Cryptocurrency Trading Sites
Cryptocurrency trading is a popular alternative for investors to enter the exciting and often volatile market of assets like Bitcoin. Instead of the traditional ways of owning a cryptocurrency, most types of crypto trading actually don’t require any ownership of the underlying asset. And with the ability to trade on leverage, you can open a position for only a fraction of the capital. Here’s some of our favourite cryptocurrency brokers to get you started.
What is Cryptocurrency?
In August 2008, the domain name bitcoin.org was registered - and later that year, a paper by Satoshi Nakamoto emerged in the inboxes of a cryptography mailing list. This paper was called “Bitcoin: A Peer-to-Peer Electronic Cash System” and it would revolutionise the financial world. The weird thing is - this was by total accident; the inventor didn’t actually mean to create cryptocurrencies. But his detailings of a decentralised system formed the building blocks for what cryptocurrency would eventually become.
At its most simple form: a cryptocurrency is a digital currency that uses cryptography to secure its transactions. The creation of additional units and the verification of asset transfers are other important parts of the equation. What makes cryptocurrency so unique is that there is is no central banking infrastructure - everything is done via the blockchain. When someone sends money using say something like Bitcoin, their transaction is encrypted with their unique ID, which is taken from their Bitcoin wallet. Maintainers will decrypt and verify there ID before updating a ledger. The machine that solved the mathematical puzzle will be rewarded with a Bitcoin - and this has created the concept of cryptocurrency mining.
So why not just get hands on with crypto mining instead of using a Cryptocurrency broker? Let’s take a look:
Why Trade Cryptocurrencies
As we have detailed, there are ways to get your hands on Bitcoin with no need for a broker or exchange. Mining being one of the most popular. Here’s some reasons why mining may not be a suitable choice:
Huge upfront investment: In order to mine cryptocurrencies, you are going to need significant computer power in the form of graphics cards and processors to get your hands on a coin. All of these items come at a premium cost and can take a huge amount of space.
Enormous maintenance costs: If you thought the upfront cost was severe, then you will be more than surprised once you see how much it costs to maintain. Mining computers require huge amounts of power and this can lead to giant electricity bills. Then there’s the added problem if any of your hardware fails, leading to more costs and more headaches.
As you can see, mining for something like Bitcoin can produce all sorts of issues - but how does trading cryptocurrency solve these issues?
You don’t need to own a coin: Yes you read that right, when you trade cryptocurrency you don’t need to own any of the underlying asset.
You can take advantage of leverage: Leverage is a double edged sword and should be used with utmost care. On one hand it can produce huge profits - but on the other also cause significant losses. When used with care and an effective risk management strategy in place, leverage can allow you to open positions on cryptocurrency with just a fraction of the cost. And once again, there’s no need to own the underlying asset.
You can speculate on the value of cryptocurrency: When you purchase a cryptocurrency, there’s only one way you want it to go: up. But if you trade with a cryptocurrency broker instead, it doesn’t matter which way the coin goes. You can go long or short, hedging your risk while still profiting off the currencies movement.
Cryptocurrency Trading Strategies
As with forex trading, there’s a number of different ways to approach trading with currencies like Bitcoin. We always recommend new investors opening a practice account and then trialling each of the strategies to find which best suits your trading style. Here’s a few of the most popular:
Day Trading: A very flexible form of trading that allows you to respond to short term movements in the market and close by end of day. With the cryptocurrency market being so volatile, this might be a good option in place of something more long term.
Scalping: The prices of the various cryptocurrencies is in constant fluctuation - and that means there’s room to take lots of frequent positions to maximise profit. One of the most flexible strategies available.
Swing Trading: In December 2017, Bitcoin’s price rose to stratospheric new heights - but then fell by a significant margin. If you were swing trading around this time, you are sure to have made quite the return. With the currency being so relatively new and ever increasing interest, this is a trading strategy to keep in the back on your mind.
Bitcoin Automated Trading: Many trading platforms allow you to use electronic advisers or automated trading strategies to react to changeable market conditions, giving you more time to focus on other opportunities. You can even code your own robots if you have the technical knowledge
Types of Cryptocurrency
Bitcoin may be the poster boy for the cryptocurrency market - but that doesn’t mean you should ignore the alternatives that are slowly eating up more market share. Here are some popular alternatives to consider:
Ethereum (ETH): Featuring the innovative smart contracts feature, Ethereum is another decentralised software platform. Considered to be the biggest currency after Bitcoin, Ethereum has a market capitalisation of $41.4 billion.
Litecoin (LTC): If we thought of cryptocurrencies as valuable metals, then Litecoin would be considered silver while Bitcoin would be gold. Launched in 2011, this decentralised payment network is actually much faster than Bitcoin, up to four times faster in fact.
Ripple (XRP): A currency that somewhat goes against the grain of the original morales around which Bitcoin was created. Ripple allows banks to settle cross border payments in real time. Unlike Bitcoin and Litecoin, Ripple’s structure doesn’t require mining - and that means faster transactions.