How to get started with trading cryptocurrencies?
Cryptocurrency is a complex topic, but since this guide is mainly aimed at cryptocurrency trading , rather than cryptocurrency itself, we will devote more space to trading instruments, rather than explaining what cryptocurrencies are and how they work. Nevertheless, it is necessary to always understand what is going to be negotiated . Whether it is simpler and more well-known financial instruments, such as stocks or futures, whether they are less well-known instruments such as ETFs, or particularly complex instruments such as cryptocurrencies.
What are cryptocurrencies? A simple description could be the following: the cryptocurrencies are of the virtual currencies , encrypted in order not to make the payment traceable. They are not issued by any “state mint” and do not depend on central banks or other institutions. They are both the means of payment (the currency) and the payment system (the platform on which they can be exchanged).Finally, the element that most interests those who decide to trade or invest in cryptocurrencies : they have an exchange value in dollars . In practice, each virtual currency has a given dollar value which, it should be pointed out, is always very unstable or very volatile .
How cryptocurrencies work
We have seen that cryptocurrencies are at the same time virtual currencies and payment systems. Their operation is generally based on the peer-to-peer chronology , therefore from peer to peer, user by user, thus avoiding working with banks or central authorities. In the example of Bitcoin, the most famous cryptocurrency, both the issue of money and the management of transactions, are carried out collectively by the “network”.
Cryptocurrencies are bearer , so they belong to those who hold them. Some cryptocurrencies are specialized precisely in the defense of such privacy.
Encryption also makes coin seizure impossible, unless security keys are available.
Each cryptocurrency has some differences, more or less substantial compared to Bitcoins, which in any case remain a point of reference, as well as starting point, for the development and future of cryptocurrencies. In chapter 2 we will present the most capitalized cryptocurrencies, tradable online with the best trading platforms.
Invest in cryptocurrencies
For some years there has been a real one boom in cryptocurrencies , with all its risks and associated opportunities. Among the main reasons why so many have decided to invest in cryptocurrencies and especially in Bitcoin, there is the one that about Bitcoin, unlike other currencies, does not depreciate when new currency is entered .
With traditional currencies, issued by a central authority, the more currency is issued, the less exchange value has the same compared to other currencies. With Bitcoin, for example, it is not so. Be careful though, because this does not mean that Bitcoins can only see their value increase! The exchange rate variations between Bitcoin and dollars are constantly changing, as are the dollar and other cryptocurrencies.
Precisely the variations of the Bitcoin have been the luck for many, the misfortune for others. An element that remains, however, is the privacy that cryptocurrencies can provide, privacy that obviously can be interpreted both positively and in a more ambiguous way.
Online cryptocurrency trading
Still on the subject of changes in the prices of cryptocurrencies, their intensity and speed, due to the strong volatility constantly in force in their market, has made them daily bread for the most daring traders.
If you have never traded, we advise you not to start “strong” with cryptocurrencies. Indeed, we advise you to start trading on cryptocurrenciesstarting with the demo with virtual funds, and then move on (if necessary) to operate with a limited funds budget. In summary: start gradually. Do not get caught up in the discomfort of a rapid loss or the enthusiasm of a high and fast profit, but concentrate on understanding what are the dynamics that influence the prices of the cryptocurrency on which you will decide to negotiate.
We also advise against not negotiating on more than 2 cryptocurrencies at a time , as you could really start having problems carefully following their variations and above all not being able to discern the market mechanisms that move them.
Types of cryptocurrencies
In this second chapter we present a brief description of the main cryptocurrencies, selected on the basis of their capitalization and number of users.
Bitcoin
Without a doubt, Bitcoin is the best known cryptocurrency , so much so that for many it is the only one known and is practically still a synonym of the term “cryptocurrency” itself. In the future it could lose its position of supremacy, but for the moment the times still see it clearly in the first place among the choices of the users and also of the investors, as well as of the traders. But these last two categories do not influence the importance of the same, since the many users who make payments every day in Bitcoins represent the essential part of its success.
About Bitcoin, it is both a currency and a payment system , its operation is based on a Peer-to-Peer technology, it does not depend on any bank or central authority and therefore the issue of money is done collectively by the network , as well as transaction management. The Bitcoin system is open-source (open source), so anyone can take part in the project. The very fact that it is open-source means that the project is constantly implemented, improved and made more secure .
Litecoin
For years, Litecoin has been the “vice” of Bitcoin, at least for online trading. It is a cryptocurrency born with the intention of improving Bitcoin using its own system, which has been very much sponsored by very important and internationally known media, such as the Wall Street Journal and the New York Times , as well as than from the CNBC network. However, these “authorities” have failed to launch it enough to achieve Bitcoin and indeed today Litecoin is being capitalized behind other cryptocurrencies.
Ethereum
Ethereum makes people talk more and more about themselves and the motivations are different, even if in reality it is a system a bit more complex than that of Bitcoin. In fact, Ethereum is a platform, a network for the exchange of contracts based on its platform and at the same time it represents the monetary value or the cryptocurrency of the same platform.
On the Ethereum platform it is in fact possible to create and publish smart contracts ( smart contracts ) in Peer-to-Peer mode. These contracts are exchanged by paying the use of their computational power via an Ether , which is a unit of account. The ether represents both the cryptocurrency and the “fuel”, using the terminology adopted by the same platform.
The most interesting thing is the type of contracts : financial market contracts, intellectual property, crowfunding, electoral systems, registration of domain names, etc.
Its complex technical characteristics frame it in the new generation of platforms of this type. Incidentally, cryptocurrency platforms are called in the blockchain platform industry jargon .
Ripple
Ripple is a (virtual) reality that has existed since 2012, although it has never had the reputation of Bitcoin. Nevertheless, it is a system also used by very large companies of the caliber of UBS , Unicredit and Santander. . This is because it offers some important advantages compared to other cryptocurrencies, such as safer transactions, as well as instantaneous and low-cost transactions, all over the world. As for Bitcoins, as we will see in the next paragraph, there are waiting times for payments due to human reasons.
Dash
Dash stands for “Digital Cash” and is a cryptocurrency created with the aim of guaranteeing 100% privacy of transactions , which at the same time must be instantaneous . To do this, Dash uses a system that allows you to bypass the passage of the “miner”, that is to say the figures that for example on Bitcoin must confirm the transactions. Dash, through its Masternodes, makes everything automatic through secure and encrypted servers. At the same time, it offers an “anonymity” service that makes tracking impossible, making the virtual money more similar to the real one, or the bearer. Dash therefore tries to offer the same anonymity offered by cash, but for digital.
Nem
Launched in 2015, NEM immediately started to amaze the world of blockchain software developers, proposing solutions that are actually improving all cryptocurrency systems overall. His was in fact a new algorithm called POI (Proof of Importance), as well as the design of multi-signature accounts, the EugenTrust reputation system and encrypted messages between the subjects of the transactions. NEM is also a cryptocurrency, as well as an innovative system with a blockchain platform.
What is cryptocurrency trading with CFDs?
Given that the CFD is the tool that allows us to trade on cryptocurrencies, or to speculate on the upside and downside on the prices of cryptocurrencies, we find out better what it consists of.
The CFD , which stands for Contracts For Difference, is a financial instrument that replicates the performance of another financial instrument, called an underlying instrument or asset. The value, or the listing of a CFD, therefore depends on that of another instrument, such as a cryptocurrency. When trading on cryptocurrencies with CFD then it means trading CFDs that have a cryptocurrency as underlying. For example, a Bitcoin CFD is a CFD that has Bitcoin as its underlying asset. If the Bitcoin price varies, the Bitcoin CFD will also vary. With CFDs, therefore, they do not hold Bitcoins, but contract on Bitcoin based CFDs. Between the CFD and the underlying currency you will find a small difference in the listing. The price change between the CFD and the underlying cryptocurrency is due to the spread, a small percentage that the broker retains as compensation for its brokerage activity. The broker acts as an intermediary in this negotiation. The broker is nothing but the company that provides the CFDs and the trading platform with which to trade. In this image, you can synthetically see what happens in CFD trading. Given that with trading on cryptocurrencies with CFDs you can trade up or down , depending on your upward or downward forecasts, there is the possibility of opening two different types of positions:
Purchase position (bullish): in the event that a rise in the CFD price is expected after the opening of the purchase position. If the price actually gets a rise, you go to profit, otherwise you suffer a loss.
Sale or overdraft position (bearish): in the event that you anticipate a fall in the listing after the opening of the selling position. If the price actually falls, you go to profit, otherwise you suffer a loss.
How to do CFD trading on cryptocurrencies
Cryptocurrency trading with CFDs takes place through trading platforms, also known as trading platforms. These are platforms available on software, browsers or mobile apps, on which orders related to trading can be placed. For example, purchase or sale orders, but also automatic trading and protection orders (Stop Loss)
Below we show the main display of a very popular platform that allows you to trade 6 different cryptocurrencies. This is the Plus500 platform, also available in free demo mode to practice with virtual funds. While the Plus500 stands out for its ease of use, graphic synthesis and essentiality, there are other more complex platforms, suitable for those who practice at a more advanced level. Among these, the most famous is the MetaTrader, the most used by professional traders around the world.