Money systems are changing all around the world, which is why Cryptocurrencies are gaining so much traction. The name that is given to currencies from all over the globe that is controlled by Central Banks are flat currencies. These are normally physical in nature, meaning that they are printed or available as coins. Cryptocurrencies are different because, for the most part, they are digital in nature. This means that you cannot touch them, and instead, can only actually use them on online platforms.
As it stands, Cryptocurrencies are currently being seen as the perfect alternative to cash. There are numerous types of these available, though the most common, and perhaps the most successful to date is Bitcoin. This currency makes up a total of 40% of the Cryptocurrency market. In order of size, the next four Cryptocurrencies that are gaining traction include Ethereum, Ripple, Litecoin and Ethereum Classic.
At the heart of almost all Cryptocurrencies, you will find blockchain. The blockchain is basically a database, though it is not the type that you will find in one location like the more traditional ones. With this database, thousands of computers from around the globe are able to access the data. This is because the information that is available has been well encrypted and also been divided so that even a portion of it is lost or corrupted, an entire file will not have gone missing.
Trading with Cryptocurrencies
As you delve into the world of trading with Cryptocurrencies, there is one thing that you should note. This is the type of trading where you will be making all the moves and decisions, which means that you need to take responsibility for all them. It is essential to also carry out some research so that you are able to protect yourself while trading.
Since most of these types of currencies rapidly appreciate in value, and a trader will need to determine their end goal before they even begin the trade. This means establishing whether the purchase of the cryptocurrency is so that one can hold on to it, or purchasing it for the purpose of selling to make an immediate profit. More people are opting to buy and hold, as the appreciating value means that when they are eventually sold, you may be able to get an amazing return. Traders need to have the right emotive state when trading in Cryptocurrencies as they tend to go through phases where they are volatile. This calls for traders who are able to make objective decisions.
Benefits of Trading Cryptocurrencies
The benefits appear to outweigh the risks when trading in Cryptocurrencies, which has attracted more people to this type of trading. Some of these benefits include: –
- The ability to trade long as well as short. With this, you are able to benefit from a drop in the value just as you would if there is a rise in the value.
- It is possible to trade these globally, using a range of currencies.
- One can benefit from the advantage of leverage, especially when trading Cryptocurrency pairs. These work in much the same way as forex pairs, allowing you to trade without having to tie up your capital.
Risks of Trading Cryptocurrencies
Just as there are some benefits of trading in Cryptocurrencies, there are also potential risks that traders need to be aware of to ensure that they make informed and guided decisions. These include the following: –
- Technology may let you down. All Cryptocurrencies are digital, and will only function well if the technology that supports them is also functioning as expected. In the event that the technology fails, the potential for making an incredible loss is quite high.
- As the technology is still emerging, there is a considerable amount of information that is not known about Cryptocurrencies. Basically, there is still information being unearthed, so every day, it is possible to learn something new. It is best to avoid any brokers and operate from your own wallet, as the fees linked with this trading are minimal.
- The level of knowledge and understanding that is needed is also high, and one who is not tech savvy should not attempt to go into cryptocurrency trading until building up some know how. Without supporting knowledge, it is possible to lose an incredible amount of money in a short period of time.
Exploring Your Options
When trading in Cryptocurrencies, there are various options that you can explore including the Contract for Difference (CFD). With a Cryptocurrency CFD, it is possible to enter a contract between the buyer and the seller. The CFD is useful when trading in goods that are difficult to own, or even more difficult to store. These include commodities like barrels of oil or gold.
It is worth noting what this means for you as a trader. To begin with, it makes it easier to trust the platform that you are trading on as those for trading CFDs have been established for years. They also have the benefit of being well regulated and having high security. The next advantage is that it is quite simple and you are able to trade it with a flat currency.
While these are excellent reasons to try out CFDs for trading Cryptocurrencies, one should also note that the fees that are attracted will be higher than if you were simply carrying out a transaction as a Cryptocurrency exchange. You may also be required to give some of your personal information when you are using CFDs. With the basic cryptocurrency exchanges, it is possible to keep your identification information secret. This helps you maintain your privacy while you are trading.
Traders enjoy trading in Cryptocurrencies as it offers them new opportunities to take advantage of in the markets. Furthermore, there are also new markets that are being opened, which allow for more chances to make a profit. It is expected that within the next few years, these currencies will be worth more than $100 billion.