How Cryptocurrencies are reshaping the financial world
Cryptocurrencies have materialized since Bitcoin, the very first cryptocurrency, was introduced in 2009. However, only in the last 3-4 years have they evolved from a small, niche following of mostly tech enthusiasts into a new asset class that promises to play a long-term and significant role in mainstream financial markets.
In financial circles, Cryptocurrencies are often regarded as disruptors, implying that they have the potential to fundamentally alter how the financial market operates.
When these “old ways”-altering technologies succeed in fundamentally changing markets and also evolved into financial asset form, they are typically the assets with the greatest value gains over time. Amazon’s stock was worth around $83 ten years ago; today, the same stock is worth around $1900. That’s a nearly 2200% increase – a huge profit for early buyers and something that almost always happens with conceptually new technologies.
So the ultimate question is how to get the most out of the changing traditional patterns and master that new, “disruptive” power. There are several ways how you can benefit from digital assets, including the extra security of your funds, private transactions, or their incredible speed. Yet, today let’s focus on the main, probably the most lucrative opportunity Crypto brings: how to increase your chances to make money trading Crypto and avoid the challenges brought by something new and unpredictable?
How to trade Cryptocurrencies?
There are three primary ways to trade Cryptocurrencies including Bitcoin:
Buy Bitcoin itself
The most common way to purchase bitcoin is through an online exchange or a broker with Crypto assets on their trading list. Your coins are then stored and secured in the broker’s digital wallet (or you can withdraw them to the wallet of your choice).
Buy a CFD on Crypto
CFDs (Contracts for Difference) are another popular way to trade digital assets, without purchasing an actual Crypto. Instead, you are betting on whether its price will rise or fall. The main advantage of CFDs is that you can go short on your asset if you believe the price will fall. Long-term holding can be costly due to the cost of carrying CFDs overnight (i.e., rollover premiums).
Buy an ETP on Crypto
An ETP (Exchange Traded Product) is a type of security that can range from a structured product or fund to any other derivative contract. Crypto ETPs include Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs), and other securities that track the price of the asset, such as the Grayscale Trust (GBTC) for Crypto.
Benefits of trading Crypto CFDs
Over the last few years, there has been a surge in interest in cryptocurrencies, so many CFD or Forex trading platforms and brokers now offer Cryptocurrency trading pairs. These pairs can consist of a Cryptocurrency, such as Bitcoin, and a fiat currency, such as the US dollar. The trader gains returns by forecasting whether the Cryptocurrency side of the pair will gain or lose value against the fiat currency.
The other type of Cryptocurrency pair consists of two different coins, for example, again, as Bitcoin and Ethereum. In this case, the trader makes a profit by correctly predicting whether the leading Cryptocurrency in the pair will increase or decrease in value against its companion.
Trading Crypto CFDs works in the same way as trading Forex CFD pairs or other more traditional asset classes like commodities, or stocks, in that a trader speculates on the price movements of their chosen instrument.
Let’s look at the 4 key benefits of trading Crypto with CFDs:
It carries risks, but this is essentially how traders of any asset make a profit: by guessing when the price of their holdings is about to change in a favorable direction and acting on it.
A 1% price change in a single day is extremely rare for most traditional assets. These movements typically occur only when something significant happens in the market that alters the market mood.
Individual cryptocurrencies’ prices, on the other hand, typically fluctuate by a few percentage points per day, and when something significant happens, the price can move by 10% or more. This Crypto feature has the potential to provide traders with many more consistent opportunities to make significant profits from short-term trades. Of course, this makes trading cryptocurrencies riskier than trading less volatile assets, so traders must exercise caution as significant losses can occur.
CFDs platforms extra security
You don’t actually own the Cryptocurrencies when you trade Crypto CFDs; rather, you speculate on their price movement. This means you can trade on the market without fear of forgetting your account password or a hacker gaining access to your Cryptocurrency wallet and stealing your funds. Furthermore, the majority of trading platforms are SSL secured, ensuring a safe environment for transactions.
Trading Crypto with leverage
To be fair, the leverage provided for Crypto trading is usually lower than for more “stable” traditional assets to protect clients and brokers from huge losses. However, on the positive side, smaller leverage gives more flexibility to your deals: the lower the leverage, the wider the price change range for your asset, where you still make a profit.
Open short positions for your Crypto
While trading Crypto CFDs, instead of counting on a coin’s value to rise, it is also possible to speculate on its decline. For instance, if the buy rate of a Cryptocurrency drops below its initial sell rate, a sell position on a CFD for that Cryptocurrency will profit.
Trading Crypto with Forex and CFDs brokers
It should be noted that most Forex and CFD brokers and platforms trade Crypto CFDs. To put it another way, the trader enters into a derivative contract with the broker on a Crypto coin. These derivatives are based on the price movements of their underlying assets, but they do not involve the exchange or ownership of the digital currency itself.
There are no actual Cryptocurrencies being exchanged, nor are wallets or addresses to be concerned about. This also reduces the hacking risks that threaten even the best and most trustworthy Cryptocurrency exchanges. CFD traders can concentrate on how to profit from market movements.
There are several key distinctions between trading cryptocurrency on a forex/CFD platform and on an exchange:
- Trading transactions don’t involve actual Cryptos;
- It is not necessary to have a Cryptocurrency wallet;
- You trade Cryptocurrencies in accordance with the terms and conditions agreed upon with your broker;
- There is an opportunity to trade Crypto with leverage;
- You can trade Crypto-fiat pairings such as BTC/USD or LTC/USD, as opposed to the majority of Crypto exchanges, which only allow you to trade Crypto-to-Crypto pairs.
- Fiat currencies are the only ones that can be deposited and withdrawn as your trading funds.
What determines Crypto price
As Cryptocurrencies are not issued by any central bank or backed by a government, the monetary policy tools, inflation rates, and economic growth indicators that typically influence the value of fiat currencies do not apply to them.
Some argue that some Cryptocurrencies are more akin to commodities. One example is Ethereum, which is not intended to be used as a substitute for money, but rather as a means to pay for the use of its Blockchain platform to build smart contracts.
Commodity prices are influenced by global demand: for example, oil is used in fuels, plastics, and other materials, so its price is influenced by global demand for oil-based products. The price of Cryptocurrencies like Ethereum is affected by the use of the Blockchain platform with which they are associated, while Bitcoin is more of a commodity used to store value.
According to this framework, the following factors can influence the price of Cryptocurrencies:
- Crypto coin supply and its market demand;
- The cost of creating coins via the mining process;
- The number of Cryptocurrencies in competition;
- Regulations governing its distribution and use (different county by country)
- News and media.
How to predict the price of Cryptocurrency
No matter if you trade CFDs or actual coins, analysis of Crypto price trends is critical as it alerts traders to the best time to enter the market, also assisting in determining whether to buy, sell, or hold Cryptos to maximize profits. There are four ways to forecast Cryptocurrency price trends:
- The study of statistical trends based on indicators such as historical price movements, patterns, and price charts is known as Technical analysis.
- Assessment of all market aspects, including domestic and global factors, as well as political and economic conditions known as Fundamental analysis.
- Examination of the market’s past performance is known as Quantitative analysis, combining Fundamental and Technical kinds.
- The Sentimental analysis, as the name implies, uses the trader’s emotions and sentiments to forecast Crypto price trends. Rather than relying solely on market data, here you pay attention to emotional behavior trends such as panic selling or a buying spree based on public expectations and perceptions.
Fundamental analysis is considered to be especially useful for predicting whether a Cryptocurrency will rise or fall in value as it draws conclusions from future projections rather than past events represented by price charts.
Fundamental analysis has the potential to aid long-term investment decisions by assisting traders in determining the value of a Cryptocurrency based on a wide range of available data.
Crypto Fundamental analysis follows the same principles as other financial markets that contain more traditional assets.
Financial statements, balance sheets, and historical financial performance are given less weight, instead, people are interested in learning how to predict Crypto market trends by the following parameters:
- The market capitalization of the coin;
- Token circulating and total supply;
- Token utility and application scenarios;
- The current size of the users’ community;
- The Crypto project’s management team
- The trading volume of the token;
- Listings on major Cryptocurrency exchanges;
- Collaborations with reputable institutions;
- The most recent coin-related news;
- Government oversight;
By examining the entire scope of the aforementioned data, you can develop a more comprehensive outlook on your specific case and potential changes in Cryptocurrency prices. You can also use a company’s white paper to get a more comprehensive picture.
Top Forex and CFDs brokers for Crypto trading
Since Bitcoin’s Internet debut a decade ago, Cryptocurrency trading has grown in popularity. Cryptocurrencies are digital coins created through the use of blockchain, or peer-to-peer technology that employs cryptography for security. They differ from fiat currencies issued by governments around the world in that they are not tangible, instead consisting of bits and bytes of data. Furthermore, Cryptocurrencies lack a central body or authority that issues them or regulates their circulation in the economy, such as a central bank. Cryptocurrencies are not considered legal tender because they are not issued by any government entity.
Trading cryptocurrencies entails taking a stake in the direction of each coin’s price, either against the dollar (in Crypto/dollar pairs) or another Cryptocurrency, via Crypto to Crypto pairs. A particularly well-liked method of trading Cryptocurrencies is through CFDs, which offer greater flexibility, the use of leverage, and the option to open both short and long deals.
The brokers that our experts have listed below offer a large selection of tradable instruments, including Crypto trading, Social trading with low minimum deposit requirements, tight spreads, and low commissions. When working with these brokers, traders can employ a broad variety of trading tactics and diversify their portfolios even if they are into solely Cryptocurrency trading by selecting several coin types. These brokers offer a variety of retail investor account types, well-liked trading interfaces, and demo accounts to practice your trading moves in the real market environment.
eToro Crypto trading
eToro is one of the most well-known and credible brokers in the world, especially loved in Europe, and has recently become available in the United States. It is highly regarded for its truly trader-oriented features and is regulated by ASIC, CySEC, and the FCA.
eToro provides a comprehensive Crypto-dealing experience to users ranging from beginners to experts through a powerful yet user-friendly platform. The broker offers opportunities to trade, farm, or stake specific Crypto coins.
In general, eToro allows you to trade over 40 Cryptocurrencies, including a wide range of leading and exotic crypto crosses, as well as monitor each coin’s trends with extensive charting and analytical tools, creating a personalized Watch-list, and stay up to date with real-time updates.
Overall, it is a major player in the world of online trading, with over 2000 instruments, numerous tools, and perks to make trading as comfortable and potentially efficient as possible. As a result, whether you are a beginner, an experienced trader, or simply want to try CopyTrader (the original Social trading feature), eToro has something for you.
AvaTrade Crypto CFDs trading
AvaTrade is one of the world’s most popular Forex brokers, with very competitive trading conditions. It allows you to trade and Copy trade not only the most popular cryptocurrencies like Bitcoin, Ethereum, Ripple, or Litecoin but also more exotic ones. Even when trading these relatively new assets, traders can be confident in their safety because the broker is regulated by six of the world’s most respected regulatory bodies, including ASIC and CySEC.
AvaTrade also provides AvaCopy, which allows you to earn passive income by automatically replicating the actions of more experienced traders. The combination of AvaTrade’s global reputation and technologically advanced systems gives traders confidence that their trades and capital are in the hands of some of the world’s best brokers.
NAGA Markets Crypto CFDs trading
NAGA Markets is a reliable broker originally from Germany that offers a wide range of trading instruments in a competitive but friendly environment. By registering, you gain access to over 950 markets, including Crypto CFDs, ETFs, Forex, and commodities, as well as a variety of professional tools and educational materials for traders of all levels.
You can trade and invest alongside over a million other users, learn from them and automatically copy the best traders, or become a trading pro yourself. As one, you’ll have the opportunity to earn extra money and a significantly reduced commission. As a new trader, you can also benefit greatly from auto-copying the most successful traders in real-time and making money while learning: Crypto deals, like any other financial instrument offered by NAGA, can be copied.
Crypto CFDs trading - FAQ