What you need to know about cryptocurrency trading and how it works?

cryptocurrency trading: What Does It Mean?

Trading on crypto currency means the constant change in cryptocurrency value through a trading account on CFD, or selling and buying the crypto coins through an exchange.

cryptocurrency trading

CFD trading on cryptocurrencies

CFDs trading are derivatives, which enable you to determine the rise and fall cryptocurrency value without taking ownership of the underlying coins. You can go short (‘sell’) if you think there will be a decrease in value, or long (‘buy’) if you think there will be an increase in cryptocurrency value.

Both of them are leveraged products, which implies you need to put up a tiny deposit called margin to have full exposure to the underlying market. Gains or losses are still calculated Baes on the full size of your position, so leverage will magnify both the profit and the loss.

Trading cryptocurrencies via an exchange

To trade ( buy & sell ) cryptocurrency via an exchange, you need to create an account. When you buy cryptocurrencies you  purchase the crypto coins themselves. This account gives you access to put up the value of the coin on a position and cryptocurrency can also be stored.

The steep learning curve ‘Exchanges’ bring presents to you the grip you need to understand the technology involved in understanding the data. There are limits on the quantity one can deposit on lots of Exchanges and account maintenance is very costly.

How the cryptocurrency market works.

The market (crypto currency market) is not issued neither is it backed by any central authority such as a government ( they are decentralized). However, they run across a network of computers. However, cryptocurrencies can be purchased and sold through exchanges and can be stored in ‘wallets’ .

Unlike regularly used currencies, cryptocurrencies only exist as a shared digital document of ownership, stored on a blockchain. Anytime a user wants to transfer a crypto-currency unit to another user, they usually send it to the user’s digital wallet. The event isn’t considered complete until it has been verified and added to the blockchain through a process known as mining. New cryptocurrency tokens are usually created this way.

What is blockchain?

Blockchain; is a shared digital register of documented data of cryptocurrencies. It’s the transfer (transaction/transfer)  history for every unit of the cryptocurrency, which shows a detailed movement of how cryptocurrency has changed ownership over time. Blockchain works by recording transactions in ‘blocks’, with new blocks added to the chain ( in front ).

cryptocurrency trading

Blockchain technology has a special security features that normal computer files do not have.

Network consensus

Blockchain files are stored on multiple computers across a network – instead of one location  and is readable by those within the network. This makes it both transparent and extremely difficult to alter, with no weak point hackable, or human or software error.

Cryptography

Blocks are linked by cryptography computer science and complex mathematics . Any attempt to change data disrupts the cryptographic links between the blocks, and can quickly be identified as fraudulent by the computers in the network.

What is cryptocurrency mining?

Cryptocurrency mining is the means by which recent cryptocurrency transfer is checked and new blocks are added to a blockchain.

Checking transactions

Mining machines pick a pending transfer from a pool and verify to ensure that the sender has enough crypto coins to perform the transaction. This involves checking the transfer information against the transaction history saved in the blockchain. A second check authenticates that the sender authorised the transfer of funds using their secure key.

Creating a new block

Mining machines compile valid transactions into a new block and attempt to generate a cryptographic link to the previous block by finding the solution to a complex algorithm. When the mining machine succeeds in generating a link, it adds the block to its version of the blockchain file and broadcasts the update across the network.

cryptocurrency trading

What moves cryptocurrency markets?

Cryptocurrency markets move based on supply and demand. However, since they are decentralised, they tend to be unaffected by the economic and political concerns that affect everyday used currencies. Although, there are lots of uncertainty surrounding cryptocurrencies, these following factors can have a great impact on the prices:

  • Supply: this is the number of coins, and the rate at which they are lost, destroyed or released.
  • Market capitalisation: the value of  the coins in existence and how users perceive this to be revolving
  • Press: how much exposure cryptocurrency gets and how it’s been portrayed by the media.
  • Integration: the rate at which cryptocurrency is easily integrated into existing infrastructure such as e-commerce payment systems
  • Key events: major events like regular updates, economic setbacks and breach of security.

How cryptocurrency trading works.

IG enables you to trade cryptocurrencies through a CFD account derivative products which helps you to speculate on whether cryptocurrency you choose will go up or down (rise or fall in value). The values are shown/seen in traditional currencies like the ‘Us dollars’.

CFDs are defined as leveraged products, which implies you can open a position for a part of the full value of the trade. Leveraged products can both amplify profit and losses based on when the market moves in your favour or not in your favour.

What is the spread in cryptocurrency trading?

The spread is the difference in the buy and sell prices quoted for a cryptocurrency. Just like fiscal markets, when the position in cryptocurrency trading market is open, there are two prices shown. If you want to open a long position, you trade at the buy price, which is a bit above the market price. If you want to open a short position, you trade at the sell price which is a bit below the market price.

What is a lot in cryptocurrency trading?

In cryptocurrency, lots are used to standardize the trade-in size, they are mainly groups of cryptocurrency tokens. Lots tend to be very small (since cryptocurrency is volatile): most are one unit of the base cryptocurrency. Certain cryptocurrencies are traded in Larger lots.

What is leverage in cryptocurrency trading?

Leverage: this is a method used in other to have an entrance to a large number of cryptocurrencies without paying the full value of your trade first. Instead, you put down a tiny deposit, called a margin. The gain or loss incurred when you chose a leveraged position, is based on the full size of the trade.

cryptocurrency trading

Leverage can either magnify profit for you or the risk of incurring a loss.– including losses that can exceed your margin on an individual trade. Leveraged trading therefore makes it essential to learn how to manage your risk.

What is ‘margin’ in cryptocurrency trading?

Margin is a critical part of leveraged trading. It is the term known (margin) as the initial deposit you put up to open and maintain a leveraged position. When you trade cryptocurrencies on margin, remember that your margin requirements vary depending on the broker, plus your trade size.

Margin can be expressed as a percentage of the full position. For example, a trade on ethereum, may require 10% of the total value of the position to be paid before you can open it. So instead of depositing $5000, you just need to deposit $500.

What is a pip in cryptocurrency trading?

Pips:  pips can be defined as the units used for calculating movements in the value of cryptocurrency, it refers to a single-digit differential change in the value at a given level. Generally, cryptocurrencies that are worthy are traded at the ‘dollar´ level, so a movement from a price of $300.00 to $301.00, for instance, would mean that the cryptocurrency has moved a single pip. Certain cryptocurrencies with lower value are traded at different levels and a pip could amount to a cent or be as low as a fraction of a cent.

It’s important to read the details on the trading platform you plan to use to ensure you know the level at which price movements will be measured before you trade.

FAQs

The Disimilarity between a cryptocurrency and a digital currency?

The difference between a digital currency and a cryptocurrency is that the former is centralized, meaning it is issued or backed by a central authority such as a central bank or government. While cryptocurrencies are not issued nor backed by any authorized government ( it’s decentralized )and they only exist in digit world ( they are digital currencies ).

TYPES OF cryptocurrency wallets in the world:

 These are five main types of cryptocurrency wallets, namely desktop wallets, mobile wallets, online wallets, hardware wallets and paper wallets. When trading cryptocurrency through a CFD account, you do not need a wallet, only when you are buying them. The wallets are mainly used to store, send and receive cryptocurrencies.

What was the first cryptocurrency?

The first cryptocurrency was bitcoin. The bitcoin domain was registered in 2008 and it’s first transaction took place in 2009. It was developed by someone known as ‘Satoshi Nakamoto’. However, there is speculation that Nakamoto is a pseudonym as the bitcoin creator is notoriously secretive, and no one knows for sure if ‘he’ is a person or a group.

Is cryptocurrency real money?

Cryptocurrencies are an alternative to daily used currencies. Today, some outlets recognize cryptocurrencies as a form of payment. Although, they bear little or no resemblance to other asset classes because they are intangible and volatile. They are majorly used by traders for predicting the rises and falls in value.

How many cryptocurrencies are there?

There are more than two thousand cryptocurrencies available to buy and sell, although most have little value. Of these, bitcoin, ether (the token of the Ethereum network), ripple, bitcoin cash (an offshoot of bitcoin) and litecoin these are some of  the most valuable by market capitalisation.

IG offers trading on nine of the valuable cryptocurrencies: in no particular order; bitcoin, bitcoin cash, bitcoin gold, ether, stellar (XLM), litecoin ripple,, EOS, and NEO.

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