Cryptocurrency Trading

It’s time to talk about cryptocurrencies as - to be fair - everybody else is already talking about it. Cryptocurrencies are the latest fad on the news, financial sites and blogs and it’s not difficult to understand why. This new instrument has the potential to change the way we handle money, and could even affect the global banking system as well as many other industries.

In this quick article we’ll look into this revolutionary instrument and discuss its potential, risks and how it can be traded online in the form of CFDs.

Want to go straight to the part where we explain how to trade cryptocurrency CFDs? You can skip the rest.
Want to start at the beginning? Simply scroll on.
 

What is a cryptocurrency?

In simple words, a cryptocurrency is a digital asset used as exchange. New currency units are created via cryptography (this means an encrypted code), and the same process is used as security. Want to really understand the nature of cryptocurrencies? A good place to start is to look at the differences between a cryptocurrency and traditional (fiat) currencies such as the US Dollar, Euro, Pound, Yen, etc.

Here’s a quick comparison…

Now, a bit of history

Perhaps “history” is a big word when we’re talking about an instrument that didn’t even exist a decade ago, but let’s take a quick look at how it all started.
The first known decentralized cryptocurrency was Bitcoin, which made its first appearance in 2009. Who invented Bitcoin? Nobody knows for sure. We do have a name - Satoshi Nakamoto – but it’s uncertain if it refers to a single programmer or a group of them.
Bitcoin uses Blockchain, a word that sounds intimidating, but is actually quite simple to understand. It’s kind of a constantly growing ledger that records every transaction. Blockchain is viewed by many as the feature that provides Bitcoin with its innovation and security.
The creation of Bitcoin was quickly followed by the creation of many additional, decentralized cryptocurrencies such as Ethereum, Litecoin and Ripple that have gained both publicity and popularity worldwide.

Types of cryptocurrencies

It’s hard to evaluate the exact number of cryptocurrencies, especially since new ones are probably being created as we speak, but current estimations stand at nearly a thousand. This means we can’t possibly cover the whole list here, but we do have time to mention just a few examples…

Bitcoin

Do you really need us to introduce Bitcoin? As we’ve mentioned before, this is the mother of all decentralized cryptocurrencies. First introduced in 2009, the popularity of Bitcoin quickly spread and its technical innovation, most notably the Blockchain, addressed the main issues raised with previous attempts, and served as an inspiration to the many cryptocurrencies that followed it.

Litecoin

Introduced in 2011, Litecoin is very similar to Bitcoin, but offers some technical improvements. We won’t burden you with the technicalities, but one of the main upgrades is that it enables the processing of more transactions simultaneously – and much faster.

Ripple

When you mention Ripple, many people will immediately think of the digital payment protocol and only then about the cryptocurrency, XRP – both belonging to the same company. Ripple is essentially a decentralized, peer-to-peer platform through which people can transfer money. Ripple serves as a kind of a ‘bridge currency’ to many other currencies – both fiat and crypto.

Ethereum

Introduced only in 2015, Ethereum is both a blockchain-based computing platform (open-source of course) and a cryptocurrency token (commonly referred to as ‘Ether’). This cryptocurrency is a mean of exchange - like a regular digital currency – but is also used within the Ethereum platform to run applications and to pay for services.

Who’s worried about cryptocurrencies?

We talked earlier about the fact that unlike traditional currencies, cryptocurrencies cannot be controlled or manipulated by central banks and governments. So, one guess: Who’s worried about the growing popularity of cryptocurrencies? That’s right – banks and governments.

Unsurprisingly, many central banks consider cryptocurrencies a risk to the traditional monetary system. Why are they worried? Well, their main concern is the potential decrease in the ability of governments and central banks to influence the economy. They also worry that as cryptocurrencies gain power and popularity, the public might begin to see them as superior – or more trustworthy - than traditional currencies.

Why do people trade cryptocurrency CFDs?

At iFOREX, you have the opportunity to trade cryptocurrencies in the form of CFDs. What does it mean? Well, CFD stands for Contract For Difference and when you trade cryptocurrency CFDs you invest in the price of the cryptocurrencies without actually having to buy them. Instead of having to download an E-wallet, finding a reliable exchange and buying – and then selling – cryptocurrencies, you open a ‘buy’ (long) or ‘sell’ (short) deal via the trading platform.

Remember

When you trade cryptocurrencies CFDs, you can always choose to ‘short’ or ‘long’ your position, potentially taking advantage of price changes in any direction – up or down.

Differences between cryptocurrency trading and cryptocurrency CFD trading

Still unsure about the differences between trading cryptocurrencies and trading cryptocurrency CFDs? We’ve already covered most of this info above, but here it is in a nice, little chart:

How to open a cryptocurrency CFD deal

When you decide you want to open a CFD deal with iFOREX – be it on cryptocurrencies or any one of our other CFD instruments – you can do so in just four steps.

Factors that affect the price of cryptocurrencies

As we’ve mentioned above, cryptocurrencies are decentralized, so they are not controlled – and cannot be manipulated - by a specific government or central bank. This also means that many of the factors that impact the price of traditional currencies – a change of a central bank’s policy, economic data or a natural disaster – are unlikely to have a direct impact on the price of cryptocurrencies.

What factors could affect the price of cryptocurrencies? As always, supply and demand are the main market movers, but here are a few more detailed examples…

• Popularity or perceived popularity
• News about a ‘fork’ or a technical issue
• Change in legal status by a major government
• Level of trust
• Statements by policy makers
   

Wait… we just said governments can’t control the price of cryptocurrencies, so why do we mention them among possibly influencing factors? Well, a major government still has power, even if it’s just in its ability to pass decisions regarding the legality of a specific instrument.

For example, on September 4th 2017, China decided that all ICOs (Initial Coin Offerings) were illegal and made comments indicating it might be cracking down on cryptocurrency trading in the country. Considering the size and influence of the Asian superpower, the market reacted and in the days that followed, the price of Bitcoin decreased.

Remember

Just like any other financial instrument, the price of cryptocurrencies is also affected by crowd psychology. In simple words: The perceptions of people regarding the stability, status or potential of a specific cryptocurrency could be a major factor in dictating its price.

Cryptocurrency trading and traditional currency analysis

Because cryptocurrencies are not connected to a specific economy, they pose major challenges to traditional currency analysis methods. Many of the analysis tools that traders use are simply irrelevant to cryptocurrencies and for analyzing Bitcoin, Litecoin or other cryptocurrencies. Cryptocurrencies could require new strategies and a new way of analysis thinking.

Conclusion

There is no doubt that cryptocurrencies are exciting new instruments that have the potential to change global financial markets. Will the popularity of cryptocurrencies continue to rise or is it a temporary fad? Only time will tell. For now though, you could choose to trade cryptocurrencies in the form of CFDs via iFOREX and enjoy leverage, tight spreads, no expiration dates and access to free education and training.