What are cryptocurrencies and how to trade them?
Almost every day the media talks about bitcoin, ethereum, ripple and other cryptocurrencies, including the investors and companies who made millions from trading with cryptos. But what exactly are these digital currencies and how to trade them, read below:
1. What are the cryptocurrencies?
Cryptocurrencies are digital assets that could be exchanged in real-time between two people living in different parts of the world. No central bank or any other financial institution is taking part in the transaction but rather the information is stored on so-called blocks all around the world. This is where the name of the technology comes from – blockchain.
The bitcoin is the first successfully implemented cryptocurrency and its founder is Satoshi Nakamoto. Until today no one knows who exactly stands behind this name. Ten years after its creation, bitcoin is the most talked-about cryptocurrency in the world. On December 17, 2017, it reached its all-time high when 1 BTC traded for 19,783.06 USD. Another interesting fact is that bitcoins are “mined” with powerful computers that solve complex mathematical equations. The bitcoin’s limit is 21 million after which there won’t be any more coins to “mine”.
3. Ethereum and Ripple
Ethereum is a decentralized ecosystem that provides better structure for different apps. It was founded in 2015 and reached its peak on January 13, 2018, when 1 ETH traded for 1432.88 USD. Ripple, on the other hand, is a global network for settlement and cheap payments in real-time. It was founded in 2012 and reached its peak on the 4 of January when 1 RPX traded for 3.48 USD.
4. Trading cryptocurrencies
Trading cryptocurrencies means buying and selling them for the purpose of making a profit. There are two ways of doing this. You can either buy actual cryptos and store them in your digital wallet, then sell them and make a profit, or you can trade CFDs and profit from the price movements without actually owning the underlying asset. The three most popular strategies for trading cryptocurrencies are:
- Scalping – this strategy involves entering and exiting positions quickly in order to profit from the price movements. For the successful implementation of this strategy the market should be highly volatile – just like the cryptocurrency market.
- Opposite to the trend – here traders look for over or undervalued assets, resistance, and support levels and make decisions on the basis of this information in combination with technical analysis.
- Arbitrage – this is when traders buy a certain asset for a lower price in one place and sell it in another in order to profit from the difference. For the purpose of the arbitrage, you should have different accounts with different brokers and in different exchanges.
Trading on the financial markets involves a high degree of risk and you can lose all your funds. This article does not contain any investment advice or recommendation. This is why before you decide whether to trade with cryptocurrencies you should be aware of the risk involved.