Like all other currencies in trading, digital ones are also expressed as "opposition" to another currency, but here they are represented in the pair with the US Dollar. So, here are the codes for you to know what symbols to look for in the trading terminal:
● Bitcoin vs. US Dollar - BTC/USD
● Ethereum vs. US Dollar - ETH/USD
● Litecoin vs. US Dollar - LTC/USD
● Bitcoin Cash vs. US Dollar - BCH/USD
● Ripple vs. US Dollar - XRP/USD
Why Trade Cryptocurrency with CFDs?
There are two popular ways to start trading cryptocurrencies. One way is to buy cryptocurrencies on exchanges, for example, you can purchase bitcoins on Bitstamp. Here you own the cryptocurrency yourself and apparently should be waiting for a significant price hike to sell it and get some profit.
On the other hand, you can trade the CFD for a particular cryptocurrency. A CFD is a derivative product in which a broker agrees to pay the crypto CFD trader the difference in the value of the underlying asset between the two dates; the contract opening and closing dates. You can hold a long position (assuming that the price will rise) or a short position (assuming that the price will fall). For example, when trading crypto CFDs on bitcoins, you speculate on the BTC / USD pair.
There are noticeable differences between buying the cryptocurrency and trading CFDs. When you buy a coin, you keep it in your wallet, but when you trade CFDs, the position is held in your trading account, which is regulated by the financial authority. You have more flexibility when trading CFDs because you are not tied to an asset. You just buy or sell a derivative contract. Besides, CFDs are a more established and regulated financial product.
Advantages of using CFDs to trade cryptocurrencies:
Liquidity. Liquidity measures how easily an asset can be turned into cash without affecting the market price. If an asset is more liquid, it leads to better valuation and shorter transaction times. The crypto market is considered illiquid, partly due to the distribution of orders on exchanges where price disparity is observed. It means that a relatively small number of transactions can have a large impact on market prices; just one factor increases the volatility of the cryptocurrency. However, when you trade CFDs on cryptocurrency, you may get the same opportunities easier because you are not trying to buy the underlying asset, just a derivative product.
Leverage. CFDs can be traded on margin. It means that the crypto CFD trader only needs to deposit part of the value and, in fact, borrow the remaining capital from his broker. It provides greater availability, greater exposure, and multiplies the result. Moreover, it can be particularly useful for cryptocurrencies, given the huge volatility this asset class shows, but it also increases the risks.
The ability to go long or short. By purchasing the cryptocurrency itself, you can only profit when the market is growing.
Tax-efficient trading. Trading crypto CFDs has advantages over owning the token itself. CFDs on cryptocurrency are useful for hedging your portfolio because if your expectations are wrong, you can offset any losses incurred from CFDs by capital gains as your portfolio increases.
How to trade Bitcoin CFDs
Assuming you are ready to take the risk, Contracts for Difference (CFDs) on cryptocurrency is a great way to participate in digital currency markets. Finding the best crypto CFD broker with nice trading conditions is one of the most lucrative ways to take advantage of the cryptocurrencies.
To trade cryptocurrency CFDs, first, you would choose your currency pairing, as in this regard bitcoins are treated just like any other currency. The major currencies are available, such as BTC/EUR, or BTC/USD.
Let's say you expect that bitcoins would drop in value compared to the US dollar. Imagine that one CFD broker is quoting spot foreign exchange for BTC/USD at a selling price of $9050.00 and a buying price of $9085.00. In other words, a bitcoin is worth a little more than $9000. You could open a short position selling 10 CFDs at 9050.00. The price drops, and once the quoted buying price has declined from 9085.00 to below 9050.00, you have covered the spread and start making a profit.
In case you closed the trade when the quote for BTC/USD dropped to 9000.00/9035.00. You would have made 9050.00 minus 9035.00 on each contract, for a total profit of $150.00 on the 10 contracts. Most brokers do not charge any fees on your trades since the commission comes from the spread deducted at the moment you open a position.
Speaking about the volatility of cryptocurrencies, mainly bitcoin, the price has fluctuated between $262 and nearly $19,500 between January 2015 and December 2017. Going back to the very beginning, during 2013 the price was constantly changing, showing numbers from $31 till the record-high $1242, showing the incredible volatility that has frightened those who were skeptical about the cryptocurrency.
Most people involved in bitcoin trading believe that CFDs on cryptocurrency are much more convenient than working directly with the coin. If you want to buy bitcoins directly, you must consider security issues such as protecting your wallet, backing up, etc., and you will still not be able to make money directly on currency devaluation. As we have mentioned before, trading cryptocurrency CFDs present a tax-efficient way of making money from the fluctuations of the price of an asset with no need to purchasing anything.
Learn to Become a Bitcoin Cash CFD Trader
Bitcoin Cash is a relatively new cryptocurrency. Very soon after its "birth", it practically caught up with its elder brother, taking one of the first places in the cryptocurrency rating (by the size of capitalization). A coin appeared as a result of Bitcoin hard-fork, which was a result of problems with scalability.
Among the reasons for the Bitcoin Cash to appear are:
1) Bitcoin transactions were too slow, and some parts of the crypto community didn't like it, because, to write every new transaction into a block, it has to be validated by the whole network - all this takes a lot of time;
2) All transactions were performed with certain priorities (the priority was influenced by the commission size, which each client can set himself). According to this commission, a queue was formed to confirm the transactions. Thus, the confirmation of some transfers sometimes had to wait for several days. Sometimes such transfers could " freeze" at all.
Creating a new Bitcoin Cash has partially solved this problem by "offloading" the network and increasing its bandwidth. Besides, the new altcoin also increased the size of the block itself - from the "traditional" Bitcoin 1 MB to 8 MB.
As for the strategy you can use, keep in mind that usual and standard trend indicators are not very well suited. The whole reason is that they give rather late trading signals, sometimes even so much that it would be more profitable to work with such signals on the contrary. It happens because of the strong volatility of Bitcoin Cash because it can soar or drop the crypt currency several times a day.
Here are some tips to consider while trading Bitcoin Cash CFDs:
1) Psychological round levels. It is best to use such levels, which are a multiple of 100 dollars (as a rule, the price is most often bounced from round numbers). Also, rebounds from intermediate levels - for example, a multiple of $50 are also beneficial.
Breakout trading. It is good for the current, not always stable market situation and high volatility of the cryptocurrency itself. You can trade this cryptocurrency for a breakout using almost any channel indicator. For example, Bollinger Bands - this indicator additionally adjusts to the amplitude of fluctuations that are currently observed. To work with such a breakout strategy, it is better to enter the breakout side after the candlestick closes outside the channel boundary. As a rule, such an order can be set without Take Profit, using Trailing Stop Loss. Besides, you can use the level of moving average (Bollinger channel) and Fibonacci extension levels.
BCH has a high degree of correlation with BTC, but this dependence is not long-term, but situational. That is, It can go along with the Bitcoin for a very long time, but as soon as any serious news appears, the correlation coefficient can change sharply to negative.
Litecoin is among the top five most popular digital currencies in the world. It was created 8 years ago based on Bitcoin with the same software code but in much larger quantities. Its capitalization is much smaller than that of Bitcoin, but the asset is no less promising in terms of earnings from price fluctuations.
This is typical for many cryptocurrencies, and Litecoin is no exception, the global trend is upward as volatility generates ever stronger correction levels.
Technical analysis works perfectly, and even an ordinary moving average can serve as an indispensable indicator for analyzing quotes behavior.
Scalping is not an option due to its high spread. We consider trades at H1 and higher. We also keep in mind that the concept of trading sessions for Litecoin is not applicable and activity can occur at any time of the day.
The future fate of the long-term dynamics of the asset remains a subject of heated debate.
Also, many investors are inclined to use Litecoin as a hedging asset, due to its political neutrality. However, one should not forget that cryptocurrencies are extremely volatile.
As a result, the strategies are mostly trendy with not too high targets. Time frames from H1 and above, and scalping is not allowed. In the case of long-term investment, we should wait for a correction, after which we should buy at the lowest point if the news heralds another wave of growth for the crypto market as a whole. For intraday trading the simplest strategies - trend and breakout - are suitable. However, try not to miss the latest news and stay informed about the global trend.
The concept of Ethereum is trying to develop the idea of bitcoin into something bigger. Ethereum is a platform for developing decentralized applications.
Strategies that are already obsolete on popular currencies will be suitable for the Ethereum. Thus, for example, a significant difference in quotes of different exchanges shows that the currency is suitable for trading in classical arbitrage. The essence of arbitrage is very simple - buy where it is cheap, sell where it is expensive. Naturally, in real life, the pitfall may be the transfer of funds between exchanges and the commissions imposed at the same time.
On the other hand, no one forbids the use of statistical arbitration. In any case, cryptocurrencies are still young enough as trading instruments, and therefore have a lot of inefficiencies. By analyzing the correlations of different assets, you can identify those very hidden dependencies and try to trade them. But due to high costs (spread + commission), the main attention should be paid to long-term dependencies.
Ethereum vs Bitcoin
Asking the question of which one is better - Bitcoin or Ethereum - is rather pointless. Each of these currencies has its own specifics. Bitcoin focuses on payments and P2P lending, while Ethereum offers developers and businesses its own blockchain technology that can be used to create new programs. While Bitcoin can be compared to an application on a smartphone, the Ethereum network is similar to the App Store, where developers can create their own applications for networking.
Bitcoin certainly dominates the cryptocurrency market today and is a better-known coin, but many believe that Ethereum, which appeared six years later and is more technically advanced, may become a competitor to Bitcoin, which will eventually outperform it. However, since each platform is focused on different things, there is no doubt that there is room for both in the crypto industry.
Ripple and XRP
Work on the Ripple cryptocurrency began in 2004. At that time, no one had ever heard of Bitcoin. The system was released in 2005, but that version has nothing to do with the existing one.
The new era for the Ripple came in 2014. During this period, the popular Bitcoin is just beginning to gain its niche in the market. The company was headed by a new director, whose goal was to integrate the cryptocurrency with the banking system. By 2018, significant progress has been made in this direction.
Banks started cooperating with Ripple Labs. Virtual coins are present among the assets of the famous Google search engine. Not a single cryptocurrency has achieved such success, as the protocol of altcoins work is fundamentally different from the principle of Ripple. Since the beginning of the conquest of the banking market began to grow and the value of virtual coins.
The main driver, which acts as a price catalyst for any cryptocurrency, including Ripple, is the fundamental data, or rather a news, in any way affecting the financial instrument now or in the future. They can be divided into several groups conditionally:
- Claims and prohibitions at the government level.
Digital money is not regulated by government authorities and is not centrally managed. However, individual government decisions have a direct impact on the price of cryptocurrency trading assets. A potential or actual ban on the circulation of virtual money in a country could drastically drop the currency rate. The movement in such cases is usually long and intensive.
- Predictions, rumors, and discussions.
What the masses are talking about cannot go unnoticed in the currency market. This is especially true for cryptocurrencies, where the market is particularly sensitive to opinions and analytical forecasts from reputable sources.
- Decisions that relate directly to a particular cryptocurrency.
These may include dividing it into separate components or merging it with another one.
- Mass purchase or merger of the cryptocurrency by large investors.
Events such as large investments usually raise the price of Ripple, as they create an artificial deficit, and small investors tend to side with large players who believe they can own and act on insider information.
How Does Mining Fit into All of This?
Having figured out what the cryptocurrency is and having started working with this tool, crypto CFD traders are confronted with such notion as mining. What is it, then? Mining is the generation of new coins, carried out in the process of mathematical calculations. There is no single center for the generation of virtual coins, so to ensure the high speed of transaction execution, significant computing power is required. Because of this, individual mining is not popular, as the cost of purchasing equipment and paying electricity bills are not paid off. This is how a new trend emerged - cloud mining.
The work here is carried out according to the following scheme: the company buys the equipment for mining coins, adjusts it, and rents it to its customers. At the same time, all costs for electricity and maintenance of facilities are fully borne by the landlord. Cloud mining is divided into two types: without investment and paid. In the case of free mining, the company provides certain capacities without charging a fee. The principle of coin mining within cloud mining is the same as in conventional mining, only the amount of capacity changes.
So how does mining work? In the process of mining new blocks of information are released, which brings a certain amount of digital money, which falls into the general "piggy bank" and is registered in a public "book of account" (Blockchain). In parallel, operations with already existing coins are processed. They are checked on the computing devices of the P2P network and added to the chain of blocks. The participant who was the first to solve this problem receives a reward. This scheme was invented to encourage those who donate the computing power of their PCs to maintain the network and the appearance of new coins.
The above was mentioned an important for the cryptocurrency market concept - blockchain, and it should be discussed in more detail. A blockchain is a distributed database containing data on all transactions carried out by system members. Information is stored as a chain of blocks, and in each of these blocks, a certain number of transactions is recorded. Speaking about bitcoin, transactions are transfers of money between users' wallets. The register of transactions is not stored in one place, it is stored at the same time by all participants of the system.
What is needed for cryptocurrency mining?
An electronic wallet. It is available for download on the official websites of the developers of this or that cryptocurrency.
A software package. Today you can find various programs for mining, designed for Windows, Linux operations.
Registration in the online pool of miners. Participants of such communities unite their computing devices for the more efficient operation of the devices..
Mining equipment. You can take an ordinary computer, but it is better to use special computing machines that have more power.