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Digital currency (cryptocurrency) trading works the same as traditional Forex trading with a few differences due to the high volatility of the digital currency market.
Leverage is much lower (the maximum is often 1:10 or similar) and
The spreads are much wider (often close to 25-35 pips).
This is to protect brokers and traders from the high volatility prevalent in the cryptocurrency market.
The cryptocurrency market operates 24 hours, 7 days a week, as it does not rely on large financial institutions for liquidity.
Both traders and brokers know that you can make money in digital currencies, several brokers have adapted their trading platforms and customer support hours to provide a good experience in cryptocurrency CFD trading.
It is a digital currency without any national assets or backing. It can be used to make payments or investments and is most commonly accepted at any time.
Digital currencies are “mined” using computers, once mined the new currency unit is added to a blockchain – a public ledger of transactions. This is very different from traditional currencies, which are regulated by a federal bank.
Digital currencies have a theoretical limit on the number of coins that can be created. As long as there is demand, this supply limit allows them to maintain their value, and they can be viewed as an investment vehicle.
There are dozens of digital currencies, but the most liquid and traded:
Blockchain is a time-stamped digital record used to keep track of data. Like a traditional notary, Blockchain eliminates any possibility of retro activity or alteration of digital data. Blockchain is used as a distributed ledger containing a record of transactions.
The data in a Bitcoin block stores details about transactions such as quantity, sender, and receiver. The hash identifies a block and its contents and is always unique.
Changing the information in a block also changes the hash of the block, thus automatically making all subsequent blocks invalid, as they no longer store a valid hash of the previous block.
In addition, the blockchain has a mechanism that delays the creation of new blocks called “proof of work” to prevent tampering with data in the blocks.
The ledger is recalculated every ten minutes by the machine with the highest processing power. All the other computers on the network check and verify that the transactions entered are valid once the primary machine has completed the calculation.
If more than 50% of the computers agree with the result of the calculation, the new block of transactions is included in the blockchain.
Mining is the process of adding a new proposition to the blockchain, effectively generating a new proposition. Mining uses high-powered computers, often powerful GPUs, to find and verify the resulting currency, which is placed in a wallet associated with the computer.
A digital wallet allows the user to store coins and allows funds to be moved by the owner. A wallet is often referred to as an address or key, where the key is used to locate ownership of a digital currency.
A wallet can also be a program or a physical device, some wallets are oriented towards a single digital currency or a few selected digital currencies.
If your goal is to purchase these assets for an investment, you can buy them on digital currency exchanges such as Coinbase. However, digital currency pairs can be traded like any other currency pair.
Like standard Forex CFDs, the value of a digital currency CFD mirrors the currencies it follows. Each transaction is speculation on the value of the currency, increasing or decreasing.
There are several benefits to trading these digital currencies:
As mentioned earlier, digital currencies can experience extreme volatility. Bitcoin has seen a 200% increase in value against the USD in recent months, but has also experienced frequent drops of over 20% in the same period. This is in stark contrast to traditional currencies, where historical volatility is at 3%.
These currencies have similar characteristics to traditional currencies. If you plan to trade these assets in the short term, you should look for rapid changes in sentiment, as this will help predict future price movement. If you plan to trade long-term, you should watch for new information that significantly affects the value of these assets.
Just like traditional forex trading, you can use your trading platform to execute trades, perform analysis, and follow the news.
Bitcoin – The oldest and most liquid of them all is Bitcoin (BTC). It was created in 2009 by an unknown person using the name Satoshi Nakamoto to be used as a means of payment. In trading, BTC is usually paired with fiat currencies such as USD and EUR.
Ethereum – It is an open-source platform that uses blockchain technology. The critical function is the intelligent scheduling of contracts. Ethereum is very liquid and experiences the same volatility expected of this market. It went live on July 30, 2015, with 72 million coins. See quote here.
Litecoin – This coin was built using the same open-source software that was used to create Bitcoin, but uses a different license to make it more flexible. Litecoin was initially referred to as an alternative currency or altcoin and was created in October 2011.
Ripple – Founded as a payment system and currency exchange network by Ripple Labs Inc. The system was established in 2012, and Ripple can be traded against various fiat currencies as well as other currencies.
EOS – EOS functions as a smart contract platform and decentralized operating system. The system is fast and can execute millions of transactions in seconds.
During the last decade, the money supply has grown exponentially; this is the most significant growth in the money supply in history. Central banks control our monetary system, and all currencies are government fiat currencies.
The issue with fiat currencies is that the more money that is in a system, the more prices will rise. This increase in inflation will also cause the value of the currency to decrease.
Both Bitcoin and gold are similar in that there is a finite supply; this contrasts with fiat currencies, where central banks can print more currency whenever they want. As such, there is a predictable rate at which BTC is mined, just like the predictable rate at which gold is added to the market.
These assets are known for their high volatility in the market, thus creating more trading opportunities. Forex volatility has fallen to near record levels in recent years, often to less than 1%, while Bitcoin has had extreme volatility readings of 30% with an average volatility reading of 10%.
More volatility means more trading opportunities and higher profits, but at the same time the size of losses also increases. Because of this volatility, it turns out that brokers offer much lower maximum leverage for these pairs.
The analysis of these pairs is easier because there is no fundamental data such as GDP, CPI inflation, the unemployment rate or the economic cycle to consider. Digital currencies are not influenced by fundamental macro data which will make price action much easier to read.
Find a regulated broker that provides a transparent and robust trading platform where you can perform technical analysis with ease, execute transactions quickly, with a wide choice of currency pairs.
You want to be able to buy and sell both fiat currencies, such as the dollar, euro, etc … As well as against other currencies and assets. In addition to a mobile and web platform.
Your broker should offer a margin account, allowing at least 10:1 leverage on most pairs, an education section to help you trade in this ever-changing market, with trading conditions that don’t eat up too much of your profits.
Finally, find a brokerage company with a demo account that allows you to test the platform, and solve any problems before risking your money.
Bitcoin means different things to different people. To some, it is the future for free movement of currency without any central bank interference. To others, it is a purely digital entity of questionable value and dubious origin. But what is Bitcoin, in the most basic sense?
In most casual conversation, you may realize that bitcoin is basically a digital currency. But of course, it’s much more complicated than that. In fact, it’s too much more complicated things.
Bitcoin has been with us since 2009, when a person (or group) under the pseudonym Satoshi Nakamoto introduced a platform (Bitcoin, uppercase) that hosts a digital currency (bitcoin, lowercase).
The Bitcoin platform, is built on the concept of “proof of work” data, which is expensive and time-consuming to produce, but can be easily verified. In the case of Bitcoin, the proof of work is created through the process of “mining.” To mine a bitcoin, a computer must complete a complicated algorithm, essentially going through the work of an extensive calculation. That piece of digital currency is worth whatever the market decides by supply and demand.
Transactions are connected to a user’s Bitcoin address, which is stored in their ledger, called a blockchain. If that address is linked to a real identity, transactions can be traced back to the user; if not, they cannot. This relative anonymity makes the platform attractive for things like incognito Internet purchases.
A key component of blockchain and Bitcoin is the fact that it is an open, distributed book. Through the distributed nature of this book, transactions on the blockchain are verified by the consensus of each member, offering security and trust without third-party oversight.
One of the most important things you should keep in mind when thinking about what Bitcoin (or bitcoin) is: there is no single answer. Bitcoin is a platform that hosts a digital ledger in which people can mine, store, and trade bitcoins, a digital form of currency obtained through a computer algorithm and without any central bank authority.