What is cryptocurrency trading?
The most common cryptocurrencies
Bitcoin: The first cryptocurrency that started it all.
Ethereum – a fully programmable Turing coin that allows developers to create different distributed applications and technologies that would not work with Bitcoin.
Ripple: Unlike most cryptocurrencies, it does not use a Blockchain to reach consensus across the network for transactions. Instead, an iterative consensus process is implemented, making it faster than Bitcoin and making it vulnerable to hacker attacks.
Bitcoin Cash – A fork of Bitcoin backed by the largest Bitcoin mining company and manufacturer of ASIC chips for Bitcoin mining. It has only been around for a couple of months, but it has already rocketed to the top five cryptocurrencies in terms of market capitalization.
NEM – Unlike most other cryptocurrencies that use a Proof of Work algorithm, it uses Proof of Importance, which requires users to own certain amounts of coins already to obtain new ones. It encourages users to spend their funds and track transactions to determine how important a particular user is to the overall NEM network.
Litecoin: A cryptocurrency created to be the ‘digital silver’ compared to the ‘digital gold’ that is Bitcoin. It is also a fork of Bitcoin, but unlike its predecessor, it can generate blocks four times faster and hold four times the maximum number of coins at 84 million.
Iota: The advanced accounting technology of this cryptocurrency is called ‘Tangle,’ and it requires the sender in a transaction to perform a Proof of Work that approves two transactions. Hence, IOTA has removed dedicated miners from the process.
NEO is a network of smart contracts that allows the development of all kinds of financial contracts and third-party distributed applications. It has many of the same goals as Ethereum, but it was developed in China, which may give it some advantages due to a better relationship with Chinese regulators and local companies.
Dash: It is a two-tier network. The first tier is the miners that secure the network and record transactions. The second consists of “master nodes” that relay transactions and enable the InstantSend and PrivateSend transaction types. The former is significantly faster than Bitcoin, while the latter is completely anonymous.
Qtum: It is a fusion of Bitcoin and Ethereum technologies aimed at commercial applications. The network has the reliability of Bitcoin while allowing the use of smart contracts and distributed applications, and it works similarly to the Ethereum network.
Monero: A cryptocurrency with private transaction capabilities and one of the most active communities due to its open and privacy-focused ideals.
Ethereum Classic – An original version of Ethereum. The split happened after a decentralized autonomous organization built on top of the original Ethereum was hacked.
The simple answer would be that they are digital currencies native to your blockchain. But it’s not that simple.
Bitcoin (BTC) and Ether (ETH) are examples of cryptocurrencies. What do they have in common? They all exist on their separate ledgers: BTC operates on the original Bitcoin blockchain, ETH is used within the Ethereum blockchain, MXR exists on the Monero blockchain, and so on. All these cryptocurrencies also have the characteristic that they can be sent, received and mined.
What are cryptocurrencies?
Cryptocurrencies are virtual currencies. They can be traded and traded like any other traditional currency but are beyond the control of governments and financial institutions.
There are a large number of cryptocurrencies available, all with their characteristics and applications. Those with the highest market capitalization are, at least for now, a minority that includes bitcoin, bitcoin cash, ether, litecoin and dash.
Cryptocurrencies can be considered an alternative to traditional currencies, but they were conceived as a completely conventional payment solution. At the moment, a good number of stores accept cryptocurrencies as a form of payment.
Although their validity as a payment method is fundamental to their value, cryptocurrencies are usually more like commodities such as gold than the forex market. Same as raw materials:
The value of a cryptocurrency is not exclusively linked to the behaviour of a specific economy
Changes in interest rates and the increase in monetary reserves only have an indirect effect on their value
The value of cryptocurrencies depends on the commitment of users to maintain their price when converting them to traditional currencies
For now, this means that cryptocurrencies are treated primarily as a commodity, that is, an investment whose return comes from speculation around the ups and downs in their value.
What is cryptocurrency trading?
Trading cryptocurrencies is the act of speculating on the price movements of cryptocurrencies using a CFD trading account or buying and selling the underlying cryptocurrencies on a trading market.
Cryptocurrency CFD trading
CFD trading is derivative, allowing you to speculate on cryptocurrency price movements without owning the underlying cryptocurrencies. You can go long (buy) if you think the price of a cryptocurrency will go up, or go short (sell) if you think it will go down.
CFDs are leveraged products, which means that you only need to make a small initial deposit, known as margin, to gain full exposure to the underlying market. Your profits and losses are calculated based on the full size of your position, so leverage magnifies both your profits and losses.
Buy and sell cryptocurrencies through a trading market.
When you buy cryptocurrencies through a trading market, you acquire the cryptocurrencies. You will have to create a trading market account, contribute the total value of the asset to open a position and store the cryptocurrency tokens in your portfolio until you are ready to sell.
Trading markets have a steep learning curve, as one must become familiar with the necessary technology and learn to analyze the data. Many trading markets place limits on the deposit amount, and the accounts can be very expensive to maintain.