The cryptocurrency market can be intimidating for both novice and experienced traders due to the sheer amount of jargon and process involved. We’ve broken it down into six easy steps to help you better understand and trade the cryptocurrency market
There are two ways to trade cryptocurrencies: speculating on their price using CFDs, or buying digital currencies in the hope that they will increase in value.
Trading cryptocurrencies via CFD
A CFD is a contract in which you agree to exchange the difference in the price of a cryptocurrency from the moment you first open a position to the moment you close it. You are speculating on the market price instead of owning the cryptocurrency. If you open a long position and the value of the cryptocurrency goes up, you will make a profit, but if the price goes down, you will lose – with a short position, the reverse is true.
Buy cryptocurrency through exchange
Alternatively, you can choose to buy cryptocurrency, which means owning some of the digital currency outright with the aim of storing it in a digital wallet and making a profit as its value increases.
Before you can get started, you will need to open a cryptocurrency wallet and a cryptocurrency exchange account. This process can involve many steps, and you may need to join an account waiting list.
Learn how the cryptocurrency market works
The cryptocurrency market works differently from other financial markets, which is why it is important that you learn how it works and understand the jargon used to describe it before you start trading.
The cryptocurrency market is a decentralized digital currency network, e.g. H. It works through a peer-to-peer transaction verification system and not through a central server. When cryptocurrencies are bought and sold, transactions are added to the blockchain – a shared digital ledger that records data – through a process called “mining”.
Cryptocurrencies are also highly volatile, which is why it’s important to know what might be moving the market — this could be anything from ICOs and blockchain forks to breaking news and government regulations.
Open a crypto account
If you trade cryptocurrencies instead of buying them, you can be ready to open positions faster. You don’t need a digital wallet or exchange account. All you need to trade CFDs is an account with a leveraged trading provider.
With IG you can open an account in minutes and there is no obligation to add funds until you are ready to make a transaction.
Build a trading plan
A trading plan is critical to the success of any trader, but even more so for cryptocurrency traders as the market can experience a large amount of volatility. This is a double-edged sword: volatility makes the market very attractive but difficult to trade. For this reason, your trading plan should include risk management tools, as well as a description of your goals, which cryptocurrencies you wish to trade and the methodology for entering and exiting trades – known as a trading strategy.
Your plan should also include how you will analyze the cryptocurrency market: through technical or fundamental analysis. Technical analysis focuses on the price movements of cryptocurrencies and their historical patterns, while fundamental analysis looks at external factors and macroeconomic data that affect digital assets. Whichever method you choose, it is important to stay abreast of any news developments that might affect the market, as cryptocurrencies are very sensitive to market sentiment.
Choose your cryptocurrency trading platform
Our trading platform offers a smarter and faster way to trade cryptocurrency CFDs – with custom signals, interactive charts and built-in risk management tools. You can trade through the IG trading platform by:
- Your web browser
- One of our mobile apps
- Advanced Third Party Platforms such as Livesmarket
Open the monitor and close your first position
Since you don’t need to have a digital wallet, you can start trading cryptocurrencies right away once you open an IG account and choose your platform.
Whether you have decided to trade Bitcoin, Ether, Litecoin or any other crypto currency, all you have to do is open a trading ticket for the market of your choice and you will see the buy and sell prices of the trading ticket. You can set your position size and then buy to open a long position or sell to open a short position. Keep in mind that you can add stops or limits to close your trade once it reaches a certain level and protect your trade from unnecessary risk.
You can monitor the profit/loss of your positions in the “Open Positions” section of the trading platform. And when you decide it’s time to close your position, all you have to do is take the appropriate trade in the opposite direction.
Examples of cryptocurrency trading
To help you understand cryptocurrency trading, we have put together two examples of cryptocurrency trading and their possible outcomes.
CFD trading example: sell ether
You believe that the price of Ether – the Ethereum network token – will decrease in value and you decide to empty yourself by selling Ether against US Dollars (Ether/USD).
The current market price is 200 and you decide to sell 5 contracts (each equivalent to 1 ETH) to open a position at that price.
If your prediction is correct
If you are correct and the value of Ether drops against the US Dollar, your trade will be winning. Assuming the new market price is 150, you can close your position and take your profit by buying 5 contacts to close your position at a buy price of 155, which is slightly higher than the market price due to the spread.
Since the market has moved 45 pips in your favor, the profit on your trade is calculated as follows: 5 x 45 = $225.
When your prediction is wrong
However, if Ether increases in value against the US Dollar, your position will be closed at a loss. Let’s say you decide to exit the trade after the market has gone up 15 points to 215 – so you buy back 5 contracts at a buy price of 217. That means the loss on your position is 5 x 17 = $85.