Cryptocurrency trading has soared in popularity as an alternative to trading other currencies in recent years and is not likely to disappear any time soon. Read on to find out more about them.
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What Is A Cryptocurrency?
A cryptocurrency is a new type of currency unlike any other we have used before. Why? Because it is digital currency. With regular currencies, we can define them as an exchange medium between buyers and sellers when purchasing goods or services. Cryptocurrencies serve the same purpose. We just can’t hold them in our hands the same way that we can hold notes or coins. They exist electronically and are powered by cryptography.
The Start of Cryptocurrencies
It all began back in the 90’s after several failed attempts to create Trusted Third Party based systems of digital money. Then in 2009, Satoshi Nakamoto – an anonymous programmer – brought Bitcoin in to our lives. Bitcoin was the first every cryptocurrency. It is a peer-to-peer electronic cash system, a concept reminiscent of peer-to-peer networks used in sharing files online. It is a decentralised alternative to other currencies, with no central authority of control.
Why Are Decentralised Currencies Important?
A decentralised system is advantageous because it operates all year round, regardless of national holidays. It also does not depend on a single bank or government entity to control it. This means there is less chance of the system breaking or becoming corrupt.
How Do You Trade Cryptocurrencies?
Many brokers offer cryptocurrency trading. To trade cryptocurrencies, all you need to open a trading account. However, it’s worth keeping in mind that cryptocurrency trading is very different to forex trading. Here’s why.
Firstly, the value of cryptocurrencies can change quickly. This means you can potentially make money very quickly, but it also means you can lose potentially lose your money very quickly as well. If you normally trade during times of times of high market volatility, then you might do well with such a volatile trading instrument. If not, then cryptocurrency trading might not be for you.
Secondly, the value of cryptocurrency does not depend on geopolitical issues or economic performance. Instead, it is driven by things such as the media, limited supply, the growing lack of confidence in centralized currency systems, and the perception of the general public about its value.
Finally, the leverage available is typically lower for cryptocurrency trading than it is for forex trading. This is because of the current high volatility associated with cryptos which makes margin trading risky. If the market volatility decreases in future then the availability of leverage options should increase.
To learn more about trading take a look at our education section here.