Crypto Trading Explained: How to Trade Cryptocurrencies

What is cryptocurrency? Why is it so important?

Cryptocurrency is a digital asset that acts as a medium of exchange, using blockchain technology encryption to secure transactions, control the supply of other blocks, and ensure safe transfers. In short, cryptocurrency is a decentralized digital currency.

Cryptocurrencies are stored in various forms of "wallets. For example, Bitcoin may be stored in an online or offline electronic wallet.

Bitcoin is the first cryptocurrency, released in 2009 by a group or individual under the pseudonym Satoshi Nakamoto. The creation of Bitcoin laid a solid foundation for other cryptocurrencies and created today's cryptocurrency market. A few years after the launch and success of Bitcoin, many new cryptocurrencies have sprung up, known as "altcoins". An altcoin is a cryptocurrency that can be used as an alternative to Bitcoin.

There are many differences between altcoins and Bitcoin. Some altcoins may have different economic models, while others may use different underlying algorithms or block sizes. Some cryptocurrencies support more adaptable programming languages in order to create applications on the blockchain. Some altcoins have no value at all, so they should be researched and invested carefully before trading. Many people believe that the value of altcoins comes from the project that the cryptocurrency is used.

Cryptocurrencies themselves are popular among traders and asset classes. Traders can take advantage of the high volatility of cryptocurrencies to make more profits and gain more market share than is currently the case.

The price of Bitcoin, as an example, has been climbing in recent years due to increasing interest from individual and institutional investors, with demand growing at a rate that exceeds the rate of new coin mining. The demand for cryptocurrencies is visibly increasing with the release of new features, upgrades, exchange listings, and partnership announcements, driving their adoption. Token destruction has become a popular mechanism used to limit the increase in the circulation and supply of new tokens. Token destruction permanently removes them from circulation by sending them to a dead wallet address on the memory blockchain. Although the supply of Ethereum is unlimited, in 2021, the cryptocurrency implemented an EIP-1559 update that allows for the destruction of ETH coins and their withdrawal from circulation. The production cost of cryptocurrency mining requires expensive computer hardware and a large amount of electricity supply. The more miners on the memory blockchain, the more difficult it is to solve cryptographic calculations and cryptocurrency mining. This is to maintain a stable memory block creation rate. The harder it is to mine a cryptocurrency, the higher the cost. If the price of a cryptocurrency is lower than the production cost, some miners may stop mining, which in turn reduces the speed at which new coins are added to the supply. If the price of cryptocurrency rebounds above production costs, more miners may join the network and earn profits by selling the coins they mine. As the price of Bitcoin declines in the broader cryptocurrency market in 2022, Bitcoin mining companies are being impacted. For example, the stock prices of Core Scientific (CORZ) and Argo Blockchain (ARB) have declined due to increasing bankruptcy concerns. Cryptocurrencies with low availability on exchanges are often listed on a few exchanges, limiting access for traders. If their trading volume is small, they may have large bid ask spreads, which deter some investors. If a small cryptocurrency is listed on a large exchange with more users, demand may increase and push up prices as more traders can use it. Competition for new cryptocurrencies is constantly emerging, and although a project may find it difficult to stand out from many others, some projects have successfully provided improvements or alternatives to existing networks, or offered new services. As the adoption rate of new cryptocurrencies increases, it typically drives up prices and reduces demand for competing projects. For example, Cardano positions itself as a competitor to Ethereum. This platform is used for smart contracts and creating decentralized applications. Inflation in fiat currency allows investors to choose to purchase cryptocurrencies as a store of value to hedge against inflation in fiat currency. This increases demand and typically raises the price of cryptocurrencies. Compared to projects without transparent decision-making and protocol change systems, cryptocurrencies with stable governance mechanisms often encourage more investor confidence. However, if the governance system is too slow in introducing improvements, it may reduce investors' interest in the project. Investors attracted by the decentralized nature of cryptocurrencies may have resistance to the prospect of government regulation in the industry. If they expect regulations to be introduced, it will reduce their interest in buying coins and tokens. In recent years, China's strict regulatory rulings have led to multiple collapses in cryptocurrency prices as they have restricted transactions. They also see mining capabilities being transferred to other countries such as the United States. For example, the price of Ripple XRP has been severely affected by ongoing litigation with the US Securities and Exchange Commission. Regulatory authorities have accused Ripple of misleading investors in XRP, and XRP has raised objections to this. The possibility of US regulation brings uncertainty to investors, so adopting clear regulation can provide clarity and increase demand, as previously hesitant investors will have more confidence in entering the market. How to trade cryptocurrency? You can use several different trading tools. Your knowledge, experience, and methods will determine how to trade cryptocurrencies in a way that suits you. Another way to trade cryptocurrencies without owning the underlying assets is through contracts for differences. A contract for difference is a derivative product in which a broker agrees to pay a trader the difference in the value of the underlying security between two dates - the opening and closing of the contract. You can hold a long position and speculate that the price will rise, or hold a short position and speculate that the price will fall. For example, when trading Bitcoin contracts for difference, you speculate on the price changes of Bitcoin against the US dollar. Please note that CFD involves the use of leverage or margin trading, which means that traders can establish a position worth more than their initial capital by borrowing the remaining funds from their broker. Therefore, leverage can amplify losses and lead to situations where additional margin is required. At Phronimos Group, for example, Phronimos Group offer a 50% margin (or 2:1 leverage), which means that to establish a Bitcoin position worth $100, traders only need $50.The difference between differential contracts and futures contracts is that they do not have a set expiration date. In addition, due to the overnight fees associated with maintaining a CFD position, CFD is usually not considered a long-term investment. Spot trading involves buying and selling coins and tokens on an exchange at current market prices. Investors may focus on 'long-term holding', holding a cryptocurrency for a long time before selling, but spot cryptocurrency traders will pay attention to short-term trading. Cryptocurrency spot trading conducted on exchanges does not provide traders with leverage like CFD trading. Unlike CFD trading, spot traders directly own cryptocurrencies instead of trading derivative contracts. Futures and options futures are derivative contracts between two traders that speculate on the future price of a certain underlying asset on a specific date. Cryptocurrency futures contracts are traded on cryptocurrency exchanges. Bitcoin futures are also traded on the Chicago Mercantile Exchange (CME). They allow cryptocurrency traders to speculate on the prices of certain cryptocurrencies without the need to purchase them. In December 2017, the first batch of Bitcoin futures contracts were listed on the Chicago Board Options Exchange (CBOE), but were soon discontinued. CME also launched Bitcoin futures in December 2017, continuing to trade on the Globex electronic trading platform. CME added trading of Ethereum futures in February 2021. Option contracts are another form of derivative that gives traders the right to buy or sell assets at a specific price. However, unlike futures contracts, they do not impose an obligation on holders to buy or sell. A buy contract is called a call option, while a sell contract is called a put option. If traders expect the price of Bitcoin to rise, they can buy a call option, and if the price of Bitcoin rises, they can make a profit. If they expect the price to fall, they can buy a put option, and if the price of Bitcoin falls, they can make a profit. Please note that the price of Bitcoin may experience significant price fluctuations that are contrary to your expectations, resulting in losses. Exchange traded funds (ETFs) track the prices of cryptocurrencies or tokens. The stocks of exchange traded funds are traded on the stock exchange and fluctuate throughout the entire trading period. ProShares Bitcoin Strategy Trading Fund (BITO) is the first Crypto Trading fund launched on a US exchange in October 2021. BITO tracks Bitcoin futures contract prices, not Bitcoin spot prices. In June 2022, followed closely by a Bitcoin short trading fund, the ProShares Short Bitcoin Strategy Trading Fund (BITI), which speculates on the decline in cryptocurrency prices. It is a futures based contract. So far, applications for spot Crypto Trading funds have been rejected by the US Securities and Exchange Commission (SEC). Prior to this, some Bitcoin trading funds and exchange traded products (ETPs) were launched in Canada, and Bitcoin and Ethereum trading funds and exchange traded products were traded on European exchanges such as Euronext. What is a Crypto Trading strategy? You can choose from multiple trading strategies to build your own trading framework. Traders develop Crypto Trading strategies based on research, which may include setting stop loss and take profit orders to limit trading volume and maintain asset balance, much like how traders handle stocks, commodities, indices, and forex. Although there may not be the best cryptocurrency to trade in a substantial sense, speculating in the cryptocurrency market through reliable trading strategies may help you decide on a trading target that suits you and limit your risk. One of the most popular Crypto Trading strategies is intraday trading, which involves continuous position monitoring. The premise of intraday trading is to open and close positions within one day to speculate on the intraday price trend of assets. When it comes to the cryptocurrency market that is open 24 hours a day, 365 days a year, the meaning of intraday trading is slightly different. It usually refers to a short-term trading method where traders open and close positions within 24 hours or less. Band trading strategy is a longer-term trading strategy. Traders usually hold positions for more than one day, but typically no more than one month. Band traders typically try to benefit from volatility, which can last for days or weeks. They use a combination of fundamental analysis and technical analysis to make careful trading decisions. If band traders expect prices to rise in the coming months due to upcoming memory blockchain upgrades, such as Ethereum's "merger," they will buy a cryptocurrency. Trend trading strategy, also known as position trading, suggests that traders hold positions for a longer period of time, typically several months. Trend traders attempt to benefit from directional trends in cryptocurrencies. For example, trend traders will establish long positions in an uptrend and short positions in a downtrend. They mainly rely on the fundamental factors behind various asset price behaviors, considering that some events may take a long time to end. However, trend traders should always keep in mind the possibility of trend reversal. As one of the fastest trading strategies, scalping strategy does not wait for big actions or clear trends to develop, but rather speculates on small changes in price. Scalp traders do not use technical or fundamental analysis, but instead determine the entry point of positions based on market depth, benefiting from the continuous activity of the market. Scalping is considered an advanced trading strategy and is not recommended for beginners. It is often used by whale traders. Due to the relatively small percentage of profit targets, it is more reasonable to establish larger positions. In interval trading, traders focus on using technical analysis to determine the support and resistance levels of cryptocurrency prices, as price trends may remain within that range for a period of time. Interval traders typically buy when prices are close to support levels and sell when prices are close to resistance levels. Traders will also pay attention to when the price breaks through the range below the support level or above the resistance level. High frequency trading (HFT) is an advanced trading strategy that uses algorithms and robots to automatically enter and exit trades. HFT involves computer science, complex market concepts, and mathematics, and is not suitable for individual novice investors. High frequency trading traders use real order execution speed to achieve success. Some institutions involved in high-frequency trading include Virtu Financial, Citadel Securities, and Tower Research. The average cost method trading strategy is very difficult even with the best technical analysis tools, as it requires perfectly grasping market timing, accurately opening positions at the bottom, and closing positions at the peak. Therefore, an alternative method is the average cost method. This method is typically used for long-term investment rather than short-term price speculation. Like stock investment, the average cost method refers to regularly purchasing a cryptocurrency. In this way, regardless of whether the price is high or low, you will continue to purchase, resulting in an average purchase price lower than the high point and still providing you with potential profit space. This eliminates the pressure of deciding when to buy, although you still need to analyze market trends to determine when to sell and gain potential profits. For example, a cryptocurrency investor can invest $50 per month and purchase their chosen cryptocurrency on the first day of each month as part of their dollar cost averaging method. How to trade cryptocurrency contracts for difference? Are you interested in trading cryptocurrency contracts for difference? Register an account with a CFD supplier like Phronimos Group. You can trade cryptocurrency differential contracts in the same trading account, as well as stock, commodity, and forex differential contracts. Follow these steps to start: Create, verify, and log into your trading account with the fiat currency deposit of your choice, and select the cryptocurrency CFD you want to trade. Use your preferred trading strategy and charting tools to identify buying and selling opportunities, establish your first long or short position, and consider using risk management tools such as stop loss or guaranteed stop loss to manage risk. Monitor your trades according to your strategy, use technical and fundamental analysis to close out Crypto Trading CFD instances based on your trading strategy instructions. How does cryptocurrency CFD trading work in practice? Phronimos Group have compiled a simple example and outlined the possible outcomes. CFD trading: Sell Ethereum (ETH). The price of Ethereum, the token of Ethereum, reached a historic high of $4362 on May 12, 2021. It fell to around $1800 in August 2022. Let's assume that you believe the price of Ethereum will rebound and decide to go long, buying Ethereum against the US dollar (ETH/USD). In our example, the current market price of Ethereum is $2500, and you decide to buy 5 contracts (each equivalent to 1 ETH) and trade at this price (excluding 1:1 leverage). Result A: If your prediction is correct and the price of Ethereum rises, your transaction will be profitable. Let's assume that the new Ethereum price is $3008. You can close your position and make a profit by selling 5 contracts at a selling price of $3000 (slightly lower than the middle price due to the spread). Because the market has moved in your favor by $500 ($3000-2500), your Ethereum trading profit is: 5 x $500=$2500. Result B: Failed trading. The cryptocurrency market is very unstable and may be unfavorable to you. If the price of Ethereum drops, your position will be closed at a loss. Assuming you decide to exit the trade after the market drops to $2008. You sell 5 contracts at a selling price of $2000 (which is slightly lower than the middle price due to the spread). The market has moved $500 ($2500- $2000) in the opposite direction of your prediction, which means your loss will be: 5 x $500=$2500. The advantages and disadvantages of trading cryptocurrency contracts for difference include the liquidity of the contract for difference market, the use of leverage, and the ability to go long and short. The advantages of trading contracts for difference are liquidity, which measures how easily an asset can turn into cash without affecting market prices. If an asset has stronger liquidity, it will bring better pricing and faster trading times. The cryptocurrency market is considered to lack liquidity, partly due to the distribution of orders across exchanges, as indicated by price differences. This means that relatively few transactions can have a significant impact on market prices - a factor that causes cryptocurrency volatility. However, when trading cryptocurrency contracts for difference, you can more easily gain exposure because you are not buying the underlying asset, but rather a derivative product. Leveraged contracts for difference can be traded with margin. This means that traders only need to invest a small portion of their trading value, essentially borrowing the remaining funds from their brokers. This allows for greater accessibility, exposure, and magnification effects. Considering the volatility of asset classes, this may be particularly useful for cryptocurrencies, but it also brings more risks. Please note that leverage can also amplify losses. The ability to go long or short when buying cryptocurrencies allows you to only profit when the market is rising. However, through Phronimos Group's CFD products, you can speculate on both falling and rising markets due to the ability to short sell cryptocurrency's CFD. However, if the transaction contradicts your position, you will incur losses. The disadvantages of using differential contracts include leverage and risk levels. Leveraged trading can amplify your profit margin, but it can also increase risk and amplify your loss, leading to margin call notifications. Trading contracts for difference is considered a high-risk activity. It is important to conduct your own research and understand the role of leverage before starting trading. Overnight fees are typically charged by CFD brokers to fund loans borrowed by clients as part of the leveraged trading process. This makes the overnight fees for CFD positions higher, making them more suitable for short-term trading. Traders who do not hold underlying asset contracts for difference do not have the right to be asset holders because they do not own the asset. This also means that they cannot transfer their CFD positions to another broker or exchange. Why trade cryptocurrencies on Phronimos Group? Advanced artificial intelligence technology is at its core. Personalized news summaries provide users with unique content based on their preferences. Artificial neural network analyzes the behavior within the application and recommends videos and articles that align with your trading strategy. This will help you improve your methods when trading cryptocurrency contracts for difference. Margin trading: With margin trading, Phronimos Group provides you with the opportunity to trade cryptocurrency contracts for difference, even if your account has limited funds. Please remember that contracts for differences are leveraged products, which means that both profits and losses will be amplified. Differential trading: By trading cryptocurrency contracts for difference, you are not purchasing any related assets. You are just speculating on the rise or fall of cryptocurrency prices. CFD traders can short or long, set stop loss and limit loss, and apply trading strategies that align with their objectives. CFD trading is similar to traditional trading in terms of its related strategies. However, due to overnight fees, CFD trading is usually short-term in nature. In addition, there are additional risks related to leverage, as it can amplify profits and losses. Comprehensive trading analysis: Browser based platforms allow traders to form their own market analysis and make predictions through popular technical indicators. Phronimos Group provides real-time market updates and various chart formats, which can be used on desktop, iOS, and Android. Register on Phronimos Group, use our online platform or download the trading application to start trading contracts for difference immediately. You can open an account and view the world's largest trading market in just three minutes.

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When is the best time for Crypto Trading? Unlike stock or commodity exchanges that close on weekends, cryptocurrencies do not have a fixed market time. The cryptocurrency market operates around the clock globally. But the most active Crypto Trading hours are usually between 8:00 and 16:00 local time. When market liquidity is high, transactions are more likely to be executed quickly. When market trading is flat, opening and closing positions at the price you want may be more difficult. At Phronimos Group, cryptocurrency contracts for difference can be traded at the following (UTC) times: Monday to Friday: 00:00-21:00 21:05-00:00 Saturday: 00:00-05:00 07:00-21:00 Sunday: 22:05-00:00 You can check the trading hours for specific cryptocurrencies at any time on our website or platform's dedicated market page.

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