Last updated on December 9th, 2024 at 10:29 am
Many internet users still do not understand what cryptocurrency trading is and its impact on the industry. If you’re one of such persons, this article will cover all the information you will need.
What is Cryptocurrency?
Cryptocurrencies are digital assets that offer advanced security and transparency of transactions through cryptography.
Unlike traditional currencies, which have notes or coins that are issued by the government, which means they’re operated or influenced by central authorities, cryptocurrencies comes with an innovation of decentralization with no control or influence.
The first successful crypto project was in 2009 called Bitcoin, with a marketcap of $1.2 Trillion, It was invented by a group called Satoshi Nakamoto and it has given rise to many digital assets.
The Crypto Market
The cryptocurrency market has similarities with forex, commodities, and stocks, but it involves digital assets such as Litecoin, Ripple, Ethereum, etc., with increasing demands for trading as crypto assets. Access to crypto trading 24 hours a day, 7 days a week, is also another advantage coupled with steady price shifts. Cryptocurrencies are known for their volatility and that’s the reason investors need to be more cautious. This volatility is caused by some of the factors we’re going to mention here:
- Regulation: cryptocurrency is unregulated considering its decentralized in nature. This can influence trading since there’s no rule or regulation set to watch the industry and as such, it can lead to sudden changes in prices.
- Market Sentiment: since there’s no presence of governing authority, the sentiment of investors can lead to collective changes depending on their notions or emotions.
- Supply and Demand: Cryptocurrencies are limited in supply, whereby many leading digital assets such as Bitcoin, Ether, etc. have a fixed circulation of the assets and can lead to serious price movement.
- Advancement in Technology: the emergence of blockchain technology provides security and transparency through distributed ledgers, which can influence the crypto market.
- Speculation: A lot of traders buy and sell crypto assets based on market speculations, it’s proven they’re more interested in the technology than making a profit, which can lead to the fluctuation of price movement.
What is Cryptocurrency Trading?
Cryptocurrency trading is the process of buying and selling digital assets to make profits through the changing of value. Crypto trading isn’t the same as investing. Investment is the process of making a profit when the selling price is higher than the buying price. Crypto trading, on the other hand means buying or selling assets based on speculation of price movement.
How does Cryptocurrency Trading Work?
Traders can make profits in cryptocurrency by using digital wallets to buy crypto assets at a specific rate and then selling them when the price is much higher. Secondly, traders can trade cryptocurrencies as CFDs, which are similar to forex and commodities without owning any physical assets but trading on price movement and making profits when the price is going up or down.
Cryptocurrency CFD trading helps users with leverage up to 100x to open trades and generate high returns. For a proper explanation of how crypto CFD works, here’s an example:
When you trade Bitcoin at the price of $50,000 with the belief that the price will go higher and then you enter a contract with a broker to exchange the difference between the current and future price, the deal will be close. Supposing the price rises as speculated and the deal is closed when one Bitcoin equals $60,000. The $10,000 difference in price between the open and close trade would be the profit, although sometimes it can lead to a loss when the price drops.
The Difference Between Trading & Investing
Crypto trading and investing have some differences that separate them apart. Crypto trading is a short-term strategy for quick profits, while investing is long-term for traders focused on the bigger picture for high returns. Trading comes with higher risk due to market fluctuations, and investing, on the other hand, requires patience for an extended period while reducing the risk. Furthermore, trading is focused on daily price movement and investing focuses on asset use cases and track records.
Types of Crypto Trading
1. Day Trading
These are trading that involves buying and selling of crypto assets daily for profit. However, traders that use this strategy gain and lose assets regularly.
2. Swing Trading
This trading involves the holding of crypto assets for some time while monitoring the market for a favorable sale. When there’s a favorable price movement, the trader sells his crypto assets.
3. Scalping
This is the accumulation of small profits from different crypto assets into a tangible project.
Conclusion
Traders need to study price movements and some crypto data before they are ready to trade the crypto space, they also need to have a good read through trading platform terms and conditions to ensure they comply with and understand the price movement before placing a trade.
FAQ
What are the differences between digital money and cryptocurrency?
There are some differences between digital money and cryptocurrency. Cryptocurrency is decentralized, that’s to say it’s not issued by a central authority. Although digital is almost similar to traditional money but exists only in the digital world.
What was the first crypto that existed?
Bitcoin was the first cryptocurrency to exist and was founded in 2008 by Satoshi Nakamoto and began transactions in 2009.
