Trading on Cryptocurrency Markets Explained
Spread in Cryptocurrency – This is the difference between the buy and sell prices that are quoted for a cryptocurrency. Much like many financial markets, when you open a position on the cryptocurrency market, you will be given the choice between up to two prices. If you want to open a long position, you can trade at the buy price which is above the market price, however, if you want to open a short position, you can trade at the selling price that is lower than the market price.
Cryptocurrencies are traded in lots – and lots are batches of cryptocurrency tokens that are used to standardize the size of the trades. Cryptocurrencies are very volatile and as such lots can be very small, many of them are even a single unit of the cryptocurrency in question, however, there are exceptions where these are traded at even bigger lots.
Leverage – this is a means of getting exposure to larger amounts of cryptocurrency without actually having to pay the full value of the trade from the ground up. This means that you can put down a small deposit which is known as a margin. When you close a leveraged position, your profit or loss is based on the full size of the trade itself.
Leveraging can magnify your profits, it can bring the risk of amplified losses, this means losses that can exceed your margin on even an individual point. Leveraged trading makes it important to analyze the risks involved with it, as the more you analyze it, the better your results might end up being.
Margin in cryptocurrency trading is a key part, especially in leveraged trading, and is the term used to describe the deposit you put in order to open as well as maintain a leveraged position. When you decide to trade cryptocurrencies on a margin, your margin requirement can shift and change depending on the broker you pick, and how large the actual size of the bet is.
Margin is expressed in terms of percentages when compared to the full position.
Next, we have pips, which are the units that are typically used to measure the movement in the price of a cryptocurrency and typically are referring to a single-digit movement in the price at a very specific level, and generally, the most valuable cryptocurrencies are traded at a dollar level.
Picking the Cryptocurrency
Keep in mind that this can be very specific as there is no single best cryptocurrency, however, there are specific currencies for specific use-cases. Bitcoin is the best if you want a reserve asset due to the fact that it has the most widespread adoption.
Now, when it comes to altcoins as well as other cryptocurrencies, some of the best ones are typically at the top 50 in terms of the market capitalization of the currency in question. Many small market cap cryptocurrencies typically will have questionable use cases and as such, underdeliver on their promises and plummet in value. These smaller-cap cryptocurrencies are riskier than larger market cap coins but can bring you bigger rewards if guessed and analyzed right.
Make sure that you are always investing in cryptocurrencies that have excellent teams behind them, and the best way to analyze this is to read the white paper that is associated with many of them. This is due to the fact that it will give you an idea of how exactly the cryptocurrency in question, and thing it’s trying to solve in the real or the digital world works, and you can analyze from that point onwards if it is the perfect currency to invest into the point where you can inevitably trade it for a profit.
Now let’s talk about how to trade Cryptocurrency.
