How does Cryptocurrency Trading Work? - Coin Amazon

Cryptocurrency has slowly but indeed started to take over the financial world. The crypto market has risen to immense popularity recently and is attracting large-scale investments. However, many potential investors still need clarification as to how does cryptocurrency trading work.

Over the past decade, since the launch of Bitcoin, many newest cryptocurrencies keep on flooding the market. The steep development of cryptocurrency has seen roaring consumer interest, thus adding fuel to the debate that cryptocurrency will make the world a better place.

Cryptocurrency trading happens when you buy or sell crypto coins with the hope of making a profit. It works very much like traditional forex currency trading. However, it only partially follows the conventional way of forex trading.

Before investing in such a volatile market, there are a few vital points to consider. Since it is a lot, here is a guide for a safer and more appealing trade in cryptocurrency.

What is Crypto Trading?

Cryptocurrency trading is the act of speculating price fluctuation and the value of digital currencies. So, investors buy now with the hope that prices of certain coins will go up in the future, where they will make profits by selling at a higher rate.

Trading Cryptocurrency: An Easy Guide

Cryptocurrency trading is a complex task; it is a daunting task since the market itself is highly unpredictable. It has a high risk that most people would prefer to take up their sleeves. In addition, it requires relevant skills, knowledge, understanding, and an eagle to correctly predict market trends.

However, despite all the setbacks, the crypto market always returns to the limelight. Therefore, it is here to stay. Although many authors resemble crypto trading with traditional forex trading, there certainly are critical differences between the both. Consequently, learning the basics of cryptocurrency trading before investing in it is crucial.

There are two significant ways to invest in cryptocurrencies: through a cryptocurrency exchange or CFD.

Let us explore how does cryptocurrency trading work.

• Cryptocurrency Exchange

One way of trading cryptocurrency is through an exchange that offers a digital wallet for storing your cryptocurrency. The value of cryptocurrency stored with an exchange depends on the prevailing market rate. 

You make profits, by selling your stored cryptos at a price higher than the purchase price. For instance, you buy Bitcoin for $5/coin and sell them for $9/coin; thus, you make a $4/coin profit. 

Cryptocurrency trade through an exchange is very much like traditional forex trading. 

A crypto exchange is a platform that facilitates buying and selling of cryptocurrencies. There are quite a several exchanges in the market, for example, Coinbase, Kraken, etc.

Here are the advantages and disadvantages of trading cryptocurrency through an exchange and we will get to know about how does cryptocurrency trading work.

Pros

Cons

• Contracts for Difference (CFDs)

The second way of trading cryptocurrency is through CFDs. It is an advanced form of trade that experienced investors mainly adopt. Unlike exchange trading, in CFDs, you do not own underlying cryptocurrency. 

Instead, a contract is established between the buyer and the seller to exchange the difference in value between the opening and closing of the contract.

Investors use leverage; a small capital can give you access to higher trade value. For instance, $1,000 in your account will leverage you with a trade value of $100,000. Thus, leverage can generate high returns, simultaneously increasing the risks. 

Here are a few pros and cons of trading cryptocurrency through CFDs.

           Pros:

Cons:

Changes in Cryptocurrency Prices

Since we have outlined that cryptocurrency trade majorly depends on price fluctuations, it is imperative to learn what drives crypto prices.

One basic phenomenon that causes a change in crypto price is the difference between the demand and supply mechanisms. So, just like regular economics, if the supply of a particular cryptocurrency soars up, its price slides down, and vice versa.

However, a few other fundamental and technical reasons cause cryptocurrency prices to fluctuate, and a few are listed below. 

Cryptocurrency Trade and Profitability

Can we say with surety that the cryptocurrency trade is profitable or not? As we see, new investors are seeking crypto’s market attention. 

An analysis of historical price charts suggests that the high volatility environment of crypto market trade has been very profitable. However, this is equally applicable to losses as well. The Crypto market has crashed multiple times in a year.

In addition, other factors include the amount of available liquidity, spreads, and entry points. So, we always recommend running extensive pre-investment homework and seeking professional advice before investing in such a highly volatile market.

Frequently Asked Questions

How beginners can trade in cryptocurrency?

Beginners can start by going through the following:

How do I make money in cryptocurrency trade?

You can make money with cryptocurrency by engaging in a cryptocurrency exchange or getting leverage through a CFD arrangement.

Can I trade fiat money for cryptocurrency?

You can exchange your fiat money with cryptocurrency through an exchange.

How much profit do I get from the crypto trade?

Crypto trade does not promise a fixed return; it depends on investors’ preferences. However, most investors target a 50% return on the crypto trade.

Parting Thoughts

So, how does cryptocurrency trading work depends in two ways – either by using a cryptocurrency exchange or by adopting CFDs.

Many investors choose a combination of both methods to maximize their investments’ returns. However, studying the market trend and correctly predicting prices is vital to making returns from cryptos.

In addition, you can generate passive income streams by staking your cryptocurrency, but there are better methods than this, especially if you are looking for long-term returns.

However, seeking professional advice is always recommended, as the crypto market is highly volatile and bears a high risk of both profits and losses. So, backing up investment decisions with an educated and well-thought-out strategy can lead to potential returns.

We are leaving you with the best of luck with your investment, and do share your preferred way of trading cryptocurrency.