What is Cryptocurrency trading and how does it work?

01/21/2021

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

CFD trading on cryptocurrencies

CFDs trading are derivatives, which enable you to speculate the cryptocurrency price momentum without taking ownership of the underlying coins. You can buy if you think a cryptocurrency will rise in value, or sell if you think it will fall.

Buying and selling cryptocurrencies through an exchange

When you buy cryptocurrencies through an exchange, you purchase the coins themselves. Exchanges bring their own steep learning curves as you are needed to gain grip with the technology involved and learn how to make sense of the data.

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 are maintained across a network of computers. However, cryptocurrencies can be bought and sold via exchanges and stored in 'wallets’ .

What is blockchain?

A blockchain is a shared digital register of recorded data. This is the transaction history for every unit of the cryptocurrency, which shows how ownership has changed over time. Blockchain technology has unique security features that normal computer files do not have.

Network consensus

A blockchain file is always stored on multiple computers across a network – rather than in a single location – and is usually readable by everyone within the network. This makes it both transparent and very difficult to alter, with no weak point makes it vulnerable to hacks, or human or software error.

Cryptography

Blocks are linked together by cryptography – complex mathematics and computer science. Any attempt to alter any kind of data will disrupt the cryptographic links between blocks, and can quickly be identified as fraudulent by computers in the network.

What is cryptocurrency mining?

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

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 with the help of their private key.

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.

How does cryptocurrency trading work?

With Botsfolio, you can trade cryptocurrencies through Binance Exchange – When you buy cryptocurrencies through Botsfolio, your purchase is made safely and securely. Binance is the one of the top exchanges in the crypto currency market.

What is the spread in cryptocurrency trading?

The spread is the difference between the buy and sell prices quoted for a cryptocurrency. Like many financial markets, when you open a position on a cryptocurrency market, you’ll be presented with two prices. If you want to open a long position, you trade at the buy price, which is slightly above the market price. If you want to open a short position, you trade at the sell price – slightly below the market price.

What is a lot in cryptocurrency trading?

Cryptocurrencies are often traded in lots, lots are nothing but batches of cryptocurrency tokens used to standardise the size of trades. As cryptocurrencies are very volatile, lots tend to be very small: most are just one unit of the base cryptocurrency. However, some cryptocurrencies are traded in bigger lots.

What is leverage in cryptocurrency trading?

Leverage is the means of gaining exposure to large amounts of cryptocurrency without having to pay the full value of your trade upfront. Instead, you put down a small deposit, known as margin. When you close a leveraged position, your profit or loss is based on the full size of the trade.

What is margin in cryptocurrency trading?

Margin is a key part of leveraged trading. It is the term used to describe the initial deposit you put up to open and maintain a leveraged position. When you are trading cryptocurrencies on margin, remember that your margin requirement will change depending on your broker, and how large your trade size is.

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