Cryptocurrency Trading [Guide 2021]

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Published: January 4th, 2021 by Andrew

Cryptocurrencies are also called virtual currencies because they cannot be held in hand, but they are still means of exchange like traditional currencies. Cryptocurrency Trading, in recent years, became a must in traders’ portfolios.

Since most cryptocurrencies are not regulated by national governments, they are considered alternative currencies outside the limits of monetary policy.

But now let’s analyze in detail what Cryptocurrencies are, what features they have and why they are so important. We will also evaluate the main ways to invest in Cryptocurrencies, such as CFD Brokers, among which eToro also offers a fully automatic investment system.

Cryptocurrencies explained

Cryptocurrencies are an Internet-based money trade that uses cryptography to make financial transactions. Cryptocurrencies exploit blockchain technology to achieve decentralization, transparency and immutability.

The cryptographic protocols used by these digital currencies are extremely complex, they are based on advanced principles of computer engineering and mathematics that make them practically impossible to break.

These protocols also mask the identities of users, making it difficult to attribute transactions and flows of funds to specific individuals or companies.

Decentralized control

The value and price of cryptocurrencies does not depend on the monetary policy of governments and central banks but on the use of those who hold them.

Based on a shared register, this does not allow external interference and offers absolute transparency.

Limited offer

Most, but not all, cryptocurrencies are characterized by a precise offer.

Their source codes contain instructions that describe the precise number of units that can ever exist.

The finished offer of cryptocurrencies makes them more similar to gold and other precious metals, of which there are finite quantities, compared to legal currencies, of which central banks can, in theory, produce unlimited supplies.

Exchange with Fiat currencies

It is important to underline that cryptocurrencies can be exchanged for legal currencies (called Fiat) in special online markets, which means that each has a variable exchange rate with the main world currencies (such as the US dollar, the pound, the euro and the yen).

Cryptocurrency exchanges, are not exactly secure (we will talk about them later), are vulnerable to hacking and represent the most common location for the theft of digital currency by hackers and cyber criminals.

Cryptocurrencies: the history

The idea behind cryptocurrencies existed long before the birth of Bitcoins. The goal of creating a safe and manipulation-proof digital currency began in the early 1980s.

A cryptography expert, David Chaum, invented an algorithm that has become the basis of secure internet transactions.

cryptocurrency trading bitcoin

Before Bitcoin

In the late 1980s, Chaum founded DigiCash, a profit-making company that produced units of currency based on the algorithm he invented.

Unlike Bitcoin and most modern cryptocurrencies, DigiCash’s control was not decentralized. Chaum’s company had a supply control monopoly, similar to the central bank monopoly on legal currencies.

After DigiCash, some imitators, such as the Russian WebMoney, were born in other parts of the world but none really took hold.

After Bitcoin

Bitcoin is widely regarded as the first modern cryptocurrency: the first publicly used money trade that combines decentralized control, anonymity, blockchain storage and integrated scarcity.

Satoshi Nakamoto, a pseudonym still shrouded in mystery, in 2008 published a protocol that explained the foundations on which Bitcoin would develop.

In early 2009, Nakamoto released Bitcoin to the public and a group of enthusiastic supporters began trading and extracting this digital currency.

After a year, this cryptocurrency began to expand and the first altcoins (alternatives to Bitcoin) such as Litecoin were born. The first cryptocurrency forums also began to spread with them.

How Cryptocurrencies work

The codes and the technology behind digital currencies is quite complex but we will try to explain it clearly, to outline how Cryptocurrencies work and what makes them so special.

Blockchain

The blockchain of a cryptocurrency is the ledger that records and stores all the transactions made, validating the ownership of all the individual currencies at a given moment.

This register contains the entire transaction history of a cryptocurrency to date.

Identical copies of the blockchain are stored in every node of the computer network that makes cryptocurrencies work. This network is managed by miners, who continuously record and authenticate transactions.

The blockchain prevents “double spending” or code manipulation.

Technically a cryptocurrency transaction occurs only when it is “registered” in the blockchain. Usually it takes a few minutes, it is not an instant transaction and once finalized, it is usually irreversible.

Unlike traditional payment processors, such as PayPal and credit cards, most cryptocurrencies do not have integrated refund or chargeback functions, although some new cryptocurrencies have rudimentary refund features.

Blockchain Types

There are three main types of blockchains:

  • Public blockchains such as Bitcoin and Ethereum, which are public and accessible to anyone
  • Private blockchains such as Hyperledger and R3 Corda, which are only available to network participants
  • Hybrid blockchains such as Dragonchain, which offers the advantages of private technology, with the security and transparency of the public system

Private keys and Public keys

Users who are in possession of cryptocurrencies have a private key, a sort of password to be authenticated.

These private keys are used to carry out transactions. Without this key it is impossible to take back your coins, exchange them or spend them.

Private keys are very complex alphanumeric codes, impossible to hack, but they have the disadvantage that if they are lost, the corresponding cryptocurrencies are also lost.

In addition to private keys, public keys exist, i.e. the addresses of your cryptocurrency wallet (which we will see in the next paragraph).

Public keys are visible to everyone, they are the equivalent of your IBAN and are used to send you digital coins.

Wallet

Cryptocurrencies are usually stored in virtual wallets that hold private keys.

These portfolios are not 100% secure, if they are kept on the web, they risk being subject to cyber attacks so be careful.

To reduce this risk, there are “offline” portfolios that are kept on storage devices disconnected from the network, and often have security backups. The backup does not duplicate cryptocurrencies but is only a copy of the codes that certify the ownership of the same.

Miners

The term miner derives from the process that these people or companies carry out: They extract cryptocurrencies while validating transactions.

The mining process needs enormous computing power and consumes a lot of electricity.

Miners periodically create new copies of the blockchain by adding the latest transactions, this addition is called “block”.

When validating a transaction, a miner is “rewarded” with a small percentage of the transacted value. The commissions that are paid to miners can vary and usually a higher commission equals a faster transaction.

Cryptocurrency Trading: the main ones

Here is a list of the main cryptocurrencies, among the most capitalized and traded on the markets, with which it is possible to do cryptocurrency trading:

  • Bitcoin (BTC) is the reference currency of the entire cryptocurrency industry, it is used as a global means of payment and is the undisputed market leader with over 200,000 daily transactions.
  • Ethereum (ETH) allows not only to validate transactions on the blockchain but also “smart contracts“, and this is what has made it so popular among investors.
  • Ripple (XRP) has a native cryptocurrency called XRP, but it is a more complex processing network. XRP, the currency, does not serve as a means of storing and exchanging value, but rather as a token to protect the network and make it work.
  • Litecoin (LTC) was one of the first cryptocurrencies after Bitcoin. Faster, with more tokens and a new mining algorithm, Litecoin was a real innovation.
  • Bitcoin Cash (BCH) is one of the first derivations of Bitcoin, created to accelerate the exchange and verification processes of blockchain transactions.
  • Bitcoin SV (BSV), with “SV” which stands for “Satoshi Vision”, is a derivation of Bitcoin Cash that comes closest to the original Bitcoin while maintaining the qualities of Bitcoin Cash.

Now, the secondary cryptocurrencies:

  • Tether
  • Chailink
  • Binance Coin
  • Crypto Coin
  • Stellar
  • Cosmos
  • Dash
  • Iota
  • Zcash

Cryptocurrency Trading: emerging cryptocurrencies

There are thousands of cryptocurrencies in circulation and cryptocurrencies are often born with innovative ideas but not all of them are able to spread. Among the most popular emerging cryptocurrencies it is necessary to mention:

  • NEO was born as a platform for blockchain-based decentralized applications. It aims to use smart contracts in the wake of Ethereum.
  • Tron is a project that goes beyond cryptocurrency, proposing a system for distributing content for entertainment.
  • Monero cares more than the others about anonymity, with a new algorithm is able to hide the user’s track on the blockchain.
  • Cardano is a platform created to manage smart contracts quickly and safely, a natural evolution of Ethereum.
  • Tezos is starting to emerge for its encryption and internal protocol security.
  • EOS is designed by developing ethereum, so it offers a platform for building decentralized applications.

cryptocurrency trading invest

Cryptocurrency Trading: how to invest

Cryptocurrencies are not born as an investment but as exchange currencies or to carry out or finance projects, the cryptocurrency trading was not the goal of the cryptocurrencies.

Over time, however, due to numerous factors, they have mainly become full-fledged financial investments.

Everything starts from Bitcoin which has two defects incompatible with using it as a currency for shopping:

  • The transactions are not immediate, they can last several minutes in which the money is in a sort of “digital limbo” and this slowness cannot compete with the current credit card or electronic wallet transactions which are practically instantaneous.
  • Bitcoin’s value fluctuates continuously and its high volatility lends itself little to the attribution of a price to a product or service.

You can invest in Cryptocurrencies mainly in two ways: With Exchange and CFD Brokers, we see the characteristics of both systems.

Cryptocurrency Exchange

Exchanges are sites that allow you to buy cryptocurrencies and exchange them based on the market price.

These websites are not regulated markets, therefore they present risks, in fact one of the most famous exchanges in the world, the now defunct Mt. Gox caused the loss of hundreds of thousands of Bitcoins belonging to confident investors, when it “collapsed” .

Exchanges also allow the conversion of Fiat currencies (Euro, Dollar, etc.) into cryptocurrencies and for this reason they can (in theory) be used to invest.

For these transactions, the Exchange holds a commission and this makes them very expensive, especially if you make numerous transactions.

Exchange: Advantages and Disadvantages

Advantages:

  • They allow you to “physically” hold the cryptocurrencies you buy.
  • They contribute to the exchange and price fluctuations of cryptocurrencies.

Disadvantages:

  • The transactions are not immediate, you have to wait for the confirmation of the blockchain.
  • They charge commissions for each operation.
  • They are not regulated, they do not have licenses as financial operators.
  • They are not covered by guarantees or investor protections.
  • You only earn if cryptocurrencies increase in value.

Cryptocurrency Trading with CFD Brokers

Let’s start by saying that CFDs (contracts for difference) are derivative contracts that are traded with the same price as the security to which they refer.

CFD Brokers are intermediaries that offer these contracts and allow you to buy them (betting upwards) and sell them (betting downwards), without commissions.

So CFD Brokers allow you to invest in Cryptocurrencies like any other security or asset, simply and economically.

Cryptocurrency trading with CFD Brokers: Advantages and Disadvantages

Advantages: 

  • They are regulated intermediaries, in possession of an operating license, issued by Europen Regulatory Bodies
  • They allow for immediate transactions.
  • There is no risk of theft because cryptocurrencies must not be “physically” held.
  • No commissions are paid for the transactions carried out.
  • They offer a guarantee to protect the deposits made.
  • You can earn even if prices drop, just aim for the downside.

Disadvantages:

  • You don’t really hold cryptocurrencies, you only speculate on price swings

Cryptocurrency Trading: the best CFD Brokers

We selected the best CFD Brokers to invest in Cryptocurrencies, which have these fundamental characteristics:

  • CONSOB, CySEC or equivalent license
  • Opportunity to invest both upwards and downwards
  • Do not charge commissions on transactions

Cryptocurrency Trading: eToro

eToro is a very popular broker, the most popular and used CFD broker in the world.

The licenses certify the security of this Broker and its platform allows you to easily negotiate the main cryptocurrencies.

Below we see the screenshot of the Bitcoin CFD in the eToro trading platform:

cryptocurrecy trading etoro

  • To invest in Bitcoin just click on the “Trade” button, decide how much to bet on the operation and whether to buy or sell the cryptocurrency.

But eToro offers much more. It allows you to trade completely automatically thanks to Copy Trading.

This feature allows you to copy the operations of the best traders in the world (on eToro) for free. Here’s how it works:

  • Register on eToro with the link at the end of the review.
  • In the “People” section you choose the traders to copy, based on their earnings, filtering (if you want) those who invest in cryptocurrencies.
  • With a click, Copy Trading will copy the operations of the chosen traders to your account.
  • So you will get the same profits as these trading experts (in proportion to the investment), without doing anything.
Click here and choose which traders to copy

Both Copy Trading and “manual trading” can also be tested on a free Demo account, without taking risks, with virtual money.

Click here to sign up for free

To learn more, read our full eToro review.

Cryptocurrency Trading: ForexTB

ForexTB is a broker that is rapidly conquering many users, above all thanks to the free services it makes available to investors.

Regulated in Europe by CySEC, ForexTB offers two trading platforms that allow you to invest in cryptocurrencies and many other assets:

  • Metatrader 4, the most used trading software in the world, is very technical and full of customizable tools and indicators
  • The Web platform, very simple and usable by any browser and device without downloading any software

cryptocurrency trading forextb

  • Here is a screenshot with the Bitcoin CFD on ForexTB: To invest just click “Sell” or “Buy” and enter the amount of the transaction.

The free services that made ForexTB so famous are:

If you want to know more, you can read our full review on ForexTB here.

Cryptocurrency Trading: Trade.com

Trade.com is a broker very attentive to the training of its users, because if they are competent it is more likely that they will get more profits.

This Broker is fully authorized to operate in Europe and below you can see the clarity of its trading platform with the Bitcoin CFD:

Cryptocurrency trading trade.com

  • To invest, simply click “sell” to sell and “buy” to buy and enter the investment amount.

The educational tools proposed by Trade.com begins with an ebook about trading, a pdf that explains the technical analysis and trading clearly and without too many technicalities.

Download the free course by clicking here

Depending on the level of preparation, traders in the teaching area, made available by Trade.com, can expand their notions and knowledge with video courses and very precious material, all free.

Click here to access the teaching area for free

This Broker allows you to open a real account with a deposit below the average, only 100 Euros are enough to start trading!

Click here to sign up for free

If you want to know more, you can read our Trade.com review.

Cryptocurrency Trading: IQ Option

Iq Option provides its users with a very modern and rapid platform for the execution of orders.

It is a CFD Broker that operates under the surveillance of regulatory bodies, and its reliability is guaranteed.

When you want to start trading on cryptocurrencies or any other market, you often think that you need considerable capital to get started: With IQ Option it is not so.

The minimum deposit required to open a bank account with IQ Option is only 10 Euros.

With this Broker you can start investing with a very negligible amount and in every trade you can bet the money of a coffee.

Of course, money should never be wasted, even if it is so little. To make profitable investments you need to know how the markets work and for this reason IQ Option has created a training area with hundreds of free courses to learn the most profitable trading techniques.

Even if the minimum deposit is only 10 Euros, even with this Broker you can start from the free Demo account, essential to practice the platform without risking money.

Click here to sign up for free on IQ Option

Read our full IQ Option review for more details.

Cryptocurrencies: Current Value

The current value of cryptocurrencies varies continuously, for this reason we show you the real-time quotes of the main cryptocurrencies.

Bitcoin quotation in real time

Ethereum quotation in real time

Ripple quotation in real time

Cryptocurrencies: Forecast

The cryptocurrency market is very “young” and therefore we are at the dawn of a new era, the spread of these digital currencies has been very rapid and the interest of investors is considerable.

Not all traditional analysts believe in the development of this new investment asset but there was the same skepticism when the internet was born, when the first digital wallets like PayPal were born, and when credit cards were born.

The news is difficult to accept but the forecasts for cryptocurrencies are certainly on the rise. This does not mean that all the cryptocurrencies present on the markets will grow, but some will certainly increase their price as Bitcoin has done a few years.

cryptocurrencies

Read also: Stop Loss

Conclusions

Cryptocurrencies are independent of politics and banks, are virtually anonymous and very volatile, so they attract investors and speculators.

What you can’t help but notice is that they are currently an alternative and highly profitable form of investment, and there is a high probability that the whole cryptocurrency sector will grow dramatically in the near future.

If you want to invest in Cryptocurrencies but have no trading experience, start with a Demo account, without paying any money. You can simulate investments without taking risks, money is virtual here.

Here are the official links to access these Demo accounts for free:

What are Cryptocurrencies?

They are decentralized digital coins which are based on a public transaction register.

How do cryptocurrencies work?

Cryptocurrencies are based on cryptography, that is, on very complex mathematical codes that decree their security.

How to invest in cryptocurrencies?

To invest in Cryptocurrencies it is better to use CFD Brokers that allow you to trade up or down the main cryptocurrencies, in total safety and without paying commissions.

What is the best way to make money with Cryptovlautes?

The automatic trading offered by eToro allows you to earn with cryptocurrencies by copying what the major international traders do.

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