What is cryptocurrency/crypto trading?
Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a CFD trading account, or buying and selling the underlying coins via an exchange.
How do cryptocurrency markets work?
Cryptocurrency markets are decentralised, which means they are not issued or backed by a central authority such as a government. Instead, they run across a network of computers. However, cryptocurrencies can be bought and sold via exchanges and stored in ‘wallets’ .
Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership, stored on a blockchain. When a user wants to send cryptocurrency units to another user, they send it to that user’s digital wallet. The transaction isn’t considered final until it has been verified and added to the blockchain through a process called mining. This is also how new cryptocurrency tokens are usually created.
What is spot trading in crypto?
When it comes to cryptocurrencies, spot trading is the most basic type of investment you can make. This essentially entails purchasing crypto such as Bitcoin and holding it until the value increases or using it to buy other altcoins that you believe may rise in value. In the Bitcoin spot market, investors own, buy, and sell actual Bitcoin. In simple terms, it is the underlying market where bitcoins are exchanged.
Spot trading can be carried out in stock, currency, and commodity trading.
The delivery price of the commodity that is priced at present in the spot exchange platform is the same as when you pay by cash and get the commodity delivered.
What Are The Benefits?
The benefits of trading on cryptocurrency include:
- Cryptocurrency volatility ( The volatility of cryptocurrencies is part of what makes this market so exciting. Rapid intraday price movements can provide a range of opportunities to traders to go long and short but also come with increased risk. So, if you decide to explore the cryptocurrency market, make sure that you have done your research and developed a risk management strategy.)
- Cryptocurrency market hours (The cryptocurrency market is usually available to trade 24 hours a day, seven days a week because there is no centralised governance of the market.)
- Improved liquidity (Liquidity is the measure of how quickly and easily a cryptocurrency can be converted into cash, without impacting the market price. Liquidity is important because it brings about better pricing, faster transaction times and increased accuracy for technical analysis. The cryptocurrency market is considered illiquid because the transactions are dispersed across multiple exchanges, which means that comparatively small trades can have huge impact on market prices. This is part of the reason cryptocurrency markets are so volatile. When you trade cryptocurrency you can get improved liquidity because prices can be sourced from multiple venues on your behalf. This means that your trades are more likely to be executed quickly and at a lower cost.
- Faster account opening (When you buy cryptocurrencies, you’ll need to buy and sell via an exchange, which requires you to create an exchange account and store the cryptocurrency in your own digital wallet. This process can be restrictive and time consuming. On crypto trading you could be set up and ready to trade much more quickly.)
- Regulated (It is an accurate system which is transparent and regulated. The fear of illegal transactions can be avoided.)
Difference between crypto spot trading and trading CFD cryptocurrencies?
CRYPTO SPOT TRADING
Directly trading cryptocurrency on an exchange also has benefits over trading crypto CFDs. Directly buying and selling cryptocurrency allows you to profit from its volatility and presents a lower risk due to no leverage and works for short or long term trades. There are also no overnight fees for holding positions long-term, you can use your crypto for purchases and more. This method may also be preferable for those who are not familiar with using leverage.
A CFD (contract for difference) is a type of financial derivative which acts as a contract between the trader and the brokerage. In the case of crypto CFDs, the trader does not own the digital currency in question. Instead, he tries to make a profit from price movements by predicting whether his chosen crypto will rise or fall in value. A correct prediction will earn him a profit. If his prediction is wrong, he has to pay the associated loss. The profit or loss is the amount of change in the value of the asset multiplied by the quantity, with a small percentage being paid to the broker as a fee for the service provided.
MAIN DIFFERENCE :
One of the main differences between crypto spot trading and trading crypto CFDs is the ability to use leverage with CFDs. The potential benefits of leverage are clear as traders are able to trade multiple times the amount of their chosen crypto compared with buying it outright. It should also be noted, however, that as leverage increases, any potential losses may also rise.
Cryptocurrencies including Bitcoin and Ethereum are volatile, and for some people dealing with this level of volatility for the purpose of day trading is too much to handle. With CFDs you can be more flexible in your trading, have an opportunity to quickly get in and out, use stop loss orders and develop hedging strategies, but also it can cost more because of fees or wrong analysis.
In essence, both crypto spot and crypto CFDs both have their benefits and drawbacks, but both nevertheless provide a potentially lucrative way to benefit from the success of cryptocurrencies. The final decision as to which is best will depend on the individual’s personal preference and financial situation.