Cryptocurrency trading is the act of pondering on cryptocurrency price movements through a CFD trading account, or buying & selling the underlying coins via an exchange.
CFD trading on cryptocurrencies
Contract for Differences (CFD) trading are derivatives, which enable you to speculate on cryptocurrency price movements without taking ownership of the underlying coins. You can go long buy if you think a cryptocurrency will rise in value, or sell if you think it will fall.
Both are leveraged products, means you only need to put up a small deposit which known as margin to gain full exposure to the underlying market. Your profit or loss are still calculated as per the full size of your position, so leverage will prolong both profits and losses.
Buying & Selling Cryptocurrencies via an Exchange
When you purchase cryptocurrencies through an exchange, you buy the coins themselves. You will need to make an exchange account, insert the full value of the asset to open a position, and store the cryptocurrency tokens in your own wallet until you are ready to sell.
Exchanges bring their own steep learning curve as you will need to get to clasp with the technology involved and learn how to make sense of the data. Many exchanges have limits too on how much you can deposit, while accounts can be expensive to maintain.
How do cryptocurrency markets work?
Cryptocurrency markets are decentralised that means they are not issued or backed by a central authority like government. Cryptocurrencies can be bought & sold via exchanges and stored in ‘wallets’.
Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership which stored on a blockchain. When a user wants to send cryptocurrency units to another user, they send it to that digital wallet of user. The transaction is not considered final until it has been verified and added to the blockchain through a process which is named as mining. So, this is also how new cryptocurrency tokens are created.
What is blockchain?
A blockchain is a shared digital register of recorded data.In terms of cryptocurrencies, this is the transaction history for every unit of the cryptocurrency, which shows how ownership has changed over time. Blockchain works by recording transactions as a form of blocks, with new blocks added at the front of the chain.
Network consensus
A blockchain file is always stored on multiple computers across a network not in a single location – and is usually readable by everyone within the network. This makes it transparent and the same time very difficult to alter, with no one weak point vulnerable to hacks, or human or software error.
Cryptography
Blocks are linked together by cryptography – complex mathematics & computer science. If anyone want to alter data disrupts the cryptographic links between blocks, and can quickly be identified as fraudulent by computers in the network.
What is cryptocurrency mining?
It is the process through which recent cryptocurrency transactions are checked and new blocks are added to the blockchain.
Checking transactions
Mining computers choose pending transactions from a pool and check to assure that the sender has sufficient funds to complete the transaction or not. This procedure involves checking the transaction details against the transaction history which are stored in the blockchain. A second check is to confirm that the sender authorized the transfer of funds using their private key or not.
Creating a new block
Mining computers compile valid transactions into a new block & attempt to generate the cryptographic link to the previous block through finding a solution to a complex algorithm. When a computer get success in generating the link, it adds the block to their version of the blockchain file and broadcasts this update across the network.
What moves cryptocurrency markets?
Cryptocurrency markets move according to supply and demand. However, as they are decentralised, they tend to stay free from many of the economic & political concerns that affect traditional currencies. While there is still a lot of acatalepsia surrounding cryptocurrencies, the following factors can have a significant effect on their prices:
- Supply: The total no. of coins and the rate at which they are released and lost
- Market capitalization: The value of all the coins in existence and how users deem this to be developing
- Press: the way the cryptocurrency is portrayed in the media and how much coverage it is getting
- Integration: The region to which the cryptocurrency easily integrates into existing infrastructure like-commerce payment systems.
- Key events: Major events like regulatory updates, security breaches & economic setbacks
How does cryptocurrency trading work?
You can trade cryptocurrencies through a CFD account which derivative products that enable you to speculate on whether your chosen cryptocurrency will rise or fall in value. Prices are quoted in traditional currencies like the US dollar, and you never take ownership of the cryptocurrency itself.
Contract for Differences (CFD) are leveraged products, which means you can open a position for just a fraction of the trade’s full value. Although leveraged products can increase your profits but also chances of loss if the market moves against you.
What is the spread in cryptocurrency trading?
The spread is the difference between the buy & sell prices -quoted for a cryptocurrency. Like many financial markets, when you open a position on a cryptocurrency market, you will be presented with 2 prices. If an individual want to open a long position, trade at the buy price, which is slightly above the market price. If an individual want to open a short position then trade at the sell price which is slightly below the market price.
What is a lot in cryptocurrency trading?
Cryptocurrencies are usually traded in lots – batches of cryptocurrency tokens used to standardize the size of trades. As cryptocurrencies are very mutable, cryptocurrency’s lots tend to be very small: most are just 1 unit of the base cryptocurrency. But some cryptocurrencies are traded in bigger lots.
What is leverage in cryptocurrency trading?
Leverage means getting exposure to large amounts of cryptocurrency without paying the full value of your trade upfront. Instead, you put down a small deposit which is known as margin. When you close a leveraged position in cryptocurrency trading, your profit or loss is based on the full size of the trade.