How Does Cryptocurrency Trading Work? A brief Overview
When you trade cryptocurrencies, you use crypto-to-crypto pairs to take a financial position on the direction of the price of a single cryptocurrency against the dollar or another cryptocurrency. Contracts for difference (CFDs) are a better way to do Cryptocurrency Trading because you have more flexibility, leverage, and the ability to take short and long positions.
The Increasing Popularity of cryptocurrency trading
Since Bitcoin was instead put on the internet ten years ago, trading cryptocurrencies has become popular. Cryptocurrencies are digital coins made with blockchain or peer-to-peer technology, which use cryptography to keep information safe. They differ from government-issued fiat currencies because they can’t be seen or touched.
Instead, they are done up of bits and bytes of data. Also, no central body or authority, like a central bank, issues or controls the flow of cryptocurrencies in the economy. Since the government does not issue cryptocurrencies, they are not considered legal money.
Even though cryptocurrencies aren’t accepted as legal currency anywhere in the world, they have the potential to change the way money works, which makes them hard to ignore. At the same time, traders can take advantage of new investment opportunities thanks to blockchain technology, which is the basis for creating cryptocurrencies.
Different types of cryptocurrencies
Even though hundreds of cryptocurrencies are available, traders appear to be most curious about half a dozen of them. Bitcoin, considered the first cryptocurrency, is at the top of the list of the most popular cryptocurrencies. Because the initial Bitcoin blockchain had a hard fork, Bitcoin was divided into two unique virtual coins: Bitcoin Cash and Bitcoin Cash ABC.
Ethereum and Litecoin are other popular cryptocurrency trading often traded on cryptocurrency exchanges and online CFD trading platforms. Some are meant to be an alternative to fiat money. Bitcoin, Bitcoin Cash ABC (BAB), Bitcoin Cash (BCH), and Litecoin.
Ethereum, on the other hand, can only be spent on the Ethereum smart contracts platform, which can be used to build decentralized apps (Dapps). People think of Ethereum more as a utility token than money. Lastly, there is the Crypto 10 index, which is similar to a stock market or monetary system index but comprises the ten most significant and fluid cryptocurrency assets.
Bitcoin, or BTC, was the initial cryptocurrency to be used worldwide. This was in 2008. This was the first cryptocurrency to use the blockchain. Bitcoin is now one of the most valuable cryptocurrencies on the market.
Bitcoin Cash (BCH)
Bitcoin Cash came about when the original Bitcoin blockchain split in two in August 2017. The change had been an attempt to make the original blockchain’s blocks bigger so that transactions could be processed faster.
Bitcoin Cash ABC (BAB)
The result of another hard fork in the Bitcoin Cash blockchain happened on November 15, 2018. The hard fork occurred because Bitcoin Cash Adjustable Blocksize Cap wanted to change the Bitcoin Cash blockchain’s software. At this time, Bitcoin Cash Configurable Block Size Cap was the most extensive blockchain software client.
The upgrade’s objective was to make it possible to do things like smart contracts and oracle prediction services without using cash.
People who created the fork also desired topological transaction ordering to return canonical transaction sequences. Another hard fork led to Bitcoin Cash ABC when the updates were implemented.
Crypto 10 Index
The Crypto 10 Index is an index that is suggested to serve as a benchmark for the asset class of cryptocurrencies that can be exchanged.
It comprises the ten most significant and liquid cryptocurrencies and tokens, and its prices are an average of the prices on the most important exchanges.
Ethereum is a blockchain network built on the original Bitcoin blockchain technology. It was create to be a quick method to process transactions. Vitalik Buterin came up with the idea for the currency for the first time in November 2013.
In October 2011, Litecoin was added to the world of cryptocurrencies to make sending money across borders easier. It was created to check transactions more quickly than with Bitcoin.
How Do Cryptocurrencies Get Traded?
There are different ways to trade cryptocurrencies. The first way to trade in crypto coins is to buy and sell them in exchange for crypto coins. Using derivative financial instruments like Contracts for Difference (CFDs), which you can trade on the Plus500 platform, is another way to trade cryptocurrencies.
In recent years, the second method has become very popular because it requires less capital and gives traders the chance to bet on the price movements of cryptocurrencies without having to own them.
The image below shows you can trade different crypto CFDs on the Plus500 platform. After you choose the cryptocurrency you want to change, you have to decide if you wish to open a SELL or BUY position. As you can see below, either choice will open a trading window.
Here, you can choose how many contracts you want and if you want to use any risk assessment orders, like Stop Loss or Take Profit, that kick in when a specific price is reached. The screenshot below is just an example to show what I mean. In this case, the trader will click the SELL button to make a SELL trade. You can connect on the close button when ready to close the stance.
Is cryptocurrency trading right for me?
Like any other type of trading, cryptocurrency trading requires the proper knowledge, skills, and money. If you want to trade on the cryptocurrency market, you should ensure you have the skills to analyze it.
It’s important to remember that cryptocurrencies are riskier than most people are used to because they are more volatile than traditional instruments. This volatility can give you more chances to make money, but remember that it can also lead to more significant losses than you may be able to handle.
If you decide that cryptocurrency trading suit you, you could begin by opening trading with Plus500. You can choose which crypto CFDs you would like to trade from the many available and open a position when your research tells you it’s the right time.