminated due to the loss cut.
Increasing unrealized losses due to price fluctuations is a risk factor even in the physical trading of virtual currencies. Still, if the same thing happens with virtual currency FX, you must be aware of loss cuts.
Since we are trading a large amount of money with a small margin, the unrealized loss becomes too large due to price fluctuations, the margin is insufficient, the position held as a loss cut is forcibly settled, and the loss is fixed.
This stop-loss is a safety net that prevents traders from expanding losses beyond their deposited assets, but unintended casualties will still be confirmed. There is no risk of holding it even if it goes backwards significantly in kind, but keep in mind that it may not be possible to have it with virtual currency FX depending on the margin maintenance rate.
I have explained virtual currency FX, a financial service that combines virtual currency trading and foreign currency trading “FX”. It is more convenient than physical, virtual currency transactions. It is easy to aim for big profits with small funds, so it is recommended for beginners. However, on the other hand, there is a particular risk, so I would like to pay close attention to it and understand it before proceeding.