The advent of computers and the internet has influenced nearly every walk of life, whether it is personal or business sector, and allowed work to be done efficiently and effectively. Today, we see rapid advancement and growth in technology where everything is going digital and mobile. People have always dreamed of having a digital form of currency, and throughout the 90s, there were attempts of digital currency.
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PayPal was the closest and considered to be the native internet money, but back then, digital currency was hard to implement due to the double-spending problem. The digital assets were easy to copy and replicate, for example, taking a Word Document and making hundreds of copies, which each copy exactly as the same. So, the digital currency user might try to buy two goods by spending one unit.
The double-spending problem was solved in 2008 by the introduction of Bitcoin, which is a digital currency driven by a block chain technology where a chain of blocks of transactions is placed on a digital ledger. The advantage of Bitcoin or other block chain networks is that there is no need for a central authority to validate transactions as the network is self-sufficient and uses peer to peer internet protocol to encrypt data.
What is Cryptocurrency?
A cryptocurrency is a digital asset that can easily be used as a mode of transaction. The exchange is possible with the use of cryptography to verify and secure transactions and manage the input of additional units. The word ‘crypto’ defines the algorithm that is used for encryption and securing financial data and transactions. The cryptocurrency is stored in a ‘wallet,’ and it can be in the form of an online or offline wallet.
The integration of block chain technology makes it impossible for double spend and counterfeit. The
cryptocurrency is a financial market that is open to anyone for trading and is decentralized, which
means the government rules and regulations does not apply.
The Types of Cryptocurrencies:
Bitcoin was the first block chain-based digital currency, and still the most popular and successful cryptocurrency. Today, there are thousands of different cryptocurrencies that have numerous specifications and functions. Some of the famous cryptocurrencies apart from Bitcoin include Ethereum, Ripple, TRON, and Litecoin. It is estimated that the combined value of cryptocurrencies is valued at around $214 Billion, and Bitcoin represents 68% of the total value.
As the cryptocurrency is a digital financial product, it means it can be traded anytime and any day of the week. And unlike stocks and commodities, there is no regular exchange that regulates the cryptocurrency market. United Kingdom (UK), the United States of America (USA), and Russia are three countries where cryptocurrencies are traded the most.
The Important Aspects of Cryptocurrency Trading:
The cryptocurrency market functions in more or less the same way as the other financial markets. The cryptocurrencies are traded on many online Digital Currency Exchanges, and trading involves buying and selling of cryptocurrency for other types of cryptocurrency, or any other conventional currency.
As a trader, you do not need to buy or own any underlying cryptocurrency, which gives you flexibility and luxury in deciding when to enter or exit the market. You can enter the market by speculating the price movement of any cryptocurrency using Contract for Difference (CFDs).
CFD trading also allows traders to use trading tools such as leverage. You deposit a smaller amount but can trade larger positions. But leverage products in all financial markets are considered risky as along with the prospect of earning profits, there is also the chance of incurring a loss.
How to Trade Crypto Currencies:
Among other ways There are two popular ways to do crypto trading. One is buying cryptocurrency such as Bitcoin, Ethereum, Litecoin, on an exchange. The second is to trade CFD on particular cryptocurrency. A CFD is a derivative financial agreement where the broker agrees to pay trader the difference in the value of the underlying asset from the date the contract opens to the date the contract closes
As a trader, you have the right to hold a position (speculate the price of cryptocurrency) will rise, and you can also hold a short position (speculate that the price of cryptocurrency) will fall.
The main difference between the two options is that in exchanging cryptocurrencies, the amount is either added or deducted from your wallet, whereas, with CFD, the position you hold is in your trading account that is controlled by a regulated broker. You have more flexibility with CFD as you do not directly buy or own the asset.
Characteristics of Trading Cryptocurrency with CFD:
CFD is a leveraged financial product which means that trading can be done on margin. To open an account you need capital, you deposit a smaller amount with your own cash and the other you borrow capital from a broker. With leverage you get exposure to a larger position, which increases the potential to magnify profits, but also losses, thus investors shall use leverage with caution
A liquid market means that traders can buy or sell an asset without significantly changing the market price. Unfortunately, the cryptocurrency market is not liquid and quite volatile, as a small number of trades also impact the market price. However, you can trade cryptocurrency with CFD as you are not buying the underlying asset.
- Go Long or Short:
Trading with CFD gives you freedom and flexibility to go both Long and Short. You can earn profit, by Buying (go Long) cryptocurrency when the market is rising and also Selling (go Short) when the market is declining if your predictions correct
There are over 1000 different cryptocurrencies but unfortunately cryptocurrency is not yet widely used by consumers or businesses as a medium of exchange. The cryptocurrency market is considered quite volatile and has its limitations however; the cryptocurrency market has the potential to grow and become commonly used financial product in the near future.The information above is for education purposes only and cannot be considered as investment advice.
The Basic of CFD Trading
CFD trading course is designed to give you a firm foundation, enabling you to enter the CFD market with confidence and understand exactly what it takes to trade CFDs. Trading CFDs will require a lot of work on your behalf, and you will need to apply sensible and efficient risk management strategies.