What is cryptocurrency? A beginner’s cryptocurrency trading guide
Introduction to cryptocurrency
Most of us are familiar with the digital currency concept without realising it. We pay without seeing a single coin or banknote when we use our bank cards to buy goods and services. So, the money we use daily is digital, in a way. Cryptocurrency is also a form of digital money, and it’s becoming increasingly popular, capturing more and more headlines. However, it’s an entirely different concept.
Before diving into trading, let’s explore basic information about this new virtual currency.
What does cryptocurrency mean?
Cryptocurrency is a digital currency with no physical form and is entirely independent of the traditional banking system. It’s an exciting technological breakthrough that has revolutionised how we use money. Having payments handled between people without any involvement of a third party (like banks) is entirely different from how we used to deal with money.
Cryptocurrency isn’t issued by any government; it uses blockchain technology that keeps records of all transactions within a decentralised global network of computers. The data verifying these transactions is cryptographically encoded, which means one party transforms it into a code in a way that only the intended party can decode it and view, and that’s where the “crypto” part comes from.
Is cryptocurrency safe?
The complexity of blockchain technology makes cryptocurrencies highly resistant to hacking.
First, it’s decentralised – the data is shared with the entire network instead of being kept in one place, making it harder for hackers to find the source.
And most importantly, having all the transactions and internal information cryptographically secure makes it almost impossible to access or change the data.
Why trade cryptocurrency?
Now that we know how cryptocurrency works, let’s find out how you can trade it. But first of all, why is crypto trading such a hot topic? More and more traders get involved in crypto trading daily for different reasons. It may be just a curiosity for some of them, but there are undeniable benefits to it, too:
- Decentralisation: Cryptocurrencies are not controlled by governments, making them immune to inflation, bank failures, and monetary policies.
- Value preservation: Unlike fiat currencies that lose value over time, cryptocurrencies can appreciate significantly, as seen with Bitcoin’s long-term growth.
- Round-the-clock trading: Crypto markets operate 24/7, allowing continuous trading opportunities.
- High volatility: Rapid price changes create opportunities for profit (and risk).
- High liquidity: Popular cryptocurrencies can be easily converted into cash.
- Security: The technology behind cryptocurrencies is highly secure, and transactions are irreversible, reducing the risk of fraud.
- Convenience: Fast, inexpensive transactions are possible across borders, without limitations imposed by traditional banks or currency exchange requirements.
How does cryptocurrency trading work?
The starting point depends on the type of trading you choose. The first option is to own the cryptocurrency you are going to trade. In this case, you need to exchange fiat money for the cryptocurrency of your choice on an exchange platform.
You also need to create a digital wallet to keep your cryptocurrency safe. It basically means just creating an account on a website or app. There are plenty of options available on the crypto market. It’s always good to compare a few options to determine what works better for you.
Most of the wallets serve as exchange services, too, to make this process easier. It means you can buy, sell and hold your cryptocurrency in the same place.
Another way to trade cryptocurrency is by speculating on its price movements without actually owning it. This can be done using instruments like multipliers or CFDs (Contracts for Difference), where cryptocurrencies are traded in pairs—similar to forex trading with fiat currency pairs. For example, in the BTC/USD pair, you are speculating on whether Bitcoin will rise or fall in value against the US dollar, allowing you to profit from the price difference without purchasing the underlying asset.
Which cryptocurrency is best for trading?
As of February 2022, there are around 10,000 cryptocurrencies listed. Most cryptocurrency trading platforms offer quite a few options to choose from. The top 10 are measured by market capitalisation, according to CoinMarketCap.
1) Bitcoin ($827.9 billion)
2) Ethereum ($367.1 billion)
3) Tether ($78.6 billion)
4) Binance Coin ($70 billion)
5) USD coin ($52.6 billion)
6) Ripple ($39.3 billion)
7) Cardano ($35.9 billion)
8) Solana ($31.8 billion)
9) Avalanche ($23 billion)
10) Terra ($22 billion)
But what are other substantial differences between these types of cryptocurrencies, apart from the market capitalisation? In a nutshell, the main differences lie in technical characteristics. Here is an example of a brief comparison of the current three largest cryptocurrencies.
If you are new to cryptocurrency trading, starting with Bitcoin – the biggest and most well-known digital coin – is a good idea. And once you get more comfortable, you can always expand and upgrade your trading strategy, adding other cryptocurrencies to your portfolio.
Where to trade cryptocurrencies
You can trade cryptocurrencies on Deriv’s CFD platforms—Deriv MT5, Deriv X, and Deriv cTrader—or explore trading cryptocurrency multipliers on Deriv Trader. To get started smoothly, try a practice account to familiarise yourself with each platform.
Ready to begin? Open your cryptocurrency account, start trading, and embark on your cryptocurrency trading journey.
Disclaimer:
Trading is risky. Past performance is not indicative of future results. It is recommended to do your own research prior to making any trading decisions.
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