The Benefits of Cryptocurrency Trading

Cryptocurrency trading involves buying and selling the underlying digital currencies via an exchange or speculating on crypto price movements via a CFD trading account.

Read on to learn about the benefits of trading CFDs on cryptocurrencies and find out why it has become a popular alternative to buying the physical coins.

What is cryptocurrency?

Cryptocurrency is a digital or virtual currency that is based on a decentralised network that is distributed across a large number of computers. It is secured by cryptography which makes it almost impossible to counterfeit - they enable secure online payments without the involvement of third-party intermediaries. Many cryptocurrencies use blockchain technology.

The benefits of trading cryptos 

When you trade cryptocurrencies, you are speculating on whether your chosen market will rise or fall in value, without taking ownership of the digital currency. This is done with derivative products such as CFDs.

The benefits of trading cryptocurrencies include:

Cryptocurrency volatility

The cryptocurrency market has experienced great volatility due to significant short-term speculative interest. The price of Bitcoin reached an all-time high in 2021 as values exceeded $65,000.

The volatility of cryptocurrencies makes this market so exciting. Rapid daily price movements can provide a range of opportunities for traders to go long and short but also come with increased risk. Therefore, if you want to explore the cryptocurrency market, make sure that you do your research and develop a risk management strategy.

Cryptocurrency market hours

The cryptocurrency market is usually available to trade 24 hours a day, seven days a week because there is no centralised government controlling the market. Cryptocurrency transactions take place directly between individuals on cryptocurrency exchanges all over the world.

Improved liquidity

Liquidity measures how quickly and easily a cryptocurrency can be converted into cash, without influencing the market price. It’s important because liquidity provides better pricing, faster transaction times and increased accuracy for technical analysis.

The cryptocurrency market is considered illiquid because transactions are dispersed across multiple exchanges, which means that relatively small trades can have a huge impact on market prices. This is one reason cryptocurrency markets are so volatile.

Ability to go long or short

When you buy a cryptocurrency, you are buying the actual asset upfront with the hope that it will increase in value. But when you trade crypto CDFs, you are speculating on crypto price movements and you can take advantage of falling prices as well as rising prices.. This is known as going short or going long.

For instance, you decide to open a short CFD position on the price of Bitcoin because you think that the market is going to fall. If you are right and the value of Bitcoin falls against the US dollar, your trade would profit. However, if the value of Bitcoin rises against the US dollar, your position would make a loss.

Leveraged exposure

As CFD trading is a leveraged product, you can open a position on ‘margin’ and gain a large exposure to a cryptocurrency market with a relatively small amount of your capital.

The profit or loss you make from your cryptocurrency trades will reflect the full value of the position when it is closed. Therefore, trading on margin offers you the opportunity to make large profits from a relatively small investment. But it can also magnify any losses, including losses that could exceed your initial deposit for an individual trade.

It is always essential to make sure that you have a suitable risk management strategy in place. 

Is investing in cryptocurrency a good idea? 

Cryptocurrency may be a good investment, but analysts advise investors about the volatile nature and unpredictability of cryptocurrencies. The important thing is to invest in crypto based on the facts. Due to the riskiness of cryptocurrency as an asset class, it's important not to invest more money in crypto than you can afford to lose. 

DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication