About Cryptocurrency Platforms
The Two Distinct Ways in Which Cryptocurrencies are Traded
Cryptocurrencies have arisen out of seemingly nowhere to capture billions of dollars’ worth of investment capital. This dynamic asset class offers some excellent features and advantages to the individuals and businesses who know how to use it properly. Cryptocurrencies can mainly be traded/used in the following two ways:
Using actual cryptocurrencies for speculation, commerce, money transfers, or other purposes.
Cryptocurrencies can be bought with cash, credit cards, wire transfers, etc. Once a certain amount of cryptocurrency is acquired it can be sent to anyone else who has a compatible cryptocurrency wallet. This may be individuals or businesses who either have a standard cryptocurrency wallet or a wallet hosted by a cryptocurrency exchange.
In this case, the different parties own the particular cryptocurrencies and can use it to pay for items, send it to someone else, or keep it for speculative purposes. Transferring cryptocurrency to another person is basically the same as sending fiat currency(for example, dollars) to someone by means of an electronic bank wire.
Speculators and investors can buy and sell cryptocurrencies on different cryptocurrency exchanges with the objective of buying low and selling higher to make a profit. Arbitrage trading strategies may also be employed by arbitrage traders who exploit the price differentials between different cryptocurrency exchanges.
Speculators and investors can also use cryptocurrency wallets to speculate with in some instances (without using a cryptocurrency exchange). These parties basically just need to get some cryptocurrency transferred into their cryptocurrency wallets and wait for the price to rise to the desired level. When it’s time to sell it again, they can just find someone to buy the cryptocurrency from them with the particular fiat currency needed.
Cryptocurrency Contracts for Difference (CFDs) Speculation
Certain forex trading platforms offer cryptocurrency contracts for difference(CFDs) to their clients. These CFDs are a convenient way to trade cryptocurrencies for speculative purposes without actually owning it.
Cryptocurrency speculation can be really rewarding!
A CFD is basically a contract between a broker and its client that mirrors the price movement of an underlying asset. The asset is not owned by the trader but he or she gains exposure to the gains or losses caused by its price fluctuation.
For example, if a bitcoin trader engages in a long (buy) CFD trade worth one bitcoin, he will gain a dollar for every one-dollar increase in the bitcoin price. When the position is opened, a certain amount of his available margin (funds) is engaged to keep the position open and to sustain the cost of the spread and possible drawdown while the position remains open. When the price rises or falls, the profit or loss is reflected in the trader’s account. There is no actual exchange between dollar and bitcoin.
Individuals who are keen on speculating with cryptocurrencies or who need to convert fiat currency to cryptocurrency often have one or more of the following questions:
These questions may be hard to answer and also depends on each individual’s location, type of fiat currency, personal preferences, and whether cryptocurrency CFDs or real cryptocurrencies will be traded.
What are Cryptocurrency Trading Platforms? (On Which Cryptocurrency CFDs can be Traded)
Cryptocurrency trading platforms are usually forex trading platforms that incorporate cryptocurrency CFDs. Every cryptocurrency trading platform is connected to its liquidity providers who provide cryptocurrency liquidity with which the crypto platform’s clients can execute cryptocurrency trades almost instantly. It is really convenient to trade cryptocurrency CFDs with forex brokers. The following advantages may be experienced when trading cryptocurrency CFDs with a good cryptocurrency trading platform:
- Trade execution is easy and reliable.
- Cryptocurrency trading platforms often draw liquidity from several cryptocurrency exchanges which means they have deeper and more reliable liquidity pools than many individual cryptocurrency exchanges.
- Some crypto trading platforms provide their clients with failsafe flash crash protection, like eToro.
- Cryptocurrencies can often be traded with leverage.
Cryptocurrencies can be traded with gearing(leverage).
- Traders have the option to enter short cryptocurrency positions.
- Certain cryptocurrency trading platforms offer social trading and copy trading on cryptocurrencies.
- Because the cryptocurrencies are not owned when trading cryptocurrency CFDs, traders are not exposed to cryptocurrency hackers and losing their cryptocurrencies in other ways.
- Forex trading platforms that offer cryptocurrency trading often have excellent trading tools, special algorithmic trading platforms, great charting software, and reliable customer support.
- A multitude of financial instruments can be accessed (from the same trading account) besides cryptocurrencies, which include currency pairs, commodities, stock indices, and in some cases stocks, ETFs, bonds, and interest rate instruments.
What are Cryptocurrency Exchanges?
Fiat-to-Crypto, Crypto-to-Fiat, and Crypto-to-Crypto Conversions
The most important function of cryptocurrency exchanges is to provide a platform on which people can exchange fiat currencies (e.g. dollars, euros, pounds, etc.) for cryptocurrencies and vice versa. Many cryptocurrency exchanges have limited cryptocurrencies available while others even offer crypto-to-crypto exchange (converting one cryptocurrency to another).
*Some cryptocurrency exchanges don’t support fiat currency-to-cryptocurrency or cryptocurrency-to-fiat currency conversion and only allow exchange between different cryptocurrencies.
Cryptocurrency exchanges also enable their users to transfer certain cryptocurrencies (especially bitcoin) to cryptocurrency wallets. This function can be used to pay for goods or services or to simply transfer cryptocurrency between friends, family, or anyone else. With some cryptocurrency exchanges, such transactions are called withdrawals while others call it transfers.
Thousands of online and offline merchants worldwide accept bitcoin payments.
A few cryptocurrency exchanges actually offer cryptocurrency trading with margin accounts on advanced trading platforms in basically the same way that forex trading platforms do.
Of course, cryptocurrency speculation can also be done with regular cryptocurrency exchanges that don’t offer margin trading and who don’t particularly have fancy trading platforms.
For individuals who merely want to speculate with some of the most prominent cryptocurrencies and who don’t actually need to transact with the ‘physical’ cryptocurrencies, cryptocurrency CFDs may be the safest and easiest option.
The process is really simple - open an account with a good cryptocurrency/forex broker, make a deposit, and start trading cryptocurrency CFDs right away.
*With cryptocurrency trading, price action is key. Follow this link to learn why.
For traders and cryptocurrency users who require or prefer trading or owning the actual cryptocurrencies, the most convenient way is to open an account with a cryptocurrency exchange. On most cryptocurrency exchanges, fiat currencies and cryptocurrencies can be exchanged for each other and some crypto exchanges also have all kinds of altcoins and exotic cryptocurrency crosses available.
Most cryptocurrency exchanges are suitable for buy-and-hold cryptocurrency trading which doesn’t require fast reaction or advanced trading platforms.