Cryptocurrency Trading. The term “cryptocurrency trading” refers to the practice of betting on the future value of cryptocurrencies by trading them in pairs with one another or against fiat currencies like the US dollar. Cryptocurrency CFDs (contracts for difference) provide traders with more leeway, leverage, and the option to take long and short positions, making them a popular trading platform.
The Growing Popularity of Cryptocurrency Trading
Cryptocurrency trading has grown in popularity over the past decade, starting with Bitcoin’s 2009 internet debut. For instance, in February 2022, there will be more than 10,000 different cryptocurrencies, compared to just 66 in 2013. This phenomenal rise demonstrates the increasing popularity of crypto. Cryptocurrencies are digital currencies created using cryptography and peer-to-peer technologies like blockchain.
Since they are composed of information rather than physical objects, they differ from fiat currencies issued by governments worldwide. This market also excludes the issuance and regulation of cryptocurrency by a single entity, such as a central bank. Because a central bank or government agency does not print cryptocurrency, it is not considered currency.
Despite cryptocurrencies’ lack of official currency status, their disruptive potential in the financial sector makes them impossible to ignore. Coincidentally, new investing options have emerged thanks to blockchain technology, the backbone of Bitcoin generation.
Types of Cryptocurrencies
Hundreds of cryptocurrencies may be out there, but only about six or seven seem to be attracting traders’ attention. One of the most well-known cryptocurrencies is Bitcoin, often considered the pioneer of the digital money industry. As a result of a “hard fork” in the initial Bitcoin network, two more virtual currencies, Bitcoin Cash and Bitcoin Cash ABC, were created. Ethereum, Litecoin, Cardano, Solana, Axie Infinity, Filecoin, Uniswap, and many more are among the most traded cryptocurrencies on cryptocurrency exchanges and online CFD trading platforms.
There are several distinct “types” of popular cryptocurrencies. Some aim to provide a substitute for traditional fiat currencies. Litecoin, Bitcoin Cash ABC, and Bitcoin are all in this category. When building decentralized applications (Dapps), Ethereum is meant to be “spent” on the Ethereum smart contracts platform. “Utility token” rather than money is how Ethereum is defined. Stellar, on the other hand, is a platform for blockchain-based payments. Last, there’s the Crypto 10 index, which tracks the ten most valuable and often traded cryptocurrencies. It functions similarly to a stock market or currency index.
Bitcoin (BTC)
The world was originally introduced to Bitcoin, or BTC, in 2008, the first cryptocurrency. This cryptocurrency was the first to use blockchain technology. Bitcoin’s value has increased to the point that it is now one of the most valuable cryptocurrencies, surpassing gold.
Bitcoin Cash (BCH)
In August 2017, the original Bitcoin network suffered a severe fork, creating Bitcoin Cash. The original blockchain was intended to support larger blocks, which would have allowed for quicker transaction processing, and this update was made to accommodate that.
Bitcoin Cash ABC (BAB)
The Bitcoin Cash blockchain experienced another ‘hard fork’ on November 15, 2018. The hard fork was caused by an upgrade to the Bitcoin Cash blockchain software that Bitcoin Cash Adjustable Blocksize Cap (also known as the ‘ABC’) wanted to implement. At the time, Bitcoin Cash Adjustable Blocksize Cap was the largest blockchain software client—the upgrade aimed to bring non-cash transactions like smart contracts and Oracle prediction services. The fork’s organizers also wanted to replace canonical transaction ordering with topological transaction ordering. However, not all nodes on the Bitcoin Cash network agreed to the upgrade, so when the updates were introduced, another severe fork occurred. The outcome was
The Axie Infinity (AXSUSD)
Released in March 2018, Axie Infinity is an Ethereum-based ‘play-to-earn’ (P2E) game where users establish kingdoms, combat, and raise pet avatars called Axies in a virtual cosmos. The “play-to-earn” (P2E) system assigns participants a token called AXS in exchange for participating in the game. This cryptocurrency game allows users to purchase and sell the distinctive Axies avatars, similar to non-fungible tokens (NFTs), creating a small-scale market for them. As of March 2022, the market value of this cryptocurrency game had reached an astounding $33 billion.
Filecoin (FIL)
Filecoin is a decentralized “peer-to-peer” (P2P) cryptocurrency-operated storage network that has existed since 2014. It offers storage facilities to anyone who needs them, and storage facility renters receive payment in FIL tokens. As of March 2022, Filecoin’s market capitalization was $4.8 billion.
Unfortunately, not every node on the Bitcoin Cash network supported the upgrade; thus, another hard fork occurred when the upgrades were implemented, and Bitcoin Cash ABC was born.
Uniswap
Uniswap is an entirely decentralized cryptocurrency exchange that first appeared in 2018 as an element of the Ethereum network. The Uni tokens are added, and the exchange or “trade” is facilitated via smart contracts that run the system. With a market cap of $3 billion as of March 2022, Uniswap is the fourth biggest decentralized finance (DeFi) platform.
Crypto 10 Index
The Crypto 10 Index is one way to assess the value of cryptocurrencies as an investment. This index averages the prices of the ten largest and most liquid cryptocurrencies and tokens across all major exchanges. Since January 9, 2018, the index has been continuously updated against market movements in its ten parts, and it was standardized at 1000 points on December 23, 2016.
Ethereum (ETH)
Ethereum is a distributed ledger computer network built on top of the blockchain technology that underpins Bitcoin. Its purpose is to facilitate the quick processing of transactions. Vitalik Buterin originally introduced the coin in November 2013.
Litecoin (LTC)
Litecoin entered the cryptocurrency market in October 2011 to ease international money transfers. One of its primary goals was to provide a more expedited method of transaction verification than Bitcoin.
What Determines Cryptocurrency Prices?
- Due to their restricted supply, cryptocurrency is more scarce than traditional fiat currency. Therefore, cryptocurrency prices will rise due to a supply shortage and increased demand.
- Mining, the process of using computers to validate blocks on a cryptocurrency’s blockchain, creates new coins. This procedure uses a lot of power and is expensive. A cryptocurrency’s value rises in direct proportion to its mining cost.
- The value of a cryptocurrency tends to rise as its traction increases and its number of competitors falls.
- Blockchain technology is not just the backbone of the cryptocurrency industry. Still, it has far-reaching consequences for the world economy, with possible uses in smart contracts and the IoT.
- Due to their recent launch and lack of legal cash status, cryptocurrencies are not subject to the same market pressures as traditional markets. Cryptocurrency trading is thus distinct from trading in more conventional financial markets.
- The decentralized structure of cryptocurrency markets means that variables like interest rate changes, political unpredictability, and data releases have less impact on cryptocurrency prices. Another factor influencing cryptocurrency prices is the lack of correlated assets, likely because cryptocurrencies are still a relatively new financial instrument.
- Nevertheless, the prices of cryptocurrencies can be affected by several factors, such as changes in blockchain technologies and regulatory attempts to control their acceptability and ‘tradeability’ in the financial markets. News reports, such as disagreements on how a particular cryptocurrency should be upgraded or processed, can also affect its price. Any security flaws hackers expose will likely adversely affect the price of a cryptocurrency. Of course, government policies and regulations that seek to ban or limit the sale of cryptocurrencies will also affect their price.
How are Cryptocurrencies Traded?
Many different methods exist for exchanging cryptocurrency. Buying and selling digital crypto coins on cryptocurrency exchanges is the first method. The latter has become more popular in recent years because it allows traders to speculate on cryptocurrencies’ price movements without actually owning them, and it also requires less cash expenditure. Because CFDs are leveraged, traders can start with a lower margin and potentially increase the value of their bets by multiplying their gains. Furthermore, unlike cryptocurrency trading on an exchange, trading CFDs on cryptocurrencies does not require storing your funds in a crypto wallet. While leverage can boost gains, it can also raise losses; therefore, traders should be aware that CFDs are risky investments.
After deciding which cryptocurrency to trade, the next step is to open a position, either to sell or buy. You can view the results below; whatever you choose will launch a trading window. From this screen, choose the number of contracts and trigger risk management orders like Stop Loss or Take Profit when a particular price is reached. The trader would click the SELL button to place a SELL trade, as shown in the snapshot below (which is for illustrative purposes only).
Is Cryptocurrency Trading Right for Me?
Understanding the market, acquiring the necessary skills, and accessing sufficient funds are all necessary for successful cryptocurrency trading. Make sure you have the necessary abilities for market analysis before you try your hand at trading cryptocurrencies. Cryptocurrencies are riskier than the average investor due to their higher volatility compared to more conventional investment vehicles. Although this volatility can increase your chances of making a profit, it also increases the risk of losses that could exceed your tolerance.
Also Read: P2P Trading—How Does it Work in Peer-to-peer Crypto Exchanges?
