AN INTRODUCTION TO
CRYPTOCURRENCY

Cryptocurrencies are the world’s youngest asset class, with Bitcoin (BTC) created as recently as 2009.

They gained the world’s spotlight between 2015 and 2018, most recently when bitcoin shocked financial analysts in a leap from $1,000 to a little under $20,000 in just a few short months – creating a number of millionaires in the process.

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WHAT ARE CRYPTOCURRENCIES AND HOW DO THEY WORK?

The field of cryptocurrency is a new and exciting one, with potential still uncharted despite the vast majority of cryptocurrency projects and blockchain applications currently available in the market.

Some of the popular cryptocurrencies include Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC), among countless others.

It is near impossible to create an accurate description of ALL cryptocurrencies using a few sentences, as they are all so vastly different. For the ease of simplicity, the focus of this page will be Bitcoin, with brief reference to other cryptocurrencies.

As with any other cryptocurrency, bitcoin is not recognised as an official legal tender in the same way that fiat (government-issued) currencies are. With no intrinsic value of its own, its worth is only what others are prepared to pay for it in an open market. This largely influences its volatility, as a sudden event such as a public figure speaking against bitcoin can create negative market sentiment and a flood of sell-orders, which in turn drive its price and value down.

The initial purpose of Bitcoin was to serve as a global, incorruptible transfer of value that was significantly cheaper, safer and faster than any other means available at the time. It still remains one of the most popular choices for this purpose, and has even been used to purchase houses, cars and other items of substantial value.

  With that said, bitcoin was typically used only for the transaction itself, for the purpose of making headlines and significantly reducing transfer costs. In most cases, the bitcoins were immediately converted back into fiat currency once the transaction had taken place.

THE TECHNOLOGY BEHIND BITCOIN

Bitcoin’s blockchain is its “brain,” an open-source ledger that keeps public record of every transaction ever made in its ecosystem. Just as Facebook is built on top of the internet, Bitcoin is built on top of its blockchain – despite common misconception that they are the same thing.

The system is secured through high-level cryptography. Each transaction is confirmed numerous times by the network and contains a unique ID through which it can be traced. This makes it virtually impossible to support duplicate or fraudulent transactions in bitcoin, even though the currency is digital and accessible worldwide.

Not managed or directly regulated by any government or central authority, Bitcoin is termed a decentralised platform and is run by its peers. This works on the principle that a thousand individuals combined will always be more scrupulous than any one individual, regardless of individual stature or political position.

Another misconception is that bitcoin transactions are anonymous. While no personal information is provided, each account used to send and receive bitcoin can be traced back to its source and the owner identified, which is important in criminal cases. It is also noteworthy that unlike with debit and credit cards, any transaction made in any cryptocurrency cannot be reversed after it has been completed. Consequently, bitcoins sent to an incorrect address are irretrievable and very difficult to trace.

COMPETITIVE SPREADS

Product Symbol Exchange Product margin Minimum spread (pips) Average spread (pips) Typical spread (pips) Trading hours
Bitcoin BTCUSD N/A 50% 40 2.012003 1.5 00:01 Monday - 23:58 Friday
Bitcoin Cash BCHUSD N/A 50% 15 1.00845 1.001 00:01 Monday - 23:58 Friday
Dash DSHUSD N/A 50% 2 2.17158 2.183 00:01 Monday - 23:58 Friday
Ethereum ETHUSD N/A 50% 2 2.00205 2 00:01 Monday - 23:58 Friday
Litecoin LTCUSD N/A 50% 5 5.9602 5 00:01 Monday - 23:58 Friday
Ripple XRPUSD N/A 50% 1.5 1.5 1.5 00:01 Monday - 23:58 Friday

DO YOU HAVE ANY QUESTIONS ON Cryptocurrencies ?

WHAT IS CRYPTOCURRENCY TRADING?

Cryptocurrencies are not well known to everyone, largely because they are still so new. This includes seasoned investors who have traded Forex and Indices for the last 30 years and are not interested in adapting their trading strategies to make room for the new kid on the block.

Cryptocurrency trading shares the same fundamental goal as any other form of trading – generating a profit through fluctuating values over the short, medium or long term. Cryptocurrencies can be exchanged either for fiat (or vice versa), or for other cryptocurrencies. For instance, bitcoin can be sold in exchange for ether or for US dollars.  

Those looking to begin cryptocurrency trading need to be aware of one very important distinction: trading bitcoin is not necessarily buying bitcoin.

This means that you can only speculate on the price – you cannot use it as a payment method or send it to friends and family. This works in the same sense that in commodities trading, you are not physically purchasing corn. You are simply opening a trade relative to its value and making a profit or a loss depending on whether or not the market takes a favourable turn.

Finding a website to buy bitcoins online would thus deliver a completely different result. If your aim is to buy bitcoins for the purpose of using them, be clear in this intention beforehand. Keep in mind that purchasing actual bitcoins only delivers a return on investment should the value of bitcoin rise. Trading allows investors to speculate whether the price will go up or down, and collect a profit in the instance where the predictions are correct.

USING LEVERAGE OR MARGIN IN CRYPTOCURRENCY TRADING

Margin trading is the ability to open trades of higher values by giving the trader access to an additional amount of funds in proportion to the selected margin. For instance, a margin of 50:1 would support a trade worth $500 with only $10 invested. Leveraged trades have the potential for significantly higher profits, yet carry the risk of equally greater losses.

Already risky in the traditional Forex market, margin trading is far more so in the cryptocurrency market as the latter holds the highest volatility levels. Inexperienced traders are best served refraining from margin trading until they have an intuitive understanding of the market and its movements.

When you believe you are ready to begin bitcoin trading, keep the following golden rules in mind:

  • Don’t let emotion overpower you. Even the humblest of traders can get swept away in a moment of greed. Manage the risk by selecting the maximum amount that you are willing to lose in a bad transaction, and trade accordingly.
  • Keep a close watch on your trades. Margin trading greatly amplifies risks, and thus should not be used unless positions are actively watched. Aim to keep leveraged trades as short as possible.
  • Be aware of deep fluctuations. These can sometimes work against you by hitting your stop loss value and closing your position at a loss, even if the market recovers instantaneously. You can, however, use these extreme fluctuations to your advantage by setting a higher than usual target closing position in the chance that it will be et in a sudden fortuitous spike.

FINDING THE RIGHT TRADING PLATFORM FOR CRYPTOCURRENCY

Finding a BTC online trading platform is the easy part, as the hype surrounding the cryptocurrency sparked a boom of competition in the market. The challenge is finding one that is legitimate, legal in your country, and accepts your preferred methods of deposits and withdrawals.

Before making a decision, research the trading platforms that are available and read the reviews and user experiences for each one. Also be sure that the platform of your choice offers the cryptocurrency trading pairs that you require, and check their policy on deposits and withdrawals. It is always better to enter into a new initiative with an informed mind than to find out deal-breaking information first hand at an inopportune time.

ONE FINANCIAL MARKETS AS AN ONLINE BITCOIN TRADING PLATFORM

One Financial Markets includes BTC as part of its service offering. Maximum margin offered is 50%, allowing traders the benefit of leverage while limiting the amount of risk they are exposed to.

If you are new to cryptocurrency trading, we recommend that your starting point is experimenting risk-free with our demo trading account. This allows you to get a feel for the market and its movements, to place trades and to experience virtual wins and loses without losing actual capital. No deposits are necessary until you wish to start trading with real funds on a live account.  

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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