What is Cryptocurrency Trading and How it Works

Cryptocurrencies like Bitcoin, Litecoin, Ethereum, etc. are digital or virtual currencies that use high-level cryptography for security of data. It works as a medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. This security feature makes cryptocurrencies very difficult to counterfeit. Another defining feature of these currencies is its organic nature. Cryptocurrencies use decentralized control based on blockchain technology which is nothing but a distributed ledger enforced by a disparate network of computers. Simply put, cryptocurrencies are not centralized by any government or central authority. This makes it transparent, immutable, and immune to government interference or control. While cryptocurrencies are not accepted as legal tender, their potential to affect the financial landscape is impossible to ignore. This is why cryptocurrencies are becoming increasingly popular in investment and trading markets.
Trading

Cryptocurrency Trading

Cryptocurrency trading or crypto trading is the exchange of cryptocurrencies. In simple words, crypto trading is when you buy or sell coins, exchange one cryptocurrency for another or for any fiat currency. There are two ways to trade in cryptocurrency. First option is to speculate on cryptocurrency price fluctuations via CFD trading account. CFDs are derivatives that allow you to speculate on price movements of cryptocurrency without taking ownership. To open a CFD trade, you only need to deposit a small amount called the margin to get full exposure to the underlying market. You can receive 100% of gains if the price moves the way you predict. However, it also means your losses are magnified as they are calculated based on the same leverage. This means a leverage of 1:10 will give you a 10 dollar profit or loss for every dollar you have.

The second option is to buy or sell currencies via a cryptocurrency exchange using fiat or digital currency to buy coins of your choice. Cryptocurrency exchanges are of two types: Centralized and Decentralized. Centralized exchanges are online platforms like thebitcoinscode.com and many others that are used to buy and sell cryptocurrencies. Here, centralization refers to the use of a third party to help conduct transactions and hold the money securely in one place. Cryptocurrencies are often stored in digital wallets where one can suffer huge losses if they forget the key. However, a trusted exchange can safeguard the money for you so that you can trade without worrying. Centralized exchanges can conduct trades for pairs like fiat-to-cryptocurrency and vice versa. It can also conduct trades between two cryptocurrencies.
Cryptocurrency Trading
On the other hand, a decentralized exchange eliminates the middle man or third party in their transactions. They often function as peer-to-peer exchanges and deal directly with the parties involved. In such exchanges, no escrow service or agencies hold the assets for either the buyer or the seller. The transactions are done based on smart contracts and atomic swaps only. Decentralized exchanges are less popular compared to centralized exchanges. However, there’s still scope for growth and popularity in the future.

If you’re looking for long-term investments and trades, buying and selling cryptocurrencies via an exchange is a good option. With this approach the risk of losing all your money is minimal unless your cryptocurrency hits the lowest value like US$0. Before selecting an exchange for your investments, you should know which cryptocurrency pairs are traded in the exchange. Other factors to consider are the trading volume and the security measures taken by the exchange for customer protection. While no exchange is completely immune to security threats and malicious activities, some of them are safer than others. It is better to do a thorough research before selecting an exchange and start with small amounts for your investments.

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