Cryptocurrency trading means taking a financial position on the price direction of individual cryptocurrencies against the dollar (in crypto/dollar pairs) or against another crypto, via crypto to crypto pairs. CFDs (contracts for difference) are a particularly popular way to trade cryptocurrencies as they allow for greater flexibility, the use of leverage and the ability to take short as well as long positions.
The Growing Popularity of Cryptocurrency Trading
Over the past decade, since the internet debut of Bitcoin, cryptocurrency trading has become increasingly popular. Cryptocurrencies are digital coins which are created using blockchain or peer-to-peer technology that uses cryptography – for security. They differ from fiat currencies issued by governments from around the world because they are not tangible: instead, they are made up of bits and bytes of data. Moreover, cryptocurrencies do not have a central body or authority such as a central bank that issues them or regulates their circulation in the economy. As cryptocurrencies are not issued by any government body, they are not considered legal tender.
Even though cryptocurrencies are not recognised as legal tender in the global economy, they have the potential of changing the financial landscape and this makes them hard to ignore. At the same time, the blockchain technology, which forms the foundation of cryptocurrency creation, has opened up new investment opportunities for traders to capitalise on.
Types of Cryptocurrencies
While there are currently hundreds of cryptocurrencies available, traders’ interest appears to be focused on approximately half a dozen cryptocurrencies. Included in the list of most popular cryptocurrencies are Bitcoin, which is regarded as the original cryptocurrency. Other popular cryptocurrencies that are frequently traded on cryptocurrency exchanges and online CFD trading platforms, include Ethereum, Litecoin and Ripple XRP.
In 2008, Bitcoin or BTC was the first cryptocurrency that was introduced to the world. This cryptocurrency was the first to adopt blockchain technology. Today, Bitcoin has become one of the most valuable cryptocurrencies in the industry with its value surpassing even that of gold.
Designed to be a fast way to process transactions, Ethereum is a blockchain network that was developed based on the original Bitcoin blockchain technology. The cryptocurrency was first proposed by Vitalik Buterin in November 2013.
Ripple was developed as a payment solution in 2012 by Ripple Labs Inc., a US-based technology company. The main objective of Ripple was to simplify the current global payment transfer system by minimising costs and payment processing time.
Litecoin was introduced to the cryptocurrency world in October 2011 as an attempt to facilitate cross border payments. It was designed to offer faster verification of transactions compared to Bitcoin.Start Trading Now
Factors That Determine Cryptocurrency Prices
- Apart from being the foundation for the creation of cryptocurrencies, blockchain technology has wider implications in the global economy, including the potential application in smart contracts and in the field of Internet of Things (IoT). As cryptocurrencies were only introduced in the last decade and are not considered a legal tender, they are not subject to the same market forces as traditional markets. This means that trading in cryptocurrencies is not like trading in traditional financial markets.
- Due to the centralised nature of cryptocurrencies, their price movements are less affected by factors such as data releases, political uncertainty, and interest rate changes. In addition, because they are a new type of financial instrument, cryptocurrencies have relatively few correlating assets which could affect their price movements.
- Nevertheless, the prices of cryptocurrencies can be affected by several factors such as changes in blockchain technologies and regulatory attempts to control their acceptability and ‘tradeability’ in the financial markets. News reports such as disagreements on how a particular cryptocurrency should be upgraded or processed can also affect its price. It is likely that any security flaws exposed by hackers will also adversely affect the price of a cryptocurrency. Of course, government policies and regulations that seek to ban or limit the sale of cryptocurrencies will also affect its price.
Is Cryptocurrency Trading Right For Me?
Cryptocurrency trading, just like all forms of financial trading, requires relevant knowledge, skills, and available capital. If you wish to trade the cryptocurrency market, you should first ensure that you have all the relevant skills for analysing the market. It should be noted that cryptocurrencies are more volatile than traditional instruments and, hence, riskier than most people are used to. This volatility can provide more opportunities for making a profit, but remember it can also result in losses that are greater than what you may be willing to bear.
Starting To Trade Cryptocurrencies
If you do decide that trading cryptocurrencies is right for you, you could start by opening a trading account with HTI Limited. You can then choose the crypto CFDs you want to trade from the rich selection on offer and open a position when your analysis tells you the time is right.