Interbank foreign exchange market is the only one market where money is both a product and a payment tool. Money is the most liquid asset of all financial instruments. However, in 2009 a new payment system known as Bitcoin has been developed by Satoshi Nakamoto. This electronic currency has no control over any financial or governmental institutions and is referred to a decentralized currency. These digital cash can be only transferred from one person or company to another. Even so, holders of such a virtual currency face a high level of risk due to frauds, thefts and instability of the currency related to the big fluctuations in value. According to the Economist (March 2014), Bitcoin fulfills only two of three requirements necessary for currencies – it is used as a store of value and a medium of exchange, although it is not a unit of account that comes from its high level of instability. Mark T. Williams states that volatility of Bitcoin is over seven times greater than of gold and that can be related to insufficient liquidity. From the introduction of Bitcoin in Forex market in 2009, its value raised from 19.29 USD per one Bitcoin to 1200 USD per Bitcoin in November 2013. However, after a few months the exchange rate of USD/Bitcoin declined dramatically to 0.00081. Definitely, some governments including China introduced restrictions declaring Bitcoin as an unwanted currency.
Therefore, getting back to traditional currencies, liquidity of money allows banks to very quickly and easily manipulate the money. On the other hand, when traders are buying or selling currencies there is always a risk, so we can say that depending on how much risk the trader can assume, the higher reward he can receive. Traders operating in Forex market are given extremely high leverage that allows control hundred times greater amounts in exchange market, as long as the market is very liquid and any currency in a short period of time cannot fail or falter greatly. When investor opens a Forex account, he is normally granted with a leverage of 50:1, 100:1 or 200:1, which mainly depends on the broker and currencies he chooses to trade. In order to enter Forex market standard trading must be done at least with 100000 units of currency. So, if an investor wants to trade 100000$ with a margin 0.5% he has to deposit 500$ into his account. In this case broker provides a leverage of 200:1. High leverage provided by brokers gives an opportunity to earn significant profits compared to equities and futures markets, where the leverage does not exceed 1:20. However if the trend of the currency tends to move to the opposite direction as the trader thought, this will cause substantially high loses.