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 own 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 in reality 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 it is true that 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 behavior 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
This means, for now at least, 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 around 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 own 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 amount of deposit, and accounts can be very expensive to maintain.
How does the cryptocurrency market work?
Cryptocurrency markets are decentralized, which means that cryptocurrencies are not issued or endorsed by any central authority, such as a government. Instead, they are managed via a computer network, although they can be bought and sold on trading markets and stored in portfolios.
Unlike traditional currencies, cryptocurrencies only exist as a shared digital property record stored on blockchains. When a user wants to send cryptocurrency units to another, they send them to the recipient’s digital wallet. The transaction is not considered complete until it is verified and added to the blockchain through a process called mining, which is also the process by which new cryptocurrency tokens are created.
What is a blockchain or blockchain?
A blockchain or blockchain is a digital record of transactions. In the field of cryptocurrencies, it is the transaction history of each cryptocurrency unit that shows how its owners have changed over time. The blockchain works by recording transactions in blocks, adding the new ones at the front of the chain.
Network monitoring
A blockchain file is always stored on multiple computers on a network, rather than stored in one place, allowing it to be readable by all users. This makes the process transparent and very difficult to tamper with, with no weak points vulnerable to hacking or human or computer error.
Cryptography
The blocks are connected by cryptography, using complex mathematics and computer science. Any attempt to modify the data alters the links between the blocks, and can be identified as fraudulent by the computers on the network.
What does it mean to mine Cryptocurrencies?
Cryptocurrency mining is the process through which cryptocurrency transactions are verified and new blocks are added to the chain.
Verify transactions
Mining computers select pending transactions from an exchange and check them to ensure that the issuer has sufficient funds to complete the transaction. This includes checking the transaction details against the transaction history stored on the blockchain. A second verification confirms that the sender authorizes the transfer of funds using his private key.
Create a new block
The mining computers collect valid transactions in a new block and try to generate the cryptographic link with the previous block by finding a solution to a complex algorithm. When a computer manages to generate the link, it adds the block to its version of the blockchain file and transmits the update throughout the network.
What drives the cryptocurrency market?
Cryptocurrency markets move according to supply and demand. However, as they are decentralized, they are not usually affected by the economic and political events that influence traditional currencies. Although there is still great uncertainty around cryptocurrencies, the following factors can have a significant impact on their price:
Offer: the total number of coins and the rate at which they are issued, destroyed or lost
Market capitalization: the value of all existing currencies and how users perceive their evolution
Press: the image of cryptocurrencies presented in the media and how much coverage they receive
Integration: the degree of integration into existing infrastructure, such as electronic payment systems
Key events: Relevant events, such as regulatory changes, security breaches, and economic setbacks
How does cryptocurrency trading work?
With IG, you can trade cryptocurrencies using a CFD trading account, which is a derivative product that allows you to speculate whether the value of a cryptocurrency will rise or fall. Prices are presented in traditional currencies, such as the US dollar, and you never own the cryptocurrency.
CFDs are leveraged products that allow you to open a position by paying only a fraction of the total value of the position. While leveraged products can magnify your profits, they can also magnify your losses if the market moves against you.
What is the spread in cryptocurrency trading?
The spread is the difference between the purchase price and the sale price of a cryptocurrency. As with other financial markets, when you open a position in a cryptocurrency market, you are offered two prices. If you want to open a long position, you trade at the buy price, which is slightly higher than the market price. If you want to open a short position, you trade at the sell price, slightly below the market price.
What is a lot in cryptocurrency trading?
Cryptocurrencies are typically traded in batches, which are batches of cryptocurrency tokens used to standardize the sizes of trades. Since cryptocurrencies are very volatile, batches tend to be very small: most are made up of one unit of the cryptocurrency. However, some cryptocurrencies are traded in larger batches.
What is leverage in cryptocurrency trading?
Leverage allows you to gain exposure to large amounts of cryptocurrency without having to commit a large portion of your capital. Instead, you pay a small deposit known as margin. When you close a leveraged position, your profit or loss is calculated based on the total size of your position.
What is margin in cryptocurrency trading?
Margin is an essential part of leveraged trading. It is the term used to refer to the initial deposit amount that you must pay to open and maintain a leveraged position. Keep in mind that when margin trading in cryptocurrencies, your required margin will vary depending on your broker and the size of your trade.
Margin is typically expressed as a percentage of the entire position. Thus, a position on bitcoin (BTC), for example, may require you to pay only 50% of the total value of it to open it. In this case, instead of depositing € 5,000, you would only need to invest € 2,500.
What is a pipo in cryptocurrency trading?
Pipos are the units of measurement of the price movement of a cryptocurrency, and refer to the movement of a digit in price at a certain level. Generally, the valuable criptomonedas so a movement in the price of 19 may operate at the level of the dollar, 0 , 00 $ 19 1 , $ 00, for example, means that the cryptocurrency has moved a pip. However, some less valuable cryptocurrencies are traded on different scales, where a pip can be a penny or even a fraction of a penny.
Conclusion
It is essential to read the conditions of the chosen trading platform to ensure that you know the level at which price movements will be measured before placing a trade.
