How to trade cryptocurrencies

How to trade cryptocurrencies
How to trade cryptocurrency

What is cryptocurrency?

Cryptocurrencies are simply digital money. They are intangible, exist as data, and like any other type of currency, they are designed to be used as mediums of exchange. As their name suggests, cryptocurrencies utilize advanced cryptography techniques to secure transactions between users. Unlike common fiat currencies, such as the US dollar or the euro, cryptocurrencies are purely digital and are sent between digital wallets with no physical interaction required. They are also decentralized, which means that no central authority like a government can influence them. Transactions are done on a peer-to-peer basis, and the creation and maintenance of cryptocurrencies is open source.

The security and integrity of cryptocurrencies are achieved by the use of public distributable ledgers. This is essentially what is known as blockchain technology. The technology allows all transactions to be uploaded on a public ledger, and if they are confirmed, they can never be altered again. Because they are digital, cryptocurrencies have been touted as the future of money, and rightly so. They are secure and enable transactions of whatever amounts to be sent cheaply and as quickly as an email.

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The term cryptocurrency is almost synonymous with Bitcoin, the world’s first-ever cryptocurrency that was launched in 2008. Bitcoin also brought the discussion of blockchain technology to the mainstream and while it opened the way for numerous other crypto coins and tokens, it has maintained popularity and influence in the cryptocurrency market to date. Bitcoin is now considered the ‘gold standard’ as well as the directional cue-provider of the cryptocurrency market.

But while Bitcoin has retained its special status, there are numerous altcoins (alternative coins) that have seen their market share and value growth over the years. Some of the altcoins that deserve our attention include Ethereum, Bitcoin Cash, IOTA, BAT, NEO, EOS, and Stellar Lumens.

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How to trade cryptocurrencies?

Initially, cryptocurrency trading was only available via crypto exchanges. This involved signing up with exchange and going through the hassles of creating and securing online or offline crypto wallets. You would then proceed to exchange fiat with Bitcoin or an altcoin of your choice. Your profit or loss was then determined by the price changes of the underlying crypto coin or token. Over the years, however, crypto exchanges have exposed investors to grave dangers. For one, they were unregulated, and this meant that investors literally had no recourse when there were issues, such as conflict of interest or outright loss of funds. There was also the threat of hacking, which has led to a massive loss of investor funds.

Nowadays, cryptocurrency trading can be done through CFDs. In this way, investors get to deal with experienced financial brokerage firms that are regulated. There are no hassles about opening and securing crypto wallets because traders do not actually own the underlying cryptocurrencies, but instead, they speculate on their price changes. Crypto CFDs are also leveraged products that allow investors to amplify their profits when the crypto price moves in their favor. Furthermore, CFD brokerage firms, like AvaTrade, are more secure because they have been under the regulation for many years compared to crypto exchanges that are just getting started.

At AvaTrade, we offer crypto CFDs as well as a secure and transparent trading environment to ensure that you have the best exposure to the cryptocurrency market.

Factors to watch while trading cryptocurrencies

Ever since the first cryptocurrency was launched, no financial market has come close to matching the returns delivered in this space. Cryptocurrencies have evolved from being mere mediums of exchange to stores of value. They have fulfilled the long-lost dream of liberating investors from the severe shortcomings of common fiat.

Fiat/national currencies have seen their values depleted as central banks literally print money during economic bust times, while cryptocurrencies have seen their values increase because of their decentralized nature. Now, more people are being drawn into this market as they seek to protect themselves against the devaluation of their local currencies.

Initially, Bitcoin and other cryptocurrencies were seen as conduits of crime, with acceptance mainly limited to dark web marketplaces. But gradually, mainstream businesses, large corporations, and even governments have adopted a soft stance on cryptocurrencies as well as blockchain technology. This has seen public interest in cryptos grow, thus adding fuel to the fire of cryptocurrencies.

Like any other asset class, cryptocurrency prices are impacted by demand and supply. However, cryptocurrencies remain a nascent financial asset class where factors that influence their pricing are varied and diverse.

Investors also assess technical and fundamental factors when qualifying the various crypto coins and tokens. Fundamental analysis in cryptocurrencies constitutes elements such as studying a cryptocurrency whitepaper (project details), examining the project team, investigating coin generation and distribution, as well as following the community and media. The last element is particularly important in the crypto market where information is scarce. For instance, in 201, Bitcoin lost over $300 when its value was still less than $1,000 following headlines that China had directed that financial institutions should stay away from cryptocurrencies. The same scenario played out again in 2014 when major crypto exchanges stopped accepting bank deposits, and in 2017 when China again delivered a regulatory directive towards digital coin exchanges that accounted for the bulk of Bitcoin trading. Other headlines such as cyber hacks have also had massive impacts on cryptocurrencies. In 2014, reports of a successful hack on a major Bitcoin exchange triggered a loss of over 23% in the price of the virtual. Nonetheless, this kind of volatility has proved to be an inherent characteristic of cryptocurrencies. For CFD traders, volatility represents a big opportunity to make profits out of the price changes.

Volatility has always represented the biggest threat to the adoption of cryptocurrencies as mediums of exchange. But traders will view volatility from the angle of opportunity as it represents a unique chance to make money round the clock, whether prices go up or down.

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General tips for how to trade cryptocurrencies

The general rule of thumb in investing is to “buy low, sell high”. But this is easier said than done in the crypto market. As a new asset class, it is often difficult to judge where the lows or highs are. A current high might represent a long term low and vice versa. But with that said, there are practical tips that can help investors to stay on top of crypto trading opportunities in the market.

The first of course is education. It is important to always be updated with relevant knowledge regarding any crypto coin or token you are trading. This will allow you to keep tabs on available trading opportunities in an underlying cryptocurrency as they arise. it is also important to have a solid risk management plan because cryptocurrencies are naturally risky. Always remember that the high reward they promise comes with high risk attached.

A common feature in the cryptocurrency market is FOMO (fear of missing out). This is always displayed when crypto prices are rallying and new, naïve investors join the market because, well, they fear missing out on the profits. Emotional trading is also risky in every aspect. This is why it is always vital to pick out quality crypto coins or tokens that have impressive projects. In this way, you can hold them for the long run and even target to buy during dips. No matter what cryptocurrency you decide to trade, always stay on top of the news or data releases that may impact their price movements.

Another important factor to consider is diversification as well as watching the Bitcoin price. As mentioned above, Bitcoin remains the ‘gold standard’ in the crypto market, and its price movement typically provides the cue for other altcoins. Watching the price of Bitcoin as well as diversification can help your portfolio attain stable growth over time.

Start trading cryptocurrencies with AvaTrade

Cryptocurrencies are now a major financial asset class and trading them means exposing your portfolio to lucrative opportunities in the market daily. AvaTrade offers crypto CFDs which are ideal for traders looking for both short-term and long-term market opportunities. We offer a diverse selection of top crypto coins and tokens, as well as the perfect environment to help you achieve trading goals and ambitions.

Here is why you should trade cryptocurrencies with AvaTrade:

  • Security. Trade cryptocurrencies with a globally regulated broker and never worry about the security of your coins or tokens.
  • Leverage. Trade your favorite crypto coins and tokens with a leverage of up to 20:1. This refers to borrowing funds from AvaTrade to trade larger positions with minimal investment.
  • Go Long or Go Short. Trade crypto CFDs whether prices are rising or falling. Earn from your predictions, and not from owning the ever-risky cryptocurrencies.
  • Trading Conditions. Enjoy trading on advanced trading platforms that enable faster transactions, low fees, and fast order execution at all times.
  • Autotrade – Copy the positions of experienced traders with a proven success record (ZuluTrade); engage in social trading with AvaSocial or access algorithmic trading using pre-programmed trading bots.

Join the cryptocurrency revolution today!

How to trade Crypto main FAQs

  • Is Bitcoin really a digital form of gold?

    For some time now Bitcoin has been referred to as the “digital gold”, but in truth it has no direct relationship with gold. It was given that name because proponents of cryptocurrencies see them as a good hedge against inflation and against weakness in traditional fiat currencies brought on by central banks printing money non-stop. In truth Bitcoin and gold do not move in tandem and as of 2020 Bitcoin has been tied more closely to the movements in the S&P 500.

     
  • Do I need a cryptocurrency wallet to trade cryptocurrencies?

    At AvaTrade we are not offering the actual cryptocurrencies, but instead are offering CFDs tied to the cryptocurrency as the underlying asset. This saves traders the trouble of learning how to set up a wallet and how to transact with cryptocurrencies. Instead you can spend your time focused on trading. Plus, by using CFDs rather than the actual cryptocurrencies we can offer our clients the ability to use leverage.

     
  • Why should I trade cryptos at AvaTrade?

    There are many very good reasons for trading cryptos with us. These include the ability to use margin, the wide variety of cryptocurrencies we offer as CFDs, and the lack of any commissions, bank fees, or transaction fees. In addition, we allow trading cryptos against a variety of fiat currencies, and unlike the cryptocurrency exchanges we are regulated by six different regulatory authorities, ensuring your funds are always protected.