What is Cryptocurrency Trading?
Cryptocurrency trading is the buying, selling, and trading of various cryptocurrencies.
Trading in cryptocurrencies is speculation on price movements by trading on a CFD trading account or buying and selling the coins via an exchange. See more details on cryptocurrency trading, how it works, and what drives the markets.
How Does Cryptocurrency Trading Work?
Cryptocurrency trading is speculation in cryptocurrency’s price movement via a CFD trading account or by an exchange buying and selling of the base coin.
Cryptocurrency trading through CFDs
Trading CFDs also provides a margin trading opportunity, meaning you will speculate about cryptocurrency prices without owning the underlying coins. You can be long (‘buy’) if you expect cryptocurrency to become more valuable or short (‘sell’) in case you forecast its reverse.
The two are leveraged products, meaning to trade on an entirely exposed underlying market you only need to put up a small deposit known as margin. Your profit or loss is still based on the full size of your position so leverage will magnify both profits and losses.
Buying and selling bitcoins using an exchange
Buying crypto coins through a purchase on an exchange always knows which coins are being purchased. The subtleties about opening an exchange account putting all the value of the asset into position and storing cryptocurrency tokens in your wallet until you decide to liquidate may.
Exchanges have their learning curve: you also need to get along with the technology and learn to make sense of the data, and you’ve got yet another imposition: the large limit on how much you can deposit, though accounts can be very costly to maintain.
How Do Cryptocurrency Markets Work?
The markets for cryptocurrencies are decentralized, meaning that no central authority, such as the government, issues or supports them. Rather, they traverse a computer network. However, cryptocurrency can be bought and sold on exchanges, and stored in “wallets”.
Unlike traditional currencies, which consist of physical bodies, the only existence of cryptocurrencies is found in a shared digital record of ownership stored on a blockchain. If a user wishes to pay another user with units of cryptocurrency, one will directly send the cryptocurrency units to another user’s wallet. A transaction isn’t considered final until it has been verified and added to the blockchain via a process called mining. Furthermore, this is the standard procedure for creating new cryptocurrency tokens.
What is Blockchain?
Blockchains, or distributed ledgers, store digital records. For cryptocurrencies, this means it should be the transaction history of every single unit of the currency saying who owned what and when. This works because transactions are recorded in ‘blocks’ with new blocks being added at the front of the chain.
Blockchain technology has unique features of security that no ordinary computer files possess.
- Network Consensus: Any blockchain file is stored on thousands of computers, not located in just one place, and is often accessible to anyone connected to this network, which also means it’s transparent and impossible to tamper with except through either weak point of hacker infiltration or human or software error.
- Cryptography: Blocks attach through cryptography-advanced mathematics and computer science. Any effort to modify data shatters the cryptographic connections linking the blocks, and will promptly be flagged as forged by computers in the network.
What is Cryptocurrency Mining?
Mining is the method through which, due to new cryptocurrency transactions, the blocks are added to the blockchain, and their authenticity is verified.
- Checking transactions: Mining computers choose from the pool available, quality transactions and confirm if there is enough money in the account to execute the transaction. They accomplish this by cross-checking the details of the transaction with the transaction history held within the blockchain. The other validation checks whether the private key owned by the sender was, indeed, used to authorize the transfer of the funds.
- Creating a new block: The mining computers compile valid transactions into a new block and attempt to find the link to the previous block by solving a pretty complex algorithm. When a machine succeeds in creating the link, it updates the network by broadcasting the block along with its copy of the blockchain file.
What Moves Cryptocurrency Markets?
As with any market, the cryptocurrency market has its set of supply and demand rules except that since they are decentralized, they tend to be free from a quite number of economic and political concerns affecting the traditional currencies. Though quite unsure of cryptocurrencies, the following factors can still influence prices:
- Supply: The total amount of coins and also the release velocity, destruction, or loss.
- Market Capitalization: How much is all worth the coins in existence- how people think this goes.
- Media or Press: The news about the cryptocurrency and the publicity it is receiving.
- Integration: Refers to how the cryptocurrency integrates easily into the existing infrastructures such as e-commerce payment systems.
- Major events: Updates on the latest changes in regulations, security breaches, and economic downturns.
How Does Cryptocurrency Trading Work?
With an IG CFD account, you can trade cryptocurrencies.. As these are derivative products, you are speculating on the price of your preferred cryptocurrency as it may go either up or down. The price quote is in more traditional currencies such as the US dollar, and you never even own an actual cryptocurrency itself.
These are leveraged products, so you can open a position for just a fraction of the total value that the trade will have. Of course, while leveraged products can multiply profits, they multiply losses if the market moves against you.
Key Terms in Cryptocurrency Trading
Spread in cryptocurrency trading
The spread is the difference between the buy and sell prices of a cryptocurrency as quoted. Just like most financial markets, when you open a position on a cryptocurrency market, you will be presented with two prices: to open a long position you trade at the buy price which is just a tad above the market price; whereas to open a short position you trade at the sell price which is just a tad below the market price.
Lot in cryptocurrency trading
Another strange term for trading cryptocurrencies is a term for lots – batches of cryptocurrency tokens that are used to standardize the size of trades. As these cryptocurrencies tend to be very volatile, the lots are usually pretty small, most being just one unit of the base cryptocurrency. Certain cryptocurrencies, though, are exchanged in larger lots.
Leverage in cryptocurrency trading
It is just a way of becoming exposed to large amounts of cryptocurrency without having to lay down a call for the full value upfront for your trade. You simply put in a deposit term called margin-and upon closing a position, your profit or loss determined is based on the entire size of that trade.
Where your profits are going to be multiplied once trading on leverage, so is your potential for loss which could be more than your margin on the trade. Leverage trading therefore requires great care when dealing with your risk.
Margin in cryptocurrency trading
Margin is probably one of the most basic ideas in leveraged trading. It is simply the amount of money you will need to put down when you open and maintain your leveraged position. When trading on margin using cryptocurrencies, take note that usually, your margin requirement differs according to your broker and trade size.
Usually, the margin is stated as a percentage of the total position. 10% of the position’s total value, for example, may need to be paid to open a trade on Bitcoin (BTC). Thus, the amount you would need to deposit would only be $500 rather than $5,000.
Pip in cryptocurrency trading
A pip is the number of movements that determines the movement made in the price of a cryptocurrency. It is the price movement of one digit at a particular level. Coins with significant value are exchanged at ‘dollar’ levels. So in this example of moving from $190.00 to $191.00, the cryptocurrency moved one pip. Yet, the less expensive cryptocurrencies are traded on another scale where a pip can be a cent or even a fraction of a cent.
Once you have selected your chosen platform, you should read the details on that platform so you know at which level price movement will be measured before you go ahead and place a trade.
FAQs
Is a digital currency the same thing as a cryptocurrency?
The only difference between digital and cryptocurrency is that the latter is decentralized; hence, it is issued or backed by a central authority, such as a central bank or government. Cryptocurrencies, instead, run across a network of computers. Digital currencies are somewhat similar to traditional currencies but exist only in the digital world. They are released by a centralized body.
What are the various kinds of cryptocurrency wallets?
There are five major types of cryptocurrency wallets: desktop wallets, mobile wallets, online wallets, hardware wallets, and paper wallets. After you buy cryptocurrencies, you will require a wallet, but you won’t need one until you start trading them with a CFD account. Cryptocurrency wallets serve the purposes of storing, sending, and receiving currencies.
What was the first cryptocurrency?
The first cryptocurrency was called Bitcoin. The first cryptocurrency was Bitcoin. The first transaction occurred in 2009, despite the domain being registered in 2008. The creator of it goes by the name “Satoshi Nakamoto”. However, speculation is rising that Nakamoto is a pseudonym as the Bitcoin creator is notoriously secret and no one knows whether ‘he’ is a person or a group.
Is cryptocurrency real money?
They are a substitute for hard money. Crypto coins are only now being accepted as payment in some outlets, but they are entirely separate and distinct from any other asset class because they are intangible and therefore very volatile. They are mainly traded by traders as a speculation on potential rises or falls in value.
How many cryptocurrencies are there?
There are thousands of cryptocurrencies. In total, there exist over 2000 existing cryptocurrencies- and most are worthless while in the top layer, market capitalization depending on such estimations the following are among the most important, highly valued: bitcoin, ether-the token of the Ethereum network, bitcoin cash-an offshoot of bitcoin, and litecoin.
IG provides trading in nine of the most valuable cryptocurrencies in the world: bitcoin, bitcoin cash, bitcoin gold, ether, ripple, litecoin, EOS, Stellar (XLM), and NEO.
