In simple words, there are two ways in which cryptocurrency trading works, the first is to use the CFD or contract for a different account, and the other one is the use of crypto exchange to buy, hold and sell the cryptocurrencies. But this is not all that simple, you need to learn about data of the cryptocurrencies, charts that show the different prices of a cryptocurrency that you can speculate and trade.
The first method is also known as the contract for a different method. It uses a cryptocurrency account or a fiat account. You make short-term speculation about the price of a cryptocurrency and earn the profit according to the difference. To put it simply, you will be placing your bet on or against the cryptocurrency’s price. If you think that the price will go up then you buy or go long.
But if your estimates show that the price will go down, you can sell or short the cryptocurrency. During this trade, you will make a profit using the difference between the initial value and the final value. For example, if you speculated about going up, and bought, and sold after some time. Your difference will be your profit. The same goes for the short, you sell when you think the price will go down, and buy again at a cheaper price. This difference between prices will help you make a profitable trade.
The second method of cryptocurrency trading is known as simply buying and selling from an exchange. You would buy a cryptocurrency from an exchange, you can trade it and hold it in your wallet. After that, you wait for the price to go up and once it does, you would be able to sell and make a profitable trade.
What is a Cryptocurrency?
The cryptocurrency is defined as a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.” Source Google.
In simple words, a cryptocurrency is a digital currency, which is maintained and owned by everyone that is connected to that network. Its records are maintained using a ledger and that ledger is known as the blockchain. The technology that is used for this purpose is known as cryptography. These digital currencies are not regulated by the governments’ companies or any single entity, instead, these are controlled by everyone on the network collectively. But Is crypto trading profitable?
What is Blockchain?
Blockchain is the backbone of cryptocurrencies. In simple words, it is defined as a digital ledger on a decentralized network, where all of the transactions are recorded and new blocks are created and added to the chain. To make it more simple, you can think of it as a ledger that is maintained by people from around the world.
When a transaction of any type happens for example someone buys or sells crypto and that transaction is validated, a new crypto block is created and added to the chain and that transaction is recorded and updated over the blockchain network using encryption techniques.
How Does Cryptocurrency Trading Work?
As I discussed in the paragraphs above, cryptocurrency trading works in two different ways. The first one is known as the CFD method, and the second one is known as the buying, holding, and selling method. In the CFD method, fiat currency is used for trading and you bet on or against the value of cryptocurrency. If your speculation was right, you will earn a profit based on the difference in prices. You don’t need to own crypto to speculate on the price.
Meanwhile, the other method is simple, you join an exchange, buy crypto using fiat currency, and store it in your account. You need to own crypto for this type of trade. After buying and storing the crypto in your wallet, you will sell it when the price goes up and you will make a profitable trade. You can do it on a long-term basis and invest in crypto.
What is the Spread in Cryptocurrency Trading?
The spread in cryptocurrency trading is simple, it is defined by the difference between asking and bidding price. It occurs when you are buying and selling cryptocurrency at the same time. For example, you are buying from someone and selling to him simultaneously. Think of it as if you were buying something worth $ 150 and were selling something worth $ 140. The spread in this transaction will be $ 10.
Bidding price =$ 140
Asking Price = $ 150
Spread = $ 150 – $ 140=$10
This is a simple way to understand a spread in trading.
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What is a lot in Cryptocurrency Trading?
Lots are also very popular in cryptocurrency trading. A Lot is a number of units of a financial instrument that is being traded. For example, a lot of Bitcoin will be 1 BTC because it is a standard Lot of BTC. Every coin has its lot that can be used for trading purposes. You can buy it according to the lot and sell it in a lot as well. This makes buying and selling at a large scale easier.