Trading cryptocurrencies consists of speculating on price movements via a Turbo24 account or CFD trading account, as well as buying and selling the underlying currencies via an exchange. Here you can learn more about cryptocurrency trading, how the market works and what moves it.
Are you ready to get into cryptocurrency trading?
What are cryptocurrencies?
Cryptocurrencies are digital currencies. They can be exchanged and traded like any traditional or paper currency, but are outside the control of financial institutions and governments. There are countless cryptocurrencies with unique features and areas of application. Only a few of them have a correspondingly high market capitalization so far, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Ripple and Dash.
What is Cryptocurrency Trading?
Trading cryptocurrencies means speculating on price movements of cryptocurrencies through a CFD trading account, or buying or selling the underlying currencies through an exchange.
CFD trading with cryptocurrencies
CFDs are financial derivatives that allow you to speculate on the price movements of cryptocurrencies without having to physically purchase the underlying currencies. You can go long (buy) if you think the cryptocurrency will increase in value, or go short (sell) if you expect the price to fall.
CFDs are leveraged products, meaning you only need to put down a small deposit – called margin – to get full market exposure to the underlying market. Since your profits and losses are calculated based on the total size of your position, leverage can result in both larger profits and losses.
Buy and sell cryptocurrencies on an exchange
When you purchase cryptocurrencies through an exchange, you are physically purchasing the currency. In this case, you open an exchange account, deposit the full value of the asset to open a position, and hoard the crypto tokens in your wallet until you want to sell the cryptocurrency.
However, stock exchanges pose a challenge because you have to deal with the technology and learn to use the existing data. Many exchanges also have their restrictions regarding the amount of the deposited amount. Account management costs can also be very expensive.
How do cryptocurrencies work?
Cryptocurrency trading is decentralized. This means that they are not circulated or supported by a central authority, such as a government, but rather are run across a network of computers. However, cryptocurrencies can be bought and sold on exchanges and stored in wallets.
Unlike traditional currencies, cryptocurrencies are a shared digital record of ownership stored on a blockchain. If a user wants to transfer his units of a cryptocurrency to another user, he sends them to his digital wallet. The transaction is only considered complete once it is verified and added to the blockchain in the so-called mining process. This is also how new crypto tokens are usually created.
What is a Blockchain?
A blockchain is a digital community record of data. In the case of cryptocurrencies, it is a transaction history of each unit of a cryptocurrency, showing how owners have changed over time. The blockchain stores transactions in so-called blocks, with new blocks being appended to the beginning of the chain.
Consensus in the network
A blockchain file is always stored on many computers across the network, rather than in one location, and is therefore accessible to all users of the network. This keeps the blockchain transparent and resistant to attacks caused by hacks, human errors or system errors.
Cryptography
Individual blocks are linked together using a cryptographic encryption process – a complex mathematical computer method. Any attempt to change the data breaks the links between the individual blocks and can be identified by the computers on the network as an attempted fraud.
What does mining cryptocurrencies mean (also called mining)?
Crypto mining is a process in which recent cryptocurrency transactions are verified and new blocks are added to the blockchain.
Verify transactions
Mining computers select pending transactions from a pool and check whether the sender has enough funds to complete the transaction. This includes comparing the respective transaction details with the transaction history, which is stored in the blockchain. The second verification confirms that the sender has authorized the transfer of funds by entering the private key.
Create a new block
Mining rigs compile valid transactions into new blocks and attempt to create a cryptographic link to the previous block by finding a solution to a complicated algorithm. If a computer manages to generate the link, it adds the block to its version of the blockchain file and makes it available to the entire network.
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What influences the price of cryptocurrencies?
Cryptocurrency markets move according to demand and supply. However, because they are decentralized, they are often unaffected by economic and political events that typically impact traditional currency. There is a lot of uncertainty surrounding cryptocurrencies, but what is certain is that the following factors have a significant impact on their prices:
Supply: The total amount of coins and the rate at which they will be issued, destroyed or lost.
Market capitalization: The value of all existing coins as well as user perception of price developments.
Press: The representation of the market and the presence of the topic in the media.
Integration: The extent to which the cryptocurrency is easily integrated into existing infrastructure such as electronic commerce payment systems.
Key Events: The main events such as regulatory updates, security breaches, and economic setbacks.
How does cryptocurrency trading work?
IG allows you to trade cryptocurrencies through a CFD trading account. CFDs are financial derivatives that allow you to speculate on falling or rising prices of the chosen cryptocurrency. Prices are quoted in conventional currencies such as the US dollar. You do not take physical possession of the respective cryptocurrency.
CFDs are leveraged products, meaning you can open a position for only a fraction of the full value of a trade. Although leverage can magnify your profits, it can also lead to increased losses if the market turns against you.
What is a spread in cryptocurrency trading?
In finance, a spread is the difference between the buy and sell price of a cryptocurrency. As is the case with many financial markets, you will be offered two prices when you open a position on cryptocurrencies. If you open a long position, you trade at the purchase price, which is slightly above the market price. However, when you open a short position, you trade at the selling price, which is slightly below the market price.
What is a lot in cryptocurrencies?
Cryptocurrencies are often traded in lots, which represent a stack of crypto tokens used to standardize trade size. Since cryptocurrencies are very volatile, the lots are usually very small. In most cases, a lot represents a unit of the underlying cryptocurrency. However, some cryptocurrencies are traded in larger lots.
What is leverage in cryptocurrencies?
Leverage allows traders to gain greater exposure to a large number of cryptocurrencies without having to pay the full value of each trade upfront. Instead, you make a small deposit – the so-called margin . When you close the leveraged position, your profit or loss will be calculated based on the total size of your trade.
-What are cryptocurrencies and how do they work?
What is leverage in cryptocurrencies?
Leverage can increase your profits, but it also comes with a higher risk of loss, which may exceed losses that include your margin on a trade. When it comes to leveraged trading, it is extremely important that you are familiar with risk management.
-Learn how to manage your risk
What is margin in cryptocurrencies?
Margin is a key component of leveraged trading. This term is used to describe the deposit you place to open and maintain a leveraged position. When trading a cryptocurrency on margin, it is important to note that the amount of your margin may vary depending on the broker as well as the trade size.
Margin is most often presented as a percentage of the full value of a position. For example, a trade on Bitcoin (BTC) would require a margin of 50% of the total value of a position to open that position. This means that instead of EUR 5,000 you would only have to deposit EUR 2,500.
-Learn more about the benefits of trading cryptocurrencies
What is a pip in cryptocurrencies?
Pips are units used to measure the movements of cryptocurrencies. A pip represents a single-digit price movement at a certain level. Generally, the valuable cryptocurrencies are traded at the level of the American dollar, which means that a price movement from 190.00 to 191.00 USD would represent a movement of the respective cryptocurrency by one pip. Less valuable cryptocurrencies, on the other hand, can be traded at different levels. A pip movement can therefore represent a cent or even a fraction of a cent.
Before placing a trade, it is important to familiarize yourself with the detailed information about your chosen trading platform to ensure that you are aware of the level at which price movements are measured.
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