Table of Contents
It doesn’t matter what you do for a living or where your interests lie, you have definitely heard a thing or two about cryptocurrencies. Ever since the first cryptocurrency, Bitcoin, was invented back in 2009, this new concept has changed the global financial market in many ways.
There are plenty of people who are completely invested in cryptocurrencies. Many people already know about different coins, and in addition to bitcoin, they also have an ethereum or dogecoin wallet. Of course, they have different motives and ambitions. For example, some of them are in it because they believe in the philosophy of independence and transparency, while others are only looking for short-term profit. If you are interested in this topic, you can find the necessary information at cryptoholics.com. However, if you are acquainted with the subject and you want to learn a few things about cryptocurrency trading, you’ve come to the right place.
Here are the essential things you need to know about crypto trading.
What Is Cryptocurrency?
A cryptocurrency is a form of digital currency that can be exchanged online either for goods or services. There are plenty of companies that have issued their own currencies. The currencies are also called tokens. Cryptocurrencies can either be used to buy products online on sites that accept this kind of digital money, they can be exchanged for fiat money, or for other cryptocurrencies. For example, you can exchange Bitcoin tokens for Etherium tokens.
Cryptocurrencies work using a technology called the blockchain. This is a decentralized technology or network that is shared across many computers that manage and record cryptocurrency transactions. A lot of people who are investing in cryptocurrencies are motivated by profit, but they also like the fact that the cryptocurrency market is decentralized. In other words, it’s independent and secure.
What Is A Blockchain?
The concept of blockchain can be a bit confusing, especially to cryptocurrency newbies. The most important thing you need to know about this is that blockchain is basically a ledger that keeps track of all the cryptocurrency transactions. It is maintained by the computers that are linked across a shared network. The transactions in cryptocurrency protocols are combined into blocks, and these blocks are linked together in a chain, hence the name. To put it plainly, this is a database of all cryptocurrency transactions.
What Drives The Price In The Crypto Market Today?
When it comes to investing in cryptocurrencies, there are many rules you need to follow. However, the most important one is this – you can’t invest blindly. In order to make good decisions and make a profit, you simply have to know what drives the market.
Here are some of the things that drive the cryptocurrency market today.
- Supply – it can depend on several factors. For example, the coins’ rate being destroyed, released, and lost. Those events dictate how the cryptocurrency is perceived and they have an effect on its value.
- Press – this is one of the most important factors. The way the media writes about crypto and how much a specific cryptocurrency is represented in media can either boost or diminish its value.
- Key events – things that happen rarely. For example, security breaches, economic setbacks, and regulatory updates.
- Market capitalization – the way users perceive the coins.
- Integration – how well specific crypto integrates into the infrastructure.
Types Of Crypto Trading
Now it’s time to talk about the main thing – cryptocurrency trading. The crucial thing for you to know is that there are two types of crypto trading.
- Buying and Selling Cryptocurrencies Via a Crypto Exchange
- CFD Trading on Cryptocurrencies
We’ll explain them both in detail.
Buying and Selling Cryptocurrencies Via a Crypto Exchange
The main characteristic of this type is that you have to buy the crypto coins if you want to trade them via a crypto exchange. You should also know that there are more than 6,000 cryptocurrencies available on the market and you have to choose wisely because not all of those cryptos can be exchanged on every site. However, exchanges like Binance and eToro support plenty of assets.
Once you choose and buy crypto from the exchange, you can store them in your digital wallet. This is where you can hold them until you decide to sell them for profit.
On paper, this may seem rather simple. However, using a cryptocurrency trading platform can be a bit complicated, especially for newbies. Also, the account fees can be high which means you have to plan your budget.
Since you’re new to this, your best option might be to look for an exchange that offers a cryptocurrency trading simulator. This is basically a short cryptocurrency trading course that will help you to better understand the technology.
CFD Trading on Cryptocurrencies
The other form of cryptocurrency trading is trading a contract for difference (CFD). This is a leveraged financial product that gives you the opportunity to speculate on price movements without having to buy the asset.
Here’s an example. If you notice that the price of Bitcoin Cash (BCH) has climbed rapidly over the last few days, you might want to invest in BCH but not buy any Bitcoin Cash tokens. How does one do this?
Well, the answer is simple, via CFD trading on cryptocurrencies.
When you buy a CFD, you enter into an agreement between a buyer (you) and a seller (the company that provides the CFD). The contract binds you to pay the seller the difference between the current value of an asset and its value at a fixed point in the future.
Now, this is where it gets interesting. If it happens that the difference is negative, the value of the asset has decreased. This means you are at a loss. If the asset’s value has increased, the seller will have to pay you the difference and this is how you can make a considerable amount of money via CFD trading.
The important thing you need to know is that you have two options when buying these contracts. You can either ‘go long’ if you think specific crypto will gain value or you can play it safe and ‘go short’ if you think it’s going to lose value.
