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Trading Cryptocurrencies

A complete guide about cryptocurrencies

In this section, you will find information about trading with cryptocurrencies and general information about this new financial instrument. Cryptocurrencies are the last frontier of financial markets, especially the Forex market. The currency market, in fact, has witnessed the influx of virtual currencies. Until recently, the only cryptocurrencies that could be traded on trading platforms were Bitcoin and Litecoin. Today, it is possible to trade with several of them, which include Ethereum and Ripple.

In this regard, before we continue, allow us to inform you that we have written a comprehensive guide on trading with cryptocurrencies, that which you can read online for free on our website.

But what makes cryptocurrencies so special? We could divide this answer into three categories namely technical, financial/economic and trading. Let’s start with the latter.

Trading with Cryptocurrencies

The characteristics that make cryptocurrency trading interesting are:

  • Volatility
  • Periods of high volatility
  • A growing sector with strong potential
  • Technicalities that make a difference

Let us analyze these points, one by one.

Let’s start with volatility. Volatility is defined as a high frequency of price variability. Cryptocurrencies are volatile financial instruments since their price is influenced by many technical and sentimental factors.

Among other things, we have also included “periods of high volatility”. It is neither a typographical error nor a repetition. We want to highlight the difference between the average volatility presented by cryptocurrencies and the high volatility that they put on the table in certain periods. Precisely because of this high volatility, you will often find messages that warn you about the high risk of transactions with cryptocurrencies. Such messages are necessary since the data up to now have been clear with the rising or falling of many percentage points in a few days (and in some cases, even in a few hours). Therefore, cryptocurrencies need to be kept more under control than other financial instruments including stocks.

Now let’s continue with the part regarding it being a growing sector and its strong potential. This is a new sector and remains unexplored in some ways. If you increase the number of cryptocurrencies, the possibilities to trade with new cryptocurrencies will also increase and in effect, the chance to “peck” the right cryptocurrency at the right time will be higher as well. Given the fresh industry and high volatility, profit potential is high. However, it is necessary to exert extreme care on controlling one’s own operations with high frequency, setting stop loss and remembering the physiological profit takes because the market price of a cryptocurrency suffers due to the strong reductions caused by so many interested traders who are being “thrown” into this market not really because this can be used as an instrument of payment, but rather because of the possibility to make fast profit. Remember that the price of a financial instrument increases as long as it is purchased. If you can sell in time and buy back at the right moment, you will get a profit and then a buyback at a good price.

We now end this with technicality. Cryptocurrencies are very complex instruments whose functioning is not easily understandable and can only be framed by two types of people: those who are very technical and those who seriously wish to delve into this further. In any case, this is not technocracy, because their functioning, although complex, is already put out on the market. Well, their complexity can become a weapon in favor of those who trade on cryptocurrencies. In fact, understanding how they work and the problems/improvements they may encounter during their “life” is certainly an extra factor to add to your wealth of knowledge to arrive at more accurate forecasts. If these forecasts are also in contrast to the general sentiment (also formed by many non-employees who simply try to “get rich with cryptocurrencies”) then they can offer even more effective results, for example by predicting reversals of the trend.

Cryptocurrencies and the Current Financial and Economic Revolution

Cryptocurrencies represent the passage of time. We have moved from the digital age in a few years to an era in which even currencies become totally virtual.

Cryptocurrencies, in fact, have two main characteristics that make them very different from traditional ones. First is that they do not exist materially. Second is that they do not depend on any central body. There is, therefore, no central bank that can decide when to “print” new money. This changes a lot the dynamics regarding the variations of the value of a cryptocurrency and therefore the respective exchange rate in dollars.

Cryptocurrencies have become very important both because they represent a new payment instrument and because they have become protagonists in the field of financial investment and trading with cryptocurrencies. Above all because, as it has turned out to become more evident, these have introduced remarkable variations of value in a short time, which gave rise to investments that yielded many profits to whom who believed them at the first hour, as well as those who climbed on the “racing train”. However, the duration of cryptocurrencies has not ended or stabilized at all precisely because of volatility. It’s a venture to be discovered and, as you already know, the more you understand, the more you gain knowledge from it.

Blockchains

From a technical point of view, cryptocurrencies are based on blockchain platforms. It is a technology that allows you to create and manage a large database for the management of shared transactions (blocks) or network nodes connected to each other (chains). With this blockchain, each transaction must be validated by the same network. Therefore, the blockchain is, in fact, a chain of blocks that contain and manage a large number of transactions.

The nodes must control and approve the transactions (thus also making them traceable, while respecting privacy). Blocks, on the other hand, are transaction archive that is both unchangeable and immutable. In addition to privacy, the maximum security of transactions is also guaranteed by means of very complex cryptographic tools.