What exactly is cryptocurrency trading, and how does it function?

The act of speculating on cryptocurrency price movements via a CFD trading account, or buying and selling the underlying coins via an exchange, is known as cryptocurrency trading.

Cryptocurrency CFDs are a type of contract-for-difference

CFD trading is a type of derivative that allows you to bet on bitcoin price changes without having to possess the underlying currencies. You can go long ('buy') if you believe the value of a cryptocurrency will rise, or short ('sell') if you believe the value will fall.

Both are leveraged instruments, which means you only need a little deposit (known as margin) to have full exposure to the underlying market. Because your profit or loss is still determined based on the total size of your investment, leverage magnifies both earnings and losses.

Using an exchange to buy and sell cryptocurrencies

When you buy cryptocurrencies on an exchange, you're actually buying the coins. To begin a position, you'll need to open an exchange account, deposit the full value of the asset, and keep the cryptocurrency tokens in your own wallet until you're ready to sell.

Exchanges have their own high learning curve because you'll need to wrap your head around the technology and figure out how to interpret the data. Many exchanges also have limits on the amount of money you can deposit, and maintaining an account can be costly.

What is the nature of cryptocurrency markets?

Cryptocurrency markets are decentralized, meaning they are neither issued or supported by a central authority like a government. Instead, they're distributed across a computer network. Cryptocurrencies, on the other hand, can be purchased and sold on exchanges and held in 'wallets.'

Cryptocurrencies, unlike traditional currencies, only exist as a shared digital record of ownership maintained on a blockchain. A user sends bitcoin units to another user's digital wallet. The transaction isn't deemed complete until it's validated and added to the blockchain, which is done through a process known as mining. New cryptocurrency tokens are frequently created in this manner.