How to Trade Cryptocurrency
This guide provides a quick overview of the three ways to trade (buy/sell) cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH).
Background
I first started writing about cryptocurrencies in 2013, and mined Bitcoin from my laptop that year. I also had the pleasure of being quoted by Minyanville for an analysis in my article titled, Bitcoin Arbitrage, Scalping Market Inefficiencies, and Currency Market Share Gradual Shift, which appeared on Yahoo Finance.
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Fast-forward to today, and the market for alternative investments has grown exponentially. Cryptocurrencies have surged in popularity – thanks to the proliferation of financial technology (Fintech) that has fueled the adoption of non-bank financial products sought by investors, and powered by distributed ledger (blockchain) technology.
Powered by Blockchain Technology
According to data from CB Insights, the amount of venture capital (VC) funding invested in fintech companies reached a new quarterly record in Q2 2017 of $5.19 billion, of which $232 million was invested in blockchain/Bitcoin companies.
Replacing the need for any trusted third party, Block chain technology is being used to power and verify cryptocurrency transactions belonging to public addresses (that hold bitcoin) controlled by private keys (used in bitcoin wallets) across decentralized networks.
According to data from CoinMarketCap, cryptocurrency universe market capitalization is at yet another all-time high of $139 billion as of August 14, 2017.
Powered by CoinMarketCap The bulk of value is held by Bitcoin (nearly 50%), with the cryptocurrency trading just above $4,200. Using price data from Bitstamp, the chart snapshot below from TradingView shows daily candlestick prices for Bitcoin versus the US Dollar (BTC/USD), depicting how steep Bitcoin's price rise has been in 2017.
Emerging Alternative Asset Class
Needless to say, Bitcoin’s place as an alternative digital asset among cryptocurrencies has become entrenched, despite likely headwinds it will continue to face as it evolves further. The U.S. Securities and Exchange Commission (SEC) announced in early August 2017 that certain Initial Coin Offerings (ICOs) – which use cryptocurrencies for financing – would be regulated as securities.
Shortly thereafter, the Chicago Board of Options Exchange (CBOE) followed, saying that it would be launching options on cryptocurrency derivatives, as investors are already looking at different ways to incorporate digital assets such as Bitcoin into their portfolios.
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Many investors now recognize cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) as asset classes. Therefore, knowing the three ways to trade this cryptocurrency can be useful for Bitcoin investors (and can be applicable to other cryptocurrencies).
Quick Pointer: Trading costs, including any commissions and fees for trading cryptocurrencies, can be substantial, reaching well over $1,000 per $1,000,000 worth of currency or more, compared to trading the same amount in fiat (non-digital) currencies in the foreign exchange (forex) market.
After going over the three ways to trade Bitcoin, we will extend our exploration into the pros and cons of each way, and then provide a bottom line for each category and an overall summary further below.
Below are the three ways you can trade Bitcoin:
Buy the underlying from an exchange or online cryptocurrency broker (holding the actual currency in a wallet at the exchange or off-site) Trade (buy/sell) a CFD (Contract for Difference) derivative and hold cash margin with an online forex broker or multi-asset broker. Buy a publicly listed security related to Bitcoin and hold shares with an online stockbroker. Buying the Underlying (Actual) Asset: Pros and Cons
Taking the first option listed above, which is to buy the underlying, you become the direct holder of the digital asset. Upon purchase, the cryptocurrency is sent to your bitcoin address or account (wallet) with the exchange. From there, you can transfer the crypotocurrency to any bitcoin address or wallet address using your private key that verifies you control ownership of the asset.
This responsibility to safeguard your private key which controls the digital asset also comes with some additional risks, as explained below. First, we will go over the positive sides of owning the underlying digital asset.
Pros
You control the actual underlying digital asset. Most versatile option (can be transferred, sold, exchanged/converted). Can be secured with the use of a private key or by the exchange's wallet No thirdparty counter-party risk when the private key is held in cold storage offline. Multiple payment wallet options available to store/transfer the asset. Cons
Private Key that may be unique to each address must be safeguarded (your responsibility). Technical knowledge may be required to carry out operations. Lost private key may equate to lost asset (unrecoverable). If the private key is stored at the exchange where you bought the Bitcoin, it could be hacked and your Bitcoin could be stolen from the exchange. Thirdparty wallets can get hacked or subject to malware/phishing and your Bitcoin can get stolen. If you keep the private key offline only (cold storage) and lose your private key and not able to recover it your Bitcoin is lost forever. You must remember your password or private key if you store your Bitcoin electronically or be sure you can recover your private key (the easier this is, the more prone your Bitcoin is to potential theft by hackers). Bottom line
For longterm investors who are willing to actively safeguard their Bitcoin, owning the underlying is clearly the way to go, but prudent steps must be taken to mitigate the risk of Bitcoin theft and/or loss of private keys (i.e., diversifying holdings across wallet/storage types, using two-factor authentication and strong pass phrases).
Bitcoin Exchanges
Coinbase Binance Bitfinex Bittrex Kraken Poloniex Swissquote Z.com Trade (GMO Coin offering) It is important investors realize not all exchanges and brokers that offer delivery of the underlying Bitcoin are created equal. Some firms have fallen victim to theft by hackers who have stolen Bitcoin belonging to clients whose money was held at the exchanges. Meanwhile, other Bitcoin exchanges have gone bankrupt (as in the case of Mt. Gox), as a result of fraud or mismanagement.
This counterparty risk and risk of loss from hackers is another reason why some investors don’t hold their Bitcoin on exchanges directly but transfer it to an independent wallet (which carries its own risks, as outlined above).
Nonetheless, choosing an exchange that meets your needs is important. For US-based investors, CoinBase is one of the leading exchanges to offer cryptocurrency trading on Bitcoin, and recently integrated with Fidelity Investments so Fidelity clients can see their Coinbase balances from their Fidelity brokerage accounts.
For non-US clients, Swissquote – a major forex brokerage/bank in Switzerland – has teamed up with Bitstamp to offer actual deliverable Bitcoin. And Japan-based GMO Click Holdings, another one of the largest forex brokers by volume, has launched its GMO Coin offering for Bitcoin investors.
Trading Bitcoin as a CFD/Derivative: Pros and Cons Pros
Trading a CFD or derivative on Bitcoin negates the responsibility to safeguard any private keys. Greater degree of leverage is usually offered on derivatives, so your cash margin can have more buying power (increased risk/reward). CFD/derivatives permit shorting by opening a selling position without first having a long (buy) position, for those looking to speculate on a decline in prices of the underlying. Brokers may be able to offer lower transaction fees, although spreads may be slightly wider or marked up, depending on the liquidity sources the brokerage uses. Cons
Spreads (trading cost) are usually wider compared to trading the underlying. Trades may be cancelled or reversed in the event the broker finds fault in its systems (price, etc.) or if it finds a client violates their particular account agreement with the said broker (agreements vary). Clients rely on the creditworthiness of the online broker for managing any risk prudently and ensuring that it is well capitalized (less risk of going defunct). Margin trading means there is a chance of a negative balance occurring in the case of huge market volatility, a gap, or other Black Swan systemic event. In such cases, counterparty risk falls on the broker, which means if the broker declares bankruptcy, investors may suffer substantial losses and not receive priority among creditors. Bottom line
Active traders looking to speculate on Bitcoin over the short or medium term may find that trading CFD/derivatives on Bitcoin using an online forex broker will provide them with 24hour trading, potentially lower margin, and the ability to go either long or short. Because of counter-party risk, choosing a broker is just as important as finding one with the best trading tools or commission rates.
Forex brokers that offer (margin trading) Bitcoin as a CFD
Admiral Markets ADS Securities Alpari AvaTrade AxiTrader CityIndex easyMarkets eToro ETX Capital Forex Club FXOpen FXPro FXDD Henyep (HYCM) IC Markets ICM Capital IG Interactive Brokers iTrader LCG Markets.com Pepperstone Plus500 TickMill ThinkMarkets UFX VantageFX WWM XTB XM Z.com Trade tradingview ethereum,bitcoin forex broker,trx tradingview,trading bitcoins for beginners,tradingview xrp,bitcoin trading philippines,lowest fee bitcoin exchange,bitcoin trading platform,how to make money trading bitcoin day 3 of 5,kraken exchange,xbt,bitcoin trend prediction,bitfinex fees,cexio nicosia,bitfinex login,bitcoin trading sites,bitcoincryptocurrency reddit,cryptocurrency investment,cryptocurrency trading,cryptocurrency ethereum,cryptocurrency types,cryptocurrency exchange,cryptocurrency ppt,cryptocurrency charts,cryptocurrency market,cryptocurrency meaning in hindi,cryptocurrency list,cryptocurrency for dummies,cryptocurrency adalah,crypto opportunities,cryptocurrency in india,what is bit coin,how cryptocurrency works,
Forex trading for beginners
Trading currency in the foreign exchange market (forex) is fairly easy today with three types of accounts designed for retail investors: standard lot, mini lots and micro lots. Beginners can get started with a micro account for as little as $50.
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Before you start jumping in you should familiarize themselves with the market and terminology of the forex market, and if you've already been trading stocks online it should be easy to get started.
Below is a list of terms you should learn.
PIP: The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point. A common exception is for Japanese yen (JPY) pairs which are quoted to the second decimal point.
BASE CURRENCY: The first currency quoted in a currency pair on forex. It is also typically considered the domestic currency or accounting currency.
CROSS CURRENCY PAIR: A pair of currencies traded in forex that does not include the U.S. dollar. One foreign currency is traded for another without having to first exchange the currencies into American dollars.
CURRENCY PAIR: The quotation and pricing structure of the currencies traded in the forex market: the value of a currency is determined by its comparison to another currency. The first currency of a currency pair is called the "base currency", and the second currency is called the "quote currency". The currency pair shows how much of the quote currency is needed to purchase one unit of the base currency.
QUOTE CURRENCY: The second currency quoted in a currency pair in forex. In a direct quote, the quote currency is the foreign currency. In an indirect quote, the quote currency is the domestic currency. This is also known as the "secondary currency" or "counter currency".
Now that we've reviewed basic terminology, let's look at some of the differences between trading stocks vs. currencies. In currency trading you are always comparing one currency to another so forex is always quoted in pairs. Sometimes authors of currency research will refer to only one half of the currency pair. For example if an article is referring to the euro (EUR) trading at 1.3332 it's assumed the other currency is the U.S. dollar (USD).
When looking at the quote screen for the first time it may seem confusing at first, however, it's actually very straightforward. Below is an example of a EUR/USD quote.
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The quote example shows traders how much one euro is worth in US dollars). The first currency in a currency pair is the "base currency" and the second currency is the "counter currency" or secondary currency.
When buying or selling a currency pair, the action is being performing on the base currency.
For example traders bearish on euros, could sell EUR/USD. Now, when selling EUR/USD, the trader is not only selling euros but is also buying US dollars at the same time. Thus the pair trade.
Let's say that you sell the EUR/USD at 1.4022. If the EUR/USD falls, that means the euro is getting weaker and the U.S. dollar is getting stronger. You might have also noticed the quote price has four places to the right of the decimal. Currencies are quoted in pips. A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what traders watch to count "pips".
Every point that place in the quote moves is 1 pip of movement. For example, if the GBP/USD rises from 1.5022 to 1.5027, the GBP/USD has risen 5 pips.
Now depending on the lot size (standard, mini, micro) the monetary value of a pip can vary according to the size of your trade and the currency you are trading.
The most common lot size is to trade in increments of 10,000 (mini). A lot size of 10,000 for the EUR/USD is worth $1.00 per lot. If you were trading 3 lots or 30,000, each pip is worth $3 in profit or loss. A full size lot, or standard lot, is 100,000 where each pip is worth $10, and a micro lot size is 1,000, were each pip is worth $0.10.
Some currency pairs will have different pip values. Be sure to check with your broker.
One of the nice things about trading currencies is there is no commissions. Looking at the quote image above, notice the small number of pips between the two quoted currencies: the difference in prices is 2.5.
This is known as the spread. The spread is how the broker makes their money and acts similar to the bid/ask in stock trading. Not all spreads are created equal. The spread differs between brokers and sometime the time of day can cause volume to be light and the spread to increase at some brokers.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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source: https://www.nasdaq.com/article/forex-trading-for-beginners-cm135499








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