Last Updated on July 28, 2021
Cryptocurrency trading involves trading the price movements of a cryptocurrency through a CFD trading account or buying and selling the underlying currencies through an exchange. Find more information on cryptocurrency trading, how it works, and price trends below.
What Are Cryptocurrencies?
A cryptocurrency is a virtual currency that operates independently of banks and governments. It can be traded just like any physical currency (or fiat currency). Each cryptocurrency has its market value. Various platforms can help you understand the value of Bitcoin in various currencies, from satoshi to usd.
There are a large number of cryptocurrencies available, each with its unique characteristics and applications. However, those with a large market capitalization remain in the minority, at least for now. These are, for example, Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Ripple, and Dash.
What Is Cryptocurrency Trading?
It is the trading of the price movements of a specific virtual currency through a CFD trading account or selling and buying the underlying currency through an exchange.
Cryptocurrency Trading on CFDs
CFDs are derivative products that allow you to trade on the price movements of cryptocurrencies without having to hold the underlying virtual currency. If you think that the value of a cryptocurrency will increase, you can buy. If you think it is going to go down, you will position yourself to sell.
As CFDs are leveraged products, you only need to tie up a small portion of your capital (the hedge) to gain total market exposure. However, your wins and losses are calculated based on your complete position. The leverage effect, therefore, amplifies the gains but also the losses.
Buying and Selling Cryptocurrencies Via an Exchange Platform
When you acquire cryptocurrency through an exchange, you are purchasing the currency itself. To trade digital currencies in this way, you will first need to open an account, lock in the entire position and finally keep your tokens in your cryptocurrency wallet until you decide to resell them.
Exchange platforms don’t all work the same, which is why you will need to familiarize yourself with the technology they use and learn how to extract the information that interests you. Many of them have deposit limits, and the costs of running the account can sometimes be outrageous.
How Does the Cryptocurrency Market Work?
Cryptocurrency markets are decentralized, which means that these currencies are not issued by a central authority (a state, for example). Instead, they travel through a network of computers. Cryptocurrencies can be bought and sold on exchange platforms (a kind of virtual stock exchange) and held in dedicated portfolios (or wallets).
Unlike traditional currencies, cryptocurrencies are only digital proof of ownership stored on a blockchain. When a user wishes to sell cryptocurrency units to another user, he must send them to the virtual wallet of the latter. The transaction is considered completed only when verified and added to the blockchain through a mining process. This is also how new tokens are usually created.
What Elements Influence the Cryptocurrency Markets?
Cryptocurrency markets evolve based on supply and demand. However, being decentralized markets, they are often better protected from the economic and political changes that generally impact traditional currencies. In addition to the uncertainty surrounding them, the following factors can have a significant impact on the price of digital currencies:
- Supply: the total number of parts and their rate of issue, destruction, or loss
- Market capitalization: the value of all existing coins and the likelihood that this number will increase, decrease or stagnate
- Press: media coverage (positive, negative, strong, or weak) of cryptocurrency
- Integration: the ability of cryptocurrency to blend into existing infrastructure, such as online payment systems
- Key events: major events such as regulatory changes, security breaches, and economic hardship
Step by Step Guide on How to Trade Cryptocurrency
Here is how to go about the buying, selling, or exchanging of cryptocurrencies.
1. Choose a Broker or Platform to do the Crypto Trading
First of all, you must choose a good broker among the various crypto trading brokers available on the market. A cryptocurrency broker is a digital financial intermediary (website) that allows you to make transactions to purchase or exchange digital currencies under the best possible conditions.
This enables you to get started with all the odds in your favor. There are two main types of cryptocurrency brokers. On the one hand, these are general brokers who offer you crypto trading reputable currencies. These are the CFD brokers.
On the other hand, there are specialized brokers who operate exclusively on a few cryptocurrencies under variable conditions. Online brokers have the advantage of offering trading commissions at very affordable prices. Some even provide trading training.
2. Open a Trading Account to Invest in Cryptocurrency
After choosing your financial intermediary, you must open a trading account. It’s not complicated. You need to follow some instructions. In fact, on your broker’s interface, find and click on the “Join now” or “Trade now” button. Once you do this, a new page opens. On the latter, you will see an electronic form on which you can enter the personal data necessary to open a new trading account. Please enter all the requested information, and your account will be created. All you have to do is connect to it.
3. Fund the Account and an Open Position
Once you log into your account, you need to deposit to the account. It is with this amount that you can take a position. This amount varies depending on the type of broker you have chosen. It is important to know that all customer accounts are held in US dollars (USD). The amount deposited will be immediately converted into USD at the exchange rate in effect at the time of deposit.
To make things easier for you, several payment methods are available to you: bank transfer, credit card (Visa, MasterCard, Maestro), PayPal, Neteller, and Skrill. Once you credit your account, choose the cryptocurrency you want to invest in. You have a multitude of cryptocurrencies at your disposal.
The best known are Bitcoin (BTC), Ethereum (ETH), Tether (USDT), or Ripple (XRP). After making your choice, you will see on the interface the letter “B,” which means to buy (“buy”), and “S” means to sell (“sell”) your chosen currency. Finally, enter the amount you want to invest in the selected cryptocurrency.