Crypto trading – What beginners need to know
Crypto trading, just like any other trading, involves buying and selling cryptocurrencies through a crypto exchange. The other option is via Contract for Difference (CFD) trading. CFD traders just speculate on the future price movements without actually owning the currency.
What is CFD trading?
As mentioned above, traders use CFD trading to speculate on the future of the crypto asset. However, it is not the currency they are betting on directly. CFDs are derivatives that closely follow the crypto asset they are representing. So, traders get to earn without actually participating in the actual crypto trade. The method generally pursued is margin trading, with the trader just having to commit a part of the trade, which is called the margin. Against this margin, the trader can raise funds to call leverage. The leverage rate offered depends on the rules of the platform used.
Trading via a crypto exchange
Trading via crypto exchange involves the actual buying and selling of the coins. It is the most common way of how people conduct their trades. In this method, there is no leverage or fund to back you up. The only cash you use is what is in your pocket. Even though the gains are humbler than the CFD trades, the losses are also a lot more bearable. The risk can be minimized to a certain extent through crypto signals, but proper research is always recommended.
How cryptocurrency market works
The basic fact about crypto markets is that there is no regulating agency and everything works on the back of but one technology, which is blockchain.
Blockchain is a shared digital ledger of blocks of data, forming a chain, hence the name. Whenever a user sends a crypto coin to someone else, a decentralized network of computers verifies the transaction through a process called mining. After verification, a block with the transaction record generates which joins to the front of the chain. This record is immutable and cannot be changed, which provides security of ownership to the people dealing in cryptocurrencies.
Proof of Work V/S Proof of Stake V/S Proof of Authority
Transactions on the blockchain need to be verified by the miners. In the proof-of-work approach, all the miners compete to finish a computational task or puzzle successfully. The winner gets to verify and add the block to the blockchain. Only the winner gets rewarded in Proof of work methodology.
Proof of stake works on the presumption that the person already having a stake in the system would be much more inclined in its proper functioning. Thus, anyone holding a stake gets a chance to validate a transaction in proportion to the number of blocks they have. In this case, all the miners having a stake get rewarded in proportion to the other, which is proportional to their stakes in the network.
Proof of Authority is a consensus-based method in which a few individuals have the authority to decide whether a transaction be validated or not. This group of individuals gets to decide what goes and what does not on the ledger. It creates a kind of administrators who have a monopoly over the mining process and the network as well.
What affects the price of a cryptocurrency
The price of a cryptocurrency is an interplay of a lot of factors. However, the following are the key drivers of the value of a crypto asset-
- Journalistic Coverage
- Market Capitalization
- Current events
- Integration with the current infrastructure
Crypto trading is a fairly complex field with a lot of things to know before getting started. If you want to jump directly, you can make use of cryptocurrency trading signals provider and either let them handle or you mimic their trades. The above-mentioned are the most fundamental topics that every crypto enthusiast should be aware of.