The Bitcoin bubble that took place between 2013 and 2017 saw the price of this cryptocurrency sore to almost 2800% made cryptocurrencies very popular globally. This bubble caused a lot of other players to join the cryptocurrency market to get their slice of the pie. Companies like Ripple, Etherium, Litecoin, and Monero are a few that have lasted the test of time in this market. The rise of multiple players in the cryptocurrency market has also given rise to crypto trading, and there are many cryptocurrency tax software, where you can calculated your tax.
What is Cryptocurrency Trading?
The act of speculating on cryptocurrency price movements via a Contract for Difference (CFD) trading account, or the purchase or sale of underlying coins via a crypto exchange.
CFD Trading
CFDs are derivatives of that enable you to speculate the price movements of cryptocurrencies without having to own the underlying cryptocurrencies. You can go long and buy cryptocurrencies if you think the price will rise and you go short and sell if you think the price will fall soon. Both of these are leveraged products, meaning you will only need a small amount of investment, known as a margin, to gain full exposure to the underlying market. The profit or loss on such trades are calculated based on your actual position in the market, so these products will magnify both profits and losses.
Sale and Purchase via Crypto Exchange
Buying cryptocurrencies via an exchange requires you to create an exchange account. Once you have created an exchange account put the full value of your asset to open a position. After opening a position you will need to store the cryptocurrency token in your own wallet until you are ready to transact with them.
Exchanges have quite a steep learning curve as you will need to understand the technology involved and will need to learn how to understand the data. Some exchanges have a limit to the amount you can deposit, and maintaining these accounts is quite expensive.
How does the cryptocurrency market work?
Cryptocurrencies are decentralized in nature, therefore, the cryptocurrency market is also decentralized. The cryptocurrency market trades in a commodity that is not issued or backed by a central authority like a bank or government, they run across a network of computers. Unlike fiat money, cryptocurrencies only exist as a shared digital record of ownership. Users send cryptocurrencies to each other’s digital wallets, and a transaction is not considered complete until it has been authenticated and added to a blockchain through a process called mining.
What is blockchain?
Blockchain is a type of open ledger, it is a shared digital record of all transactions pertaining to the asset. When it comes to cryptocurrencies it is the transaction history of every unit of the cryptocurrency. A blockchain can show you the entire transaction history of a cryptocurrency and how it has changed ownership over time. Blockchain records transactions in blocks and attaches the block to one another in a chain, therefore the name blockchain. The latest transaction is added to the end of the chain.
What effects the Cryptocurrency Market?
Cryptocurrency Markets move based on supply and demand. Due to the decentralized nature of blockchain, which cryptocurrencies are based on, the markets tend to remain unaffected by the economic and political environments which affect the traditional financial markets. There is still a lot of uncertainty around the valuation of cryptocurrencies, but the following factors can have a significant impact on their prices.
- Supply: The total number of units of a cryptocurrency in the market and the rate at which they are produced or destroyed.
- Capitalization: The value of the coins in the market and how traders perceive their movement.
- Media: The manner in which cryptocurrencies are portrayed to the general public through various forms of media.
- Integration: The ease with which cryptocurrencies can integrate into the existing financial infrastructure such as e-payment systems.
- Events: Changes in regulations, security breaches and other setbacks can have a significant impact on the value of cryptocurrencies.
What is the spread in cryptocurrency trading?
In cryptocurrency trading, the spread is the difference between the buy and sell price for a cryptocurrency. When you open a position in the cryptocurrency market you are given two prices, the “buying” price, and the “selling” price. To open a long position you will need to trade at the buy price, this is slightly above the market price. To open a short position you will need to trade at the selling price, this is slightly below the market price. Depending upon what kind of dealing or trading you are doing bitcoin taxes are applied.
What is a lot?
Cryptocurrencies are traded in lots. Lots are batches of cryptocurrency tokens used to regulate and standardize the size of trades. Due to the volatility of cryptocurrencies, Lots tend to be quite small, most being just one unit of the underlying cryptocurrency. Lower valued cryptocurrencies are traded in larger lots.
What is leverage?
Leverage in cryptocurrencies allows you to invest a small amount to gain access to a large number of cryptocurrencies, without you having to pay the entire amount upfront. The small amount you put down for leveraging these cryptocurrencies is called a margin. When you close a leveraged position, your profit or loss is calculated based on the entire size of the trade.
What is the margin?
A margin is a small amount you deposit to open and maintain a leveraged position. Margins can vary depending on your broker and the size of your trade.
Cryptocurrencies are becoming popular across the globe as an alternate means of investment and jumping on this bandwagon early can prove to be greatly beneficial. So the next time you are looking to make an investment, taking a look at the cryptocurrency market may be a great idea.
