Cryptocurrency Trading – How Does It Work

Cryptocurrencies have become precious assets since 2010 with an eco-system of their own for trading. With over 1500 currencies, there have been new strides in the cryptocurrency trading mechanisms adopted from traditional stock trading.

It is popular due to ease of investment and room for new currencies to be launched and grow. The speculation has given huge returns past 2017, making Bitcoin probably the most popular asset class by returns.

What are Cryptocurrencies and How to Trade Cryptocurrency

Cryptocurrencies are digital assets that were invented as a new-age medium of exchange. They use cryptography, i.e., a coding mechanism involving encryption and solving mathematical algorithms that are key aspects of blockchain technology. The creation and recording of each unit are decentralized with a public address on the network.

How does it work?

Issuing companies are fintech companies with a product/service they want to finance or bring in use by the tokens issued in lieu of each service provided to the token buyers. These are called Utility Tokens, which are the most common type of cryptocurrencies being issued today.

The currencies are created by a network of peers, also known as miners, who are computer geeks who generate these currencies by solving the “proof of work” or cryptographic puzzles. In crypto mining, various cryptocurrency-related transactions are verified and added to the blockchain ledger that records financial transactions. The confirmation, recording, and counting of each unit happens on this network, which avoids double counting. Thus, each currency can safely be taken to be unique. One important aspect of crypto mining is that transactions cannot be reversed or tampered with.

Why should you look at cryptocurrency trading?

Bitcoin’s price had increased from $1, when it was first introduced in 2009, to an all-time high of $19,783 in 2017!! Anyone who would have invested in the initial coins on a lark would not have to worry for generations to work! Following this success, many other coins, such as Ethereum, which have many uses in software applications, have given about 10,000% return since inception. Many other currencies apart from Bitcoin (called as Altcoins), have given tremendous returns. While these can be the pros of cryptocurrency trading, the cons can be high volatility and transparency in various new coins coming into the market.

Various Cryptocurrency Trading Platforms

Trading cryptocurrencies can be highly profitable, along with being volatile. The key to success is to use a trusted cryptocurrency exchange platform or cryptocurrency broker. There are many cryptocurrency trading software available for digital currency trading online and many exchanges that provide insightful broker reviews, technical charts, price information, low brokerage, above a certain limit of trading on various cryptocurrencies. Using a bank account or credit/debit card, one can fill up the wallet and buy and sell anytime. Exchanges also keep user authentication highly secure with 2F-methods to avoid incorrect logins.

If you are wary of trading in cryptocurrencies directly, you can also invest in trusts like Bitcoin Investment Trust (GBTC), which owns Bitcoin and other altcoins that it regularly trades to multiply return.

There are various sites which will give you step by step tutorial on how to open an account and wallet and trade cryptocurrency. Also, there are various traditional brokerage firms that allow you to open a demo account and help you get a feel of the goods involved in digital currency trading. You can always check the broker service reviews on websites like Regulatedbrokers.com before trading. Many of the brokers listed on this website offer cryptocurrency market trading, and it will be good to make a comparison.

Cryptocurrency trading is becoming sophisticated with various technical signals since it has been around for almost a decade. Many research analysts have started moving towards the financial analysis of returns and intrinsic value of many fintech companies issuing these tokens through an Initial Coin Offering (ICO). Trading also entails understanding the Tax implications in your country and how to records, report, and present them in your annual filings.

Conclusion

Cryptocurrencies are here to stay, and traditional money managers must learn the nuances of cryptocurrency trading sooner or later. While central banks might take time to warm up to the idea of using cryptocurrencies as a parallel for payment to fiat, cryptocurrency trading sites will ensure people have enough to create their alpha on.