Cryptocurrency trading, just like all forms of financial trading, requires relevant knowledge, skills, and available capital. If you wish to trade the cryptocurrency market, you should first ensure that you have all the relevant skills for analysing the market. It should be noted that cryptocurrencies are more volatile than traditional instruments and, hence, riskier than most people are used to. This volatility can provide more opportunities for making a profit, but remember it can also result in losses that are greater than what you may be willing to bear.
Starting To Trade Cryptocurrencies
If you do decide that trading cryptocurrencies is right for you, you could start by opening a trading account with Plus500. You can then choose the crypto CFDs you want to trade from the rich selection on offer and open a position when your analysis tells you the time is right.
Why Trade Cryptocurrency CFDs?
There has been a surge of interest in cryptocurrencies over the past few years. That demand has led to many CFD trading platforms and brokers now offering cryptocurrency trading pairs. These trading pairs can include one cryptocurrency, for example, Bitcoin, and one fiat currency, such as the US dollar. Here the trader makes a profit, or loss, by forecasting whether the cryptocurrency side of the pair will gain or lose value against the fiat currency.
The other kind of cryptocurrency pair is made up of two different cryptocurrencies, for example, Bitcoin and Ethereum. In this case, the trader makes a profit, or loss, by forecasting whether the leading cryptocurrency of the pair will gain or lose value against its cryptocurrency partner.
In that respect, trading cryptocurrency CFD pairs work in the same way as trading CFDs on forex pairs. In a more general sense, trading cryptocurrency CFDs is executed in the same way as trading CFDs on other, more traditional asset classes like commodities, stocks or stock market indices in that a trader speculates on the price movements of their chosen instrument.
So, why would a CFD trader choose to trade specifically on cryptocurrencies, rather than traditional assets? Let’s take a look at some of the most common reasons for trading cryptocurrency CFDs.
Cryptocurrencies As a New and ‘Disruptive’ Technology
Cryptocurrencies have been around since Bitcoin, the original cryptocurrency, launched in 2009. However, only in the last 3 or 4 years they have developed from something with a limited, niche following of mainly tech enthusiasts into a new asset class that promises to carve out a long term and important role in mainstream financial markets.
Cryptocurrencies are seen as a ‘disruptor’ which means they have the potential to fundamentally change how the financial market works.
When disruptive technologies succeed in fundamentally changing markets and also have a financial asset form, they are generally the assets that show the biggest gains in value over time. Ten years ago, Amazon’s stock was worth around $83; today the same stock trades for around $1,900. That’s an increase of almost 2,200% - a huge profit for early investors and one that almost only happens with disruptive technologies.
Some traders believe the ‘disruptive’ new technology of cryptocurrencies will fundamentally change money and commodity markets in the upcoming years; they are hoping for the kind of huge returns that early investors in promising tech stocks are hunting.1
Cryptocurrencies as a Commodity
There is an argument that some cryptocurrencies are more like commodities. An example of this would be the cryptocurrency Ethereum, which is not intended to be used as an alternative to money but instead pay for the use of its blockchain platform. The purpose of its blockchain platform is to build smart contracts. The price of commodities is influenced by global demand: for example, oil is used in fuels, plastics, and other materials so its price is influenced by global demand for products made from oil. The price of ‘utility’ cryptocurrencies, like Ethereum, is influenced by the use of the blockchain platform they are associated with.
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