The Tether Foundation created USDT (Tether) as the prototype of a class of cryptocurrencies created to mirror the movements of the US Dollar. This new class of cryptocurrencies were known as stablecoins. Stablecoins were created to solve the immense volatility inherent in Bitcoin, Ethereum and some of the other notable top 10 cryptos. Other stablecoins have since been created, but Tether remains the most popular and widely used stablecoin. This time, we will discuss using USDT as a preferred funding method for your FX account and identify the USDT forex brokers.
USDT entered the market as the first stablecoin in 2014. USDT is part of the stablecoins classified as "partially collateralized." This means that even though USDT is supposed to maintain parity with the US Dollar (i.e. have an exchange rate of 1:1), the rate is more like 1.01 USDT (or higher) to 1 USD. This is because the Tether Foundation does not maintain 100% of the US Dollar reserves required to match the number of USDT tokens in circulation. It maintains other assets to make up this reserve base.
Using USDT as a funding method for FX trading solved a significant problem with using other cryptocurrencies to fund and withdraw from a trading account. This is the problem of volatility. Fiat currencies are priced to four or five decimal places, and the least single movement of a currency pair is in the region of 0.0001 points. So you do not have whole-number moves in currencies but percentage point moves. This property gives currencies a measure of inherent stability and shields users against volatile price movements. Indeed, this is one property that any asset used as a currency must have. Bitcoin, Ethereum and other cryptocurrencies within the top 20 most capitalized cryptos do not have such stability. Price changes for these cryptos are whole-number moves. These moves are an expression of heavy volatility that can either cause the value of the fiat equivalent to shoot up in value or erode its value. Imagine making profits in trading, and in between the time of withdrawal and the funds getting into your hands, 10% or 20% of its value has been eroded by price changes.
For instance, what if you withdraw Bitcoin for $24,000/BTC, and when converting to fiat currency for offline use, it falls to $18,000/BTC? This drop constitutes a 25% value erosion. Such radical price moves have occurred in Bitcoin and Ethereum, and they can do so without warning.
Realizing this would be an issue, many FX brokers that offered crypto funding methods quickly saw the need to introduce a stablecoin-based crypto funding method to prevent such price volatility from posing a risk to the broker or the client. This gave rise to the USDT forex brokers that provide USDT as a funding channel.
So with the USDT token as a funding method, we now have the same advantages found with the crypto funding methods and the stability advantage of the fiat currencies.
Another advantage USDT offers traders is the ability to send it using different blockchain networks. Bitcoin has a single blockchain network open for such transactions on most payment channels for FX trading.
The use of Tether as a means of funding your FX trading account is likened to using the USD on a blockchain network. It is easily interchangeable, and you can use it on several blockchains. Funding your account with Tether can be done in two ways.
It is possible to directly fund your trading account using a USDT transfer from your Tether wallet. Offline and online Tether wallets can be used. This method is a crypto-crypto funding method that presupposes prior ownership of an external Tether wallet with USDT. The trader transfers the USDT in the amount to be added to the broker's wallet address (with the network fee included). Once authenticated, the broker will credit the trader's account with the fiat currency equivalent of the USDT. You must already have a Tether wallet with your USDT. Traders who use this route source their Tether from crypto exchanges and then transfer it to their FX broker's Tether wallets.
This second method is for traders who do not have a Tether wallet and do not have USDT tokens. For such traders, some FX brokers will offer a fiat-crypto gateway using BitPay or Simplex or other gateways that offer the service of selling cryptos for fiat payments. With this method, the trader purchases USDT using a credit/debit card via an API link from the broker's deposit page. This link connects to the third-party gateway. Once the transaction is over, the trader is redirected back to the broker's page with the funds credited. This method provides an instant deposit of the tokens and works in countries where the financial regulators permit fiat-crypto transactions. This method tends to attract a higher service fee as the third-party company adds their service charge to the network fees. The fee is not charged separately; you simply get fewer crypto tokens than you would have obtained elsewhere.
Some advantages of using USDT as a funding method are already evident from what has been written. But to summarize them, they are as follows:
The USDT has so far held its own and remains at par with the US Dollar. As an FX funding method, it comes with more benefits than risks and combines the best of both worlds.
The brokers listed here are all USDT forex brokers. They offer direct and indirect funding methods. Whichever you find more appealing, you will find a broker that gives you what you need.