The year is 2021 and the internet continues to offer endless possibilities for working remotely. With the emerging cryptocurrency market, the list of viable income sources available online has increased. Cryptocurrencies are digital or virtual currencies that have been generally accepted as legal tender for web-based transactions.
Crypto trading has become even more mainstream since major digital currencies like Bitcoin and Ethereum turned out to be increasingly popular. Traders who are looking to invest and make a profit now find these virtual currencies impossible to ignore.
By their nature, cryptocurrencies are decentralized hence they operate independently from government or bank control. They rely instead on blockchain technology that is based on peer-to-peer distributed ledger networks for security.
This doesn’t prevent cryptocurrency holders from trading or exchanging virtual coins like other real-world currencies.
While cryptocurrencies are not yet fully recognized by businesses across the world as legal tender, they have the potential to expand the global financial landscape with more investment and increased trading opportunities.
But because they are relatively new assets, crypto trading varies from more established markets. They are not under the influence of the same forces that control conventional forex or stock markets.
How Does Cryptocurrency Trading Work?
Cryptocurrency trading is best described as the process of buying and selling cryptocurrencies to generate profit.
As mentioned earlier, cryptocurrencies leverage blockchain distributed ledger technology to ensure transactional data integrity without using any intermediaries.
Cryptocurrencies also have established digital exchanges for their currency – the same way conventional world currencies operate forex (foreign exchanges) – where users can trade in virtual coins.
However, the cryptocurrency trading market runs for 24 hours every day, unlike other established stock exchanges.
Yet another noteworthy difference in their trading operations is the high level of volatility. Many newbie traders expect to make higher percentage profits. While crypto trading can offer up profits at increased speeds, forex traders may take longer to generate large sums.
Exchange users can send or transfer cryptocurrency units from one digital wallet to another. Over time, the blockchain serves as a reliable ledger for recording the transaction history and ownership changes for each cryptocurrency unit.
The security features of blockchain technology remain unmatched by any computer.
All crypto trading transactions must be verified before they are added to the blockchain. As they occur, the processes are recorded and added continuously to the blockchain in the form of blocks.
Before you start trading in cryptocurrencies, you will require a cryptocurrency wallet. You must also select a reliable digital exchange platform.
Note that there are approximately 1,500 cryptocurrencies currently in existence. Bitcoin, Ether, or any other popular virtual coin is always ideal for newcomer traders as it can help to minimize potential losses in a highly volatile digital market.
Luckily, anyone can start trading cryptocurrency successfully – even with minimal experience.
What Are The Major Cryptocurrencies?
Are you just learning about trading crypto online?
Deciding on which virtual coins to trade can be difficult. You must be able to determine the differences in value between the leading digital coins on the market.
You must also have a clear knowledge of how each cryptocurrency behaves on the general market before you even begin developing a trading strategy.
We’ve gone ahead to identify the strengths and weaknesses of some popular cryptocurrencies on today’s market.
- BTC (Bitcoin) – Bitcoin was the very first decentralized currency or digital payment system ever created. It used blockchain technology to challenge traditional financial models for purchasing goods, services, and products.
BTC was launched back in 2008 with each coin worth roughly about 0.05USD. Today, there are about 21 million Bitcoins in existence. New Bitcoins are mined using computer networks that have the high processing power required to solve complex algorithms.
The Bitcoin value grew and rose dramatically as more forward-thinking entrepreneurs invested heavily in its success.
By December 2017, Bitcoin had risen to its highest ever recorded value with each one worth about 20,000USD.
- ETH (Ethereum) – With Ethereum, you have an open-source cryptocurrency system designed to process much faster than Bitcoin. Ether coins have a block record time of approximately 15 seconds, instead of the 10 minutes often experienced with Bitcoins.
Ether is usually used to reward miners who mine cryptos and other virtual coins. And just like other cryptocurrencies, Ethereum trading transactions also get recorded in a digital blockchain ledger where they are publicly distributed.
Moreover, there are currently no limits to the amount of ether that can be mined – unlike Bitcoins.
- BCH (Bitcoin Cash) – Bitcoin Cash emerged in 2017. It was the result of a branch in the original Bitcoin blockchain for recording and verifying digital transactions.
Whenever the digital blockchain ledger for a cryptocurrency splits, two new information chains are formed with each one recording two different versions of the cryptocurrency’s history.
Such division often occurs when a majority consensus cannot be reached within the blockchain community regarding a cryptocurrency’s direction.
Bitcoin Cash was created after a sharp division over Bitcoin’s original design, processing time, and block limit size. The new cryptocurrency that materialized promised to offer increased flexibility and faster processing time it’s for users.
- LTC (Litecoin) – Litecoin is yet another virtual coin that was created to facilitate and simplify affordable cross-currency transactions.
Though incredibly similar to Bitcoin, LTC tends to offer faster recording and confirmation times. It is also more difficult to mine Litecoin in large quantities.
Overall, Litecoin is arguably more efficient than Bitcoin.
Frequently Used Cryptocurrency Trading Terms
If you’re serious about investing in crypto coins, you must familiarize yourself with the basic knowledge.
In this final section of our guide, we’ll run you through some of the most widely used crypto trading terms and concepts.
Margin – This usually refers to the initial deposit made by a crypto trader. It can be leveraged to sustain a position. Your margin can vary depending on the broker or the size of the trade. It is often represented as a percentage value.
Spread – The spread is the difference between the cryptocurrency’s buying and selling prices. Users can choose to trade at the crypto’s selling price or trade at the buying price.
Pips – These are the units used to describe single-digit changes in cryptocurrency values. One pip can indicate 1cent for lower-value cryptocurrencies or 1 USD for more valuable ones.
Lots – These are essentially crypto tokens that come in batches. Lots are used to help regulate the size of crypto trades. While some crypto coins are traded in larger lots, others must be traded in smaller lots because of their volatile nature.
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2 thoughts on “What Is Cryptocurrency Trading?”
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