What is Cryptocurrency Trading? Everything You Need to Know
Updated: May 4
So, you have just entered the world of Cryptocurrency and you want to know how Cryptocurrency Trading works? You are at the right place! We’ll tell you all you need to know about the Cryptocurrency market, how it works, and how you can get started with Cryptocurrency Trading.
What is Cryptocurrency Trading?
Before we get into the more technical stuff, let’s start by seeing what Cryptocurrency Trading actually is.
Cryptocurrency Trading involves the speculation of the Cryptocurrency price movement through a Contract for Difference (CFD) account. It is about the selling and buying of Cryptocurrency with the help of an exchange.
The most popular Cryptocurrencies these days include Bitcoin, Ripple, Ethereum, Litecoin, Stellar, etc. The number of Cryptocurrencies is increasing at an enormous rate. The ones described here have the biggest market share.
You can trade any of these Cryptocurrencies using the exchange that corresponds to a particular Cryptocurrency.
What is a Cryptocurrency Market?
Cryptocurrency Markets are individual entities that are not under the control of any central authority. These markets run across a network of computer systems and the currencies can be sold or bought via these networks.
Cryptocurrencies exist in a shared digital record of ownership. The users trade Cryptocurrencies by sending and receiving in their digital wallets. When a transaction is completed, it is indicated by its addition to the blockchain.
What is a Blockchain?
You can think of blockchain as a register that stores transaction data about Cryptocurrencies. The entire transaction history of each unit of a Cryptocurrency is stored on the blockchain and it can be used to track the ownership of the Cryptocurrency at any given time.
Whenever a transaction happens, a block is added to the chain. Every new transaction is represented by the addition of a new block at the front of the chain.
Cryptocurrency mining refers to the process of checking recent Cryptocurrency transactions and the addition of new blocks to the blockchain. Mining Computers check transaction details against the history of previous transactions which is stored on the blockchain. This is to ensure that the transaction goes smoothly.
Once the transaction history of the Cryptocurrency unit is checked, the mining computers process the new transaction and its info into a new block.
How does Cryptocurrency trading work?
In order to take part in Cryptocurrency trading, you need a Cryptocurrency wallet and access to an exchange where you buy, sell, or trade a Cryptocurrency.
If you want to trade via an exchange, you’d need to transfer your Cryptocurrency to the wallet or account of the receiver. If you don’t have Cryptocurrency, you can use the exchange to buy it with your fiat currency.
The exchange handles the entire buying, selling, or trading process. Based on the Cryptocurrency prices in the market, the user buys or sells their Cryptocurrency. The exchange looks for a seller who wants to trade with you and once the trading is done, the transaction is marked as completed and the new information is added to the blockchain.
Important Cryptocurrency trading terms you need to know
Here are some important terms that you need to know if you want to make the most out of Cryptocurrency trading
The spread is the difference between the sell and buys quotes for a Cryptocurrency. If you want to open a short position for the Cryptocurrency market, you should trade at the selling price and if you want to go with a long position, you should trade the Cryptocurrency at the buy price.
Cryptocurrencies are also traded in lots. Lots are the batches of Cryptocurrency tokens that are used to standardize the trade size. You can trade Cryptocurrencies in bigger or smaller lots as per the current market conditions. Since Cryptocurrency is quite volatile, it is recommended that you trade in small lots. Cryptocurrencies are always traded in the form of a bigger lot size.
The volatility of Cryptocurrency is quite well-known. If you want to get access to a large amount of Cryptocurrency and you don’t want to pay the full price of it upfront, you’d use what is known as Leverage. You put down a small deposit which is known as the margin and once you close your leveraged position, the size of the trade would determine your profit or loss.
If you are doing leveraged trading for Cryptocurrency, Margin is the most important component of it. It is the initial deposit that you give upfront to maintain your leveraged position over large amounts of Cryptocurrency.
Pips are units that are used to measure the movement of Cryptocurrency in the market. It refers to a one-digit movement in the price to represent a specific level. For example, most Cryptocurrencies are traded using Dollars. Let’s say the price of Cryptocurrency moves from $100 to $101, then it would mean that the Cryptocurrency moved up a single Pip.
How is cryptocurrency different from digital currency?
Decentralization is the major factor that differentiates Cryptocurrency from standard digital currencies. Cryptocurrencies are not set up, managed, or controlled by a central authority. These currencies run on a computer network.
Digital Currencies on the other hand are issued by a central authority like a government. There is not much difference between digital and traditional currencies except for the fact that digital currencies can be used in the digital world for stuff like making payments internationally and buying stuff online.
This is all there is to it! We have briefly talked about the Cryptocurrency market and trading here in this article. It is a complex topic and there are a lot of factors that you need to understand before you step into the Cryptocurrency world. Make sure to check out all the points that we have described in this article to get a complete idea about Cryptocurrency Trading.
If you have any questions, feel free to reach out to us. We’d be happy to help you out.