In more than one way, cryptocurrency trading can be compared to forex trading: Fiat currencies are traded in markets from all over the world against one another. In Forex trading, the US dollar can be used to buy the euro, the Swiss franc, or any other currency, and then sell it again whenever the investor wants, whether he can profit or lose in trading.
Cryptocurrency trading is much like trading forex, allowing traders to buy cryptocurrencies in USD. As with Forex, cryptocurrency traders can trade with a buy and hold strategy or trade daily or weekly fluctuations up and down. There are many tools available that can potentially enable you to profit from a cryptocurrency even when its value depreciates. They include futures and binary options.
Due to the large volatility in trading Bitcoin and other digital currencies, and the frequent use of leverage in these types of trades, agreement on the potential for a price drop, is called a “hoax” and is generally not recommended for less experienced traders.
With Bitcoin itself trading for thousands of dollars, it is possible to delay a decision when the cost seems prohibitive to most traders, but bitcoin and other digital currencies can be bought as a decimal fraction of the currency. While Bitcoin is limited to 21 million coins, about 18 million of which are already in circulation, the ability to trade parts of Bitcoin allows each of these 21 million coins to be split 100 million times – in theory. In practice, however, current stock exchanges do not support these small units in trading. Most exchanges allow you to specify the amount you want to buy in US dollars. It then calculates the number of bitcoins or other digital currencies that you can buy with that amount.
Other ways to profit from trading digital currency
Traders interested in investing in cryptocurrencies can trade by directing funds to specialized funds that buy bitcoin or other digital currencies. Although these funds can often incur an additional cost compared to direct trading, they simplify the process of purchasing digital currencies, as well as provide a way to trade digital currencies in well-known investment accounts, such as Individual Retirement Accounts (IRAs) and Personal Accounts.
The most trusted cryptocurrency fund is the Grayscale Bitcoin Mutual Fund, traded under the name GBTC on the OTCQX market. The triumph of this fund led to Grayscale launching four other cryptocurrency funds: Bitcoin Cash Investment Trust, Ethereum Investment Trust, Litecoin Investment Trust and XRP Investment Trust, all of which were successful. Big.
Brokers and cryptocurrency exchanges
To trade in digital currency directly, instead of investing in a fund, you have two options: use an exchange (stock market) or a forex broker. On the exchange, you can buy and sell bitcoin or other digital currencies directly. With the Forex Broker, you can buy a CFD (Contract for Difference). But a CFD does not give you ownership of the digital asset, the digital currency. For this, and for its portability as well, many cryptocurrency traders prefer trading via an exchange – sometimes using more than one exchange at the same time.
The mechanics of cryptocurrency trading depend on the condition of the market or stock exchange, but they are usually either similar to stock exchange trades with buyers and sellers by announcing the requested prices and quantities – or similar to buying from market controllers who buy and sell to traders at a fixed price usually close to the market price.
When dealing with premium exchanges, such as the GDA, traders can achieve a similar approach to dealing with an online broker, including setting the bid and ask prices that represent the price that traders want to trade at, and determining the quantity.