Bitcoin: Trading a virtual currency

Have you heard of Bitcoin?  If you haven’t, here’s a quick overview.

Bitcoin is a kind of currency, but it isn’t backed by any government.  Instead, it’s generated, tracked and traded electronically, peer-to-peer, without any intermediate financial currency.  It’s based on an extremely complex encryption algorithm. The servers that keep track of Bitcoins are called bitcoin miners, and these servers also create new bitcoins electronically (but quite slowly).  Wikipedia has a really good article on Bitcoin, as they are known to do for techie types of things.

Here’s a few interesting things about Bitcoin: you can trade it like any other currency.  So, several small brokers allow you to trade Bitcoin against other major currencies like the Dollar and the Yen.  One brokerage, AvaTrade has been making the news recently as they allow you to trade Bitcoin with Metatrader 4, but it appears they are not licensed to operate in the US.  There may be other brokerages that operate in the US that offer Bitcoin.

Another interesting fact is that a court case in Texas just ruled that Bitcoin can be treated legally like a currency.  The case involves an individual who committed fraud in the form of a Ponzi  using Bitcoin.  The judge noted that Bitcoin is more like a precious metal than a currency, but the fact that it has value legally is interesting.

Another interesting point is the volatility of the currency.  Just read the Wikipedia article to bitcoin-chartssee how far the value goes up and down:  $13 at the beginning of 2013, then $230 in April of this year.  If you’re looking to trade a really wild currency, maybe this is the one for you.One of the confusing things about looking at the Bitcoin charts is that there are dozens of “markets” or actually brokerages that trade Bitcoin with other currencies.  They appear to have different slightly different values for Bitcoin.  (Maybe an opportunity for arbitrage?)  But if you want to trade Bitcoin on Metatrader, you pick a broker that supports both, set up your charts, do your technical analysis, and even run automated strategies on it.  This sounds like fun.

Have you traded Bitcoin?  Have you used a trading platform? If so, what’s your experience been like?


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