How Crytocurrency Trades work

When Satoshi Nakamoto created the first cryptocurrency, Bitcoin, in 2009, he aimed to create a
new mode of payment that would be universally accepted and decentralized. That is, he wanted
to create a universal medium of exchange that would be without the control of any financial
institution or intermediary.

How Cryptocurrency Trade Works (Source: medium.com)

The reception was not very good at first. People found it hard to trust the new form of payment that had no government backing or regulation. However, as time went on, cryptocurrency started gaining wide acceptance all over the world. There is still resistance from some quarters, but the resistance has continued to weaken with time.

Several big companies and establishments have also started to invest in cryptocurrency. Some are even going as far as developing their own cryptocurrencies. Although it all started with Bitcoin, thousands of other cryptocurrencies have been created and more are being created every month using blockchain technology. 

Studies have shown that the cryptocurrency markets will continue to expand. This has resulted in more people investing in them. More traders are now buying and selling cryptocurrencies.

How Cryptocurrency Trades Work

Cryptocurrency trades can be carried out in two ways: either by buying and selling cryptocurrencies directly via an exchange or by speculating on their price movements via a Contract for Difference (CFD) trading account.

  • Trading Cryptocurrency via an Exchange – An exchange enables cryptocurrency traders to exchange one digital currency for another or to convert a digital currency to fiat currency. To trade cryptocurrency via an exchange, the trader will have to open an exchange account and pays the full value of the digital asset he wants to purchase in return for the asset. The cryptocurrency is then stored in his wallet until he will be ready to sell.
  • CFD Trading in Cryptocurrency – This form of trading allows you to speculate on the price movements of cryptocurrencies without actually purchasing the underlying cryptocurrencies. To trade Contracts for Differences (CFDs) on cryptocurrencies, the trader enters into a contract with the brokerage company, which enables him to speculate on the price movement of the cryptocurrency without actually owning or buying the cryptocurrency itself. The trader then earns by profiting off the difference between his entry price and exit price. 

Choosing the Right Cryptocurrency to Trade

Before you begin trading, you need to ask yourself what type of cryptocurrency you will like to trade. Do you want to invest long-term? Or you want to bet on the next surprise coin? Whatever your motive, there are several options to choose from. There are popular cryptocurrencies like Bitcoin, Ethereum, Binance Coin, Dogecoin, XRP, etc.

However, Bitcoin is the most valuable cryptocurrency and accounts for over 43% of the total capitalization of the cryptocurrency market. It is the most widely accepted of all its peers and it has a finite supply. Also, it has stood the test of time and may represent the best investment option for anyone who wants a long-term investment in the cryptocurrency market.

Ethereum has also gained widespread acceptance due to several financial applications such as the much-touted decentralized finance (known as DeFi for short) that are being built on its blockchain. It is also highly recommended among cryptocurrency traders. Several other unpopular coins may also turn out to be wise investment options. With good research, you may spot them before they break out.

Frequently Asked Questions

  1. What is the Cryptocurrency Trading Time? – Unlike the stock market that opens in the morning and closes in the evening, cryptocurrency markets are always open 24 hours a day, 365 days a year.
  2. What Are Cryptocurrency Trading Bots? – Cryptocurrency trading bots are automated tools that constantly monitor the market and sudden price changes and react accordingly based on the pre-determined rules given to them by the traders using them.
  3. What Factors Should I consider before Choosing a Cryptocurrency Exchange Platform – Safety, security, reputation, transparency, the type of currency you want to trade, fees and commissions, and technology and infrastructure, etc.
  4. Am I supposed to Pay Tax while Trading Cryptocurrency? – It depends on the country you’re trading in. If you are trading in the United States, your cryptocurrency is subject to a capital gains tax when you trade it for profit. However, if you sell your cryptocurrency for a price that is less than what you bought it, you would not have to pay taxes. Instead, you can even use the loss to offset the gains on your other income and avoid paying tax on them.
  5. Which Cryptocurrency Is the Most Popular? – Bitcoin is the most popular cryptocurrency.

The information on this website and all associated literature are for educational and informational purposes. It does not constitute a fiduciary duty or obligation between Uncut Lab and you. Please consult your financial and investment professional for your specific situation.

author

Lucas

I am the Uncut Lab resident cloud computing junkie. I help curate the written content in our Education Corner, providing engaging articles on foundational concepts in cloud computing, data analytics, machine learning, and blockchain technology. Feel free to reach out to me with questions or topics that you would like us to cover. Thanks!

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