Cryptocurrencies are one of the world’s fastest growing assets. These alternative currencies are not issued by any national bank and are not subject to any significant government control or regulation. The best known crypto is Bitcoin which rocketed in value to push close to the $20,000 line in 2020. Cryptocurrencies are beginning to gain widespread acceptance, to the point where they are essentially now a mainstream asset.
Cryptocurrencies behave very much like forex and are traded against conventional national currencies like the USD. Anybody who understands the basic principles of forex trading can aslo trade cryptos. When you trade cryptos as CFDs there is no need to worry about blockchains or other cryptocurrency jargon. You are not actually buying the crypto that you are trading.
How To Trade Cryptocurrencies
Trading crypto CFDs follows the same basic rules as trading forex or other assets as CFDs. You will need to apply effective technical and fundamental analysis and understand the market forces that affect crypto prices. The crypto market can be highly volatile and it is important to also apply effective risk management techniques to all open positions. Most online CFD brokers now offer the best-known crypto currencies. These assets can be traded directly from your platform. If you’re new to crypto trading we recommend that you check out your broker’s education center or talk to your account manager before you begin.
Why Trade Cryptos?
Cryptocurrencies are becoming a popular choice with CFD traders who want to benefit from the volatility of these exciting new assets. The advantage of crypto CFDs is that the trader deals directly with their own broker and doesn’t have to buy the digital currencies or deal with cryptocurrency exchanges. Because there’s no need to set up an exchange account, you can gain instant access to the markets.
Your broker will execute with the underlying exchange on your behalf.
The other main advantage of trading cryptos with an online CFD broker is that the assets are far more accessible to the average trader. Bitcoin passed $23,000 in 2020. A good broker will offer flexible leverage, increasing your exposure to the asset. Although the maximum leverage for cryptos is usually lower than other assets (due to cryptos’ inherent volatility) it still enables higher trading volumes.
Crypto currencies are decentralised assets with no governance. The markets can experience downtime, as the market infrastructure is adjusted, but basically run 24/7. The high volatility and trading volume in cryptocurrencies make them a popular choice for day trading.
Brokers are willing to offer leverage for crypto currency trading, but it is significantly less than for other assets like forex, stocks, commodities and indices etc. x20 leverage seems to be about average for most brokers. This is partly due to the volatility of cryptos and partly due to their high value as assets. Although leverage can potentially increase your profits, it can also increase your losses.
Until recently, cryptos were a niche market with a small number of traders. They developed their own jargon and terminology. These are some of the key terms:
Cryptos are a digital currency – there are no banknotes or coins. A ‘block’ is a record of transactions on a digital ledger.
An evolving list of blocks in a peer-to-peer network.
These are the online equivalent of traditional currency exchanges. Clients can exchange cryptos and fiat currencies at the current exchange rate.
This is simply a term for a secure digital account where you can store cryptocurrencies.
This is a general term for any network where decentralised nodes or computers store transaction data. They are also used outside the world of cryptocurrencies and are not relevant to the average CFD trader.
A fork is a deliberate split in a blockchain for the sake of convenience or to launch a new project. Examples include the fork that was created to allow Bitcoin and Bitcoin Cash to coexist.
An initial coin offering is an event where a new digital currency is offered to investors, usually at a discount. It is essentially identical to a company IPO where shares are sold to raise funds for future growth and development.
This is a process within a digital network where blocks are added to a blockchain by verifying transactions on its ledger.