Learning about Cryptocurrency Trading

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What is Cryptocurrency Trading?

The act of trading cryptocurrency prices via an exchange of underlying coins, or through CFD trading transactions.

CFG Trading and Cryptocurrencies

Given that CFD (contract for difference) trading is derivative, this allows you to speculate on the price movement of the cryptocurrency without having to take ownership of the coins. It's up to you to either buy or go long if you think the cryptocurrency will rise or short, i.e., sell if you think the cryptocurrency will fall in value.

With either option, you only need to put up a margin—a small deposit—to gain access to the underlying market, since they are leveraged. Losses and profits are calculated by the size of your position. So, the leverage will impact your profits and losses. Selling and Buying Cryptocurrency Through an Exchange

When buying cryptocurrencies via an exchange, you have to purchase the coins yourself. The process involves creating the exchange account, putting up the full value of an asset, to open a position for your account, and store the tokens in your wallet until you know you can sell. Although expensive to maintain, the benefit of buying and selling cryptocurrencies through an exchange is the steep learning curve.

You learn all about the technology involved in managing cryptocurrency, and the specifics of the data used. So, it doesn't take much time before you become fully aware of how the market works. But, keep in mind that exchanges have limits as to how much you can deposit, which may be troublesome for some.

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How the Cryptocurrency Market Works

The cryptocurrency market is a decentralized system. It means that the market isn't run by a central authority such as a country's government or body. Instead, the markets are run across a vast network of computers.

However, these currencies can only be bought and sold via an exchange, and are stored in wallets, software or service that stores public and private keys, and is the basis from where owners can track, spend, and receive their cryptocurrencies.

Unlike the traditional form of currencies, cryptocurrencies only exist through a shared virtual record of ownership, which is stored on a blockchain. A blockchain is a digital register of data that is recorded and shared among users. Consider it a comprehensive transaction history of every unit in cryptocurrency, which shows the number of owners and how many have changed over time. As the transactions are made and recorded, more 'blocks' are added to the front of the chain.

So, when a user sends cryptocurrency units to someone's digital wallet, the transaction is recorded once it has been verified and finalized and added to the chain via a process known as mining. New cryptocurrency tokens are also usually created using this process.

Additional Information on Blockchain

Blockchain files are stored across multiple computers on a vast network, making them more transparent and, thus, challenging to alter. This storage trick also prevents the blockchain from any attacks through software or human error or hacks. The blocks in a blockchain are linked together through cryptography, which is a combination of computer science and complex mathematics.

This structure is difficult to alter or hack through. And thus, alerts the network to any disruptions if an attempt is made.

Learning about Cryptocurrency Mining

This is the comprehensive process through which cryptocurrency is checked, and newer blocks are added to the chain. The first step involves checking transactions. Mining computers look through the pool of pending transactions, only selecting senders who have sufficient funds to complete the transaction.

The transaction details are checked against the stored transaction history on the blockchain. A second check is also conducted to ensure that the sender authorized this transaction via their private key.

Once the checks are confirmed, the mining computers conduct the transaction and compile the move into a new block, which is generated along with a cryptographic link, attaching it to the previous block by solving the complex algorithm. Once the computer generates the link, the block is = added to the blockchain and the update is broadcasted across the network.

What Affects the Cryptocurrency Market?

Because of its decentralized nature, the cryptocurrency market is not affected by any political or economic concerns. But, factors such as supply and demand and others do have a significant impact on the prices of cryptocurrencies:

  • -Supply: The total number of coins that are released, lost or destroyed, and their rates
  • -Market Capitalization: The perceived value of the coins as they develop as well as the present value
  • -Press: How cryptocurrency is perceived in the media and the amount of coverage it's getting
  • -Integration: The limit of integration for a cryptocurrency, i.e., how it is being
  • utilized in various existing infrastructure, such as using cryptocurrency as an e-commerce payment system
  • -Key events: Security breaches, economic setbacks, and regulatory updates
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Basics of Cryptocurrency Trading

Spread

Spread in cryptocurrency trading is the difference between the selling and buying process quoted for a currency. Like any financial market, when a position is opened on the cryptocurrency market, two prices are presented.

If you'd rather go long, you can trade at the buying price, which is typically above the market price. However, if you would go short, you can trade at the selling price, which is slightly lower than that of the market price for the cryptocurrency.

Lot

Cryptocurrency is usually traded in lots—a particular batch of cryptocurrency tokens. Because cryptocurrencies can be volatile, these lots tend to be small, with most lots just consisting of one unit of the baser currency. Nevertheless, some cryptocurrencies can be traded using more oversized lots.

Leverage

Instead of paying the full value of a cryptocurrency, leveraging an asset allows you only to put down a margin price. But when you close that leveraged position, your losses and profits are based on the finished size of the trade. This can be an unpredictable concept, though. Leveraged trading does magnify your profits, but it can overwhelm you with amplified losses that exceed your margin price. So, it's best not to delve into leveraged trading unless you can manage the risk.

Margin

Margin is the initial deposit you put up to open your position. Margin requirements are not constant and change depending on the size of your trade, as well as the broker. Typically, margins are valued at a certain percentage of the full position of the cryptocurrency.

Pip

Pips are units used to measure the price movements of certain cryptocurrencies. Pips refer to one-digit movements at specific levels, though, so if the price moves from $150.00 to $151.00, this means that the value of a cryptocurrency has moved up a single pip. In general, cryptocurrencies are traded on a dollar level. However, low-value cryptocurrencies are traded using different scales, where a pip can also be used to refer to a change in cents. Cryptocurrency

*Reference: https://www.ig.com/