Crypto Trading

Understanding Crypto Trading: A Comprehensive Guide

Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a CFD trading account, or buying and selling the underlying coins via an exchange.

Cryptocurrency trading, or crypto trading, involves buying, selling, and exchanging digital currencies via online platforms known as cryptocurrency exchanges. Unlike traditional markets, crypto trading operates 24/7, providing ample opportunities for traders but also presenting unique challenges and risks. This article delves into the essentials of crypto trading, offering insights into its mechanisms, benefits, risks, and strategies.

Cryptocurrency trading involves speculating on price movements via a CFD trading account, or buying and selling the underlying coins via an exchange. Here you’ll find more information about cryptocurrency trading, how it works and what moves the markets.

What’s cryptocurrency trading?

Cryptocurrency trading is the buying and selling of cryptocurrencies on an exchange. With us, you can trade cryptos by speculating on their price movements via CFDs (contracts for difference).

Cryptocurrency trading involves speculating on the price movements of cryptocurrencies. Traders can either purchase the actual digital coins on exchanges or trade derivatives such as Contracts for Difference (CFDs) to speculate on price movements without owning the underlying asset.

CFDs are leveraged derivatives – meaning that you can trade cryptocurrency price movements without taking ownership of any underlying coins. When trading derivatives, you can go long (‘buy’) if you think a cryptocurrency will rise in value, or go short (‘sell’) if you think it will fall.

By contrast, when you buy cryptocurrencies on an exchange, you buy the coins themselves. You’ll need to create an exchange account, put up the full value of the asset to open a position, and store the cryptocurrency tokens in your own wallet until you’re ready to sell.

How do cryptocurrency markets work?

Cryptocurrency markets are decentralised, which means they are not issued or backed by a central authority such as a government. Instead, they run across a network of computers. However, cryptocurrencies can be bought and sold via exchanges and stored in ‘wallets’ .

Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership, stored on a blockchain. When a user wants to send cryptocurrency units to another user, they send it to that user’s digital wallet. The transaction isn’t considered final until it has been verified and added to the blockchain through a process called mining. This is also how new cryptocurrency tokens are usually created.

Crypto trading primarily occurs on exchanges like Binance, Coinbase, and Kraken, where users can trade a variety of cryptocurrencies. Here’s a basic breakdown:

• Trading Pairs: Cryptocurrencies are traded in pairs, such as BTC/USD (Bitcoin/US Dollar). The first currency in the pair is what you’re buying or selling, and the second is what you’re using to make the transaction.

• Order Types: Common order types include market orders, limit orders, and stop-loss orders. Market orders execute immediately at current prices, limit orders execute at a specified price or better, and stop-loss orders help manage risk by selling an asset once it reaches a certain price.

CFD trading on cryptocurrencies

CFDs trading are derivatives, which enable you to speculate on cryptocurrency price movements without taking ownership of the underlying coins. You can go long (‘buy’) if you think a cryptocurrency will rise in value, or short (‘sell’) if you think it will fall.

Both are leveraged products, meaning you only need to put up a small deposit – known as margin – to gain full exposure to the underlying market. Your profit or loss are still calculated according to the full size of your position, so leverage will magnify both profits and losses.

Buying and selling cryptocurrencies via an exchange

When you buy cryptocurrencies via an exchange, you purchase the coins themselves. You’ll need to create an exchange account, put up the full value of the asset to open a position, and store the cryptocurrency tokens in your own wallet until you’re ready to sell.

Exchanges bring their own steep learning curve as you’ll need to get to grips with the technology involved and learn how to make sense of the data. Many exchanges also have limits on how much you can deposit, while accounts can be very expensive to maintain.

What is cryptocurrency mining?

Cryptocurrency mining is the process by which recent cryptocurrency transactions are checked and new blocks are added to the blockchain.

1. Checking transactions

Mining computers select pending transactions from a pool and check to ensure that the sender has sufficient funds to complete the transaction. This involves checking the transaction details against the transaction history stored in the blockchain. A second check confirms that the sender authorised the transfer of funds using their private key.

2. Creating a new block

Mining computers compile valid transactions into a new block and attempt to generate the cryptographic link to the previous block by finding a solution to a complex algorithm. When a computer succeeds in generating the link, it adds the block to its version of the blockchain file and broadcasts the update across the network.

What moves cryptocurrency markets?

Cryptocurrency markets move according to supply and demand. However, as they are decentralised, they tend to remain free from many of the economic and political concerns that affect traditional currencies. While there is still a lot of uncertainty surrounding cryptocurrencies, the following factors can have a significant impact on their prices:

• Supply: the total number of coins and the rate at which they are released, destroyed or lost
• Market capitalisation: the value of all the coins in existence and how users perceive this to be developing
• Press: the way the cryptocurrency is portrayed in the media and how much coverage it is getting
• Integration: the extent to which the cryptocurrency easily integrates into existing infrastructure such as e-commerce payment systems
• Key events: major events such as regulatory updates, security breaches and economic setbacks

Learn why people trade cryptocurrencies

Cryptocurrencies are notoriously volatile. For traders using leveraged derivatives that allow for both long and short positions, large and sudden price movements present opportunities for profit. However, at the same time, these also increase your exposure to risk. In short, the more volatile the market, the more risk you carry when trading it.

With IG, you can trade cryptocurrencies via a CFD account – derivative products that enable you to speculate on whether your chosen cryptocurrency will rise or fall in value. Prices are quoted in traditional currencies such as the US dollar, and you never take ownership of the cryptocurrency itself. CFDs are a leveraged product, which means you can open a position for just a fraction of the full value of the trade. Although leveraged products can magnify your profits, they can also magnify losses if the market moves against you.

When trading cryptocurrencies with us, you can:

• Access real-time pricing. We derive our prices from several exchanges, and they’re calculated on a continuous basis
• Get prices reflective of the underlying market. Because our prices are based on real markets, in real time, they always reflect actual market sentiment
• Trade with derivatives. With our CFD account, you’ll never own actual cryptocurrencies. This means you get to trade without opening an exchange account or creating a wallet
• Obtain low spreads. We work to keep our spreads amongst the lowest in the market
• Use continuous charting. Our award-winning platform1 offers cutting-edge HTML 5 charts and a selection of advanced indicators and drawing tools
• Enter and exit positions quickly. Owing to tight spreads and our fast execution, CFDs enable you to enter and exit trades quickly
• Trade on leverage and margin. CFDs are leveraged, giving you full market exposure at a fraction of the initial outlay required when buying actual cryptos. However, trading CFDs comes with a high risk of losing money rapidly due to leverage.
• Trade on a secure platform. You can utilise measures such as the two-factor authentication (2FA) to ensure you’re secure when trading online.

Crypto market conditions

The crypto market is a digital currency market that uses blockchain technology to create new coins and provide users with secure transactions. Trading crypto derivatives allows you to diversify your online portfolio and capitalize on the movements of cryptocurrency prices, whether they’re rising or falling.

Crypto trading hours

You can trade cryptocurrencies 24/7 except during server maintenance. We will inform you via email when this takes place.

The below cryptocurrency pairs have close only mode:

• BTCAUD, BTCJPY, BTCCNH, BTCTHB, BTCZAR: on Sunday from 20:35 to 21:05

• BTCXAU, BTCXAG: on Sunday from 21:35 to 22:05

The below cryptocurrency pairs also have daily break:

• BTCXAU, BTCXAG: Monday – Thursday from 20:58 to 22:01

All timings are in server time (GMT+0).

Spreads

Spreads are always floating, so the spreads in the table above are yesterday’s averages. For live spreads, please refer to the trading platform.

Please note that spreads may widen when the markets experience lower liquidity. This may persist until liquidity levels are restored.

Swaps

No swap is charged on cryptocurrency positions.

Fixed margin requirements

Margin requirements for all cryptocurrency pairs are fixed, regardless of the leverage you use.

Stop level

Please note that the stop level values in the table above are subject to change and may not be available for traders using certain high-frequency trading strategies or Expert Advisors.

FAQs

Conclusion

In conclusion, cryptocurrency trading presents a dynamic and increasingly popular avenue for investors seeking opportunities in digital assets. The decentralized nature of cryptocurrencies and their underlying blockchain technology offer distinct advantages such as faster transactions, enhanced security, and global accessibility. However, these benefits come with significant risks including volatility, regulatory uncertainties, and technological complexities.

To succeed in crypto trading, it’s essential to approach it with a well-informed strategy, diligent research, and a thorough understanding of market dynamics. Whether trading directly on exchanges or through derivatives like CFDs, traders must stay updated with market trends, news, and technological developments.

Moreover, maintaining a disciplined approach to risk management is crucial due to the inherent price volatility in cryptocurrency markets. By leveraging the right tools, staying informed, and continuously adapting to market conditions, traders can maximize their chances of success while navigating the evolving landscape of digital currencies.

Crypto trading offers a unique and potentially lucrative investment opportunity, but it is not without its challenges and risks. By educating yourself, employing sound strategies, and staying vigilant about market changes and security, you can navigate the crypto trading landscape effectively. As with any investment, it’s crucial to do thorough research and consider seeking advice from financial professionals before diving in.