Digital Currency Trading Explained

Digital currency trading can seem intimidating at first, but it's actually quite straightforward once you understand the basics.

There are two main types of digital currencies: fiat currencies, which are issued by governments, and cryptocurrencies, which are decentralized and not controlled by any government.

Fiat currencies are not suitable for trading because they can be easily manipulated by governments, whereas cryptocurrencies offer a more stable and secure option.

Cryptocurrencies like Bitcoin and Ethereum have a limited supply, which helps maintain their value.

Curious to learn more? Check out: Fiat Currency Exchange Trading

Digital currency trading is a way to speculate on price movements via a CFD trading account.

You can also buy and sell the underlying coins via an exchange, which is a platform that allows you to trade digital currencies directly.

Cryptocurrency trading involves speculating on price movements, which means you're trying to predict whether the price will go up or down.

The goal is to make a profit by selling your coins for a higher price than you bought them for, or by selling a CFD contract that tracks the price of a cryptocurrency.

Digital currency trading can be done through a variety of platforms, including CFD trading accounts and cryptocurrency exchanges.

A different take: How Do I Trade Cryptocurrencies

To get started with digital currency trading, you need to understand the basics. Cryptocurrency trading is the process of buying and selling digital currencies like Bitcoin or Ethereum.

First, you should learn why people trade cryptocurrencies. They do it for various reasons, such as to make a profit, to diversify their investments, or to speculate on price movements.

To begin trading, you'll need to pick a cryptocurrency to trade. This could be a popular coin like Bitcoin or a lesser-known altcoin.

Next, you'll need to open a CFD trading account with a reputable broker. This will give you access to the markets and allow you to trade cryptocurrencies.

Here are the steps to follow:

You can trade cryptocurrencies anywhere, anytime using an award-winning trading platform and mobile app. This means you can stay on top of the markets and make trades whenever it suits you.

Cryptocurrency markets are decentralised, which means they're not issued or backed by a central authority. This sets them apart from traditional currencies.

The transactions in cryptocurrency markets are recorded on a blockchain, a shared digital ledger that stores data. This is how new cryptocurrency tokens are usually created.

Cryptocurrencies exist only as a shared digital record of ownership, stored on a blockchain. They can be bought and sold via exchanges and stored in ‘wallets’.

Here are the key factors that can impact cryptocurrency prices:

In financial markets, the spread is a crucial concept to grasp. It's the difference between the buy and sell prices quoted for a cryptocurrency.

The spread can vary depending on the market conditions, with some markets offering tighter spreads than others. In cryptocurrency trading, the spread is typically wider than in traditional financial markets.

When you open a long position, you trade at the buy price, which is slightly above the market price. This means you'll pay a premium to enter the market.

In contrast, when you open a short position, you trade at the sell price, which is slightly below the market price. This allows you to sell at a lower price than the market value.

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Cryptocurrency markets are a type of decentralised digital currency network, operating through a system of peer-to-peer transaction checks.

This means that transactions are added to a shared digital ledger called the blockchain, rather than being processed by a central server.

The blockchain is a shared digital record of ownership that exists only as a digital record, stored on a network of computers.

Transactions aren't considered final until they've been verified and added to the blockchain through a process called mining.

Mining is how new cryptocurrency tokens are usually created.

Cryptocurrency markets move according to supply and demand, just like traditional markets.

However, being decentralised means they tend to remain free from economic and political concerns that affect traditional currencies.

Here are some factors that can significantly impact cryptocurrency prices:

Technical indicators are tools that help you discover price trends.

Using in-platform tools like MACD and Bollinger Bands can give you a better understanding of market fluctuations.

MACD is a momentum indicator that helps identify trends by measuring the difference between two moving averages.

Bollinger Bands are used to measure volatility and identify potential breakouts or reversals.

As we explore the world of cryptocurrency markets, it's essential to understand the top players in the game. According to the latest data, Binance holds the top spot in terms of trading volume.

Binance's massive user base and robust trading infrastructure have cemented its position as the leading exchange. In fact, it's not uncommon for Binance to handle over $10 billion in trades per day.

Let's take a look at the top 10 exchanges by trading volume in November 2022:

These exchanges are not only the largest but also have the highest liquidity, making them the go-to destinations for traders and investors alike.

Trading Strategies involve understanding why people trade cryptocurrencies in the first place. This can help you make informed decisions when choosing which cryptocurrencies to trade.

To trade cryptocurrencies, you'll need to pick a cryptocurrency to trade, which can be a daunting task. With so many options available, it's essential to do your research.

Once you've picked a cryptocurrency, you can open a CFD trading account to start trading. This will give you access to a range of trading tools and resources.

Here are some key considerations to keep in mind when trading cryptocurrencies:

Leverage is the means of gaining exposure to large amounts of cryptocurrency without having to pay the full value of your trade upfront.

You put down a small deposit, known as margin, to gain full exposure to the underlying market. This deposit is a fraction of the full value of your trade.

Leverage will magnify both your profits and losses, so it's crucial to understand how it works. Your profit or loss is still calculated according to the full size of your position.

If you think a cryptocurrency will rise in value, you can go long (‘buy’) with leverage. This means you'll only need to put up a small deposit to gain full exposure to the underlying market.

Leverage brings the risk of amplified losses, including losses that can exceed your margin on an individual trade. This makes it extremely important to learn how to manage your risk.

Curious to learn more? Check out: Currency Market Today

A pip is the unit used to measure movement in the price of a cryptocurrency, and it refers to a one-digit movement in the price at a specific level.

Pips are typically measured at the 'dollar' level, so a move from $190.00 to $191.00 would mean the cryptocurrency has moved a single pip.

Some lower-value cryptocurrencies are traded at different scales, where a pip can be a cent or even a fraction of a cent.

It's essential to read the details on your chosen trading platform to understand the level at which price movements will be measured before you place a trade.

When trading cryptocurrencies, you have two main options: going long or going short. Going long means you expect the cryptocurrency's value to rise, and you'd elect to 'buy' the market. This is what happened in the ether example, where the trader believed the market would trend upwards and took a long position using CFDs.

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In contrast, going short means you expect your selected cryptocurrency's price to fall, and you'd elect to 'sell' the market. This approach can be used to hedge against losses on investments you already hold, as CFDs enable you to take short positions.

To decide whether to go long or short, you need to analyze the market and make an informed decision based on your research. It's essential to understand that both long and short positions come with risks, and leverage can amplify both profits and losses.

Here are the key differences between going long and going short:

Remember, leverage can magnify both profits and losses, so it's crucial to manage your risk and set a stop-loss to close your trade automatically if the market moves against you.

Closing a position is a crucial step in trading cryptocurrencies, and it's essential to do it correctly to avoid further losses or lock in profits. You can close a position by clicking on the 'Positions' tab on the left menu and selecting 'Close position'.

Intriguing read: Position Trading Strategy

To close a position, you'll need to set the number of contracts you'd like to close. This can be done by selecting the number of contracts from the deal ticket or by opening the market's deal ticket and taking the opposite position.

Closing a position can be as simple as taking the opposite position to the one you have open, for example, if you bought CFDs to open, you'd now sell, and vice versa.

Here are the steps to close a position:

By following these steps, you can close a position and manage your risk or lock in profits.

You can incur losses rapidly if the market moves against you when trading on margin, so it's essential to take steps to manage your risk. This can be done by setting a stop-loss level in the deal ticket.

A stop-loss will automatically close your position and cap your risk if triggered. For example, if you're trading a CFD with a value of $10 per point, and the underlying cryptocurrency price moves 10 points, your profit or loss will be $100 per contract.

To lock in any profits if the market moves in your favor, you can also enter a limit level. Your trade will be automatically closed to secure positive returns as soon as the market reaches the price you've set.

Here are some key things to consider when managing your risk:

Margin is a key concept in leveraged trading, and it's used to describe the initial deposit you put up to open and maintain a position.

This deposit is usually a percentage of the full position, and it will change depending on your broker and the size of your trade.

For example, a trade on bitcoin might require 10% of the total value of the position to be paid for it to be opened. So instead of depositing $5000, you’d only need to deposit $500.

Leveraged products, like CFDs, also require margin, which is a small deposit that gives you full exposure to the underlying market.

Managing your risk is crucial when trading cryptocurrencies. You can incur losses rapidly if the market moves against you, so it's essential to take steps to mitigate this risk.

To manage your risk, you can set a stop-loss level in the deal ticket. This will automatically close your position and cap your risk if triggered.

A stop-loss can be set at a specific price level, such as 3000 in the example of trading ether CFDs. This means that if the market reaches this level, your position will be closed, and you'll cut a loss of 204 points, excluding other costs.

You can also enter a limit level to lock in any profits if the market moves in your favor. This will automatically close your trade to secure positive returns as soon as the market reaches the price you've set.

Each contract will specify an amount per point of market movement, such as $10 per point. If the market moves 10 points, your profit or loss, excluding costs, will be $100 per contract.

Here's a summary of the risks and benefits of trading cryptocurrencies:

To place your trade, you'll need to set the number of CFDs you want to trade, your stop-loss and limit levels, and then click on 'place trade'.

CEXs hold your digital assets as custodians in their own digital wallets, which can be convenient for trading but comes with risks.

The failure of TerraUSD and Luna, with a combined value of $50 billion, is a recent example of the risks involved.

CEXs can also be vulnerable to fraud, as seen in the cases of Three Arrows Capital, Celsius Network, and Voyager Digital.

The sudden collapse of FTX and Alameda Research is another example of the risks associated with centralized cryptocurrency exchanges.

These failures can result in the loss of your digital assets, highlighting the importance of understanding the risks involved in using CEXs.