Cryptocurrency is a type of digital currency that uses cryptographic protocols to ensure that transactions are encrypted and difficult to counterfeit. The key feature of cryptocurrency is that it is not regulated by any central authority. There are multiple tools available in the market today – here’s a useful list to navigate through. Cryptocurrency trading in essence is the act of hypothesizing on cryptocurrency price fluctuations. This is done while using a crypto trading account via buying and selling, through a cryptocurrency exchange.
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The COVID-19 outbreak along with ensuing lockdowns that have come with it has dysregulated daily life, businesses, and has sent the economy into disarray. India’s GDP is estimated to have shrunk by about 11 percent this year. We have seen unemployment dramatically increase in a world where over 92 percent of jobs are in the informal sector.
In this current economic context, cryptocurrencies, in particular, have enormous potential to encourage financial inclusion, boost dividends, and promote economic development. The cryptocurrency sector in India has expanded after the RBI’s decision to lift its prohibition on cryptocurrency transactions. The country’s estimated crypto trade volume is about 30 crores INR. Despite the fact that this industry is a fraction of the scale of more developed cryptocurrency markets, India’s youthful and affluent populace portends enormous prospects for this asset class’s growth.
Contract for Differences (CFD) trading on cryptocurrencies
CFD trading is a form of derivative that allows you to bet on cryptocurrency price fluctuations without having to actually own the underlying coins. You can go long (‘buy’) if you believe the value of a cryptocurrency will increase, or short (‘sell’) if you believe the value will decline. Both of these are leveraged goods, which means you only need a limited deposit, called margin, to obtain maximum exposure to the underlying market. Since your benefit or loss is always measured based on the total size of your position – leverage magnifies all gains and losses.
Cryptocurrency trading has steadily gained mainstream attention over the last few years, and there have been some legitimate reasons for this.
Why should you consider cryptocurrency trading?
There are several benefits to crypto trading.
1.Volatility in cryptocurrencies:
Although the cryptocurrency industry is still fairly young, it has seen a lot of uncertainty given the amount of short-term speculative interest. Bitcoin’s price soared to a high of $19,378 in October 2017 and dropped to a low of $5851 in October 2018. Other cryptocurrencies have become more robust in comparison, but emerging developments are prone to speculative interest.
Cryptocurrency uncertainty is a part of what makes this industry so unpredictable. Fluctuating intraday prices give traders the ability to go long and short, but they often carry a higher risk. So, before you dive into the crypto industry, be sure to have done your homework and devised a risk management plan.
2. 24/7 operational hours for cryptocurrencies:
Due to the fact that there is no highly centralized regulation by the government for the cryptocurrency industry, it is mostly open for trading 24 hours a day, 7 days a week. Cryptocurrency trades take place on cryptocurrency exchanges across the globe, amongst multiple users.
3. Enhanced liquidity:
Liquidity refers to how rapidly and efficiently a cryptocurrency can be exchanged into cash without influencing the market price. Liquidity is crucial because it allows for better deals, quicker processing times, and greater technological analysis precision.
Since transactions are spread through several exchanges, the cryptocurrency industry is called illiquid, which ensures that even minor trading has a significant effect on market values. This is actually a big part of why cryptocurrency markets are unpredictable.
When you exchange cryptocurrency CFDs with an execution-service platform, you will benefit from increased liquidity because they procure pricing from various venues on your behalf. This allows trades to be completed more rapidly and at a lower rate.
4. Capacity to go short and go long:
When you purchase a cryptocurrency, you are investing in the asset with the expectation that its value will rise in the future. When trading on the price of a cryptocurrency, on the other hand, you will profit from both rising and declining stocks. Going short is the term for this.
5. Leveraged exposure:
You can open a position on a margin – a payment that is only worth a fraction of the trade’s full market value. In other words, you could gain a significant amount of exposure to the cryptocurrency market while only putting a small sum of money into it.
Trading on margin allows you to make large profits from a comparatively small investment and the profit or loss you gain on the cryptocurrency transactions would represent the maximum valuation of the position at the time it is sold. It can, however, magnify any losses, including losses that surpass your initial deposit for a single transaction.
In a nutshell, you should go ahead with cryptocurrency trading if:
- You want to bet on the price of a cryptocurrency without ever buying it.
- You want to take advantage of your status so that you just have to put up a small amount of money upfront.
- You want to reap the benefits of CFD trading’s tax advantages.
- You want to be able to trade on several markets with only one account.
- You’re eager to get into selling right away.
- You don’t want to pay any charges for deposits or withdrawals.
Frequently Asked Questions
1.What is spread in cryptocurrency exchange?
It’s the distinction between a cryptocurrency’s quoted purchase and sale rates. You’ll typically be given two rates when you open a position on a cryptocurrency exchange. You sell at the buy price, which is just above the stock price, to open a long spot. You trade at the sale price if you want to establish a short position.
2.What is a lot in cryptocurrency trading?
Lots – sets of cryptocurrency tokens that are required to standardize the scale of trades – are often used in cryptocurrency trading. Since cryptocurrencies are so unpredictable, lots are typically small. The majority are just one unit of the base cryptocurrency. Some cryptocurrencies, on the other hand, are exchanged in larger lots.
3.What is leverage in cryptocurrency trading?
Leverage is a method of getting exposure to vast volumes of cryptocurrencies without needing to spend the whole cost of the trade upfront. Alternatively, you make a slight down payment known as margin. When you close a leveraged position, the entire scale of the trade determines the benefit or loss.
Cryptocurrency is not a recent phenomenon in the Indian market. However, since the RBI’s 2018 ban was lifted, crypto assets have been seen to gain new significance. The COVID-19 pandemic has accelerated digital transformation in all industries, resulting in long-term changes such as work-from-home and universal basic income. The broader implementation of bitcoin and crypto and blockchain-based finance platforms in India may have a similar ripple effect and lead to increased adoption and mainstream acceptance.
Mitali Roy is passionate about blogging and writing. She fondly calls it “the art of words”. She believes in the power of content to educate and engage and has been creating unique content in the information and technology domain. You can find her published articles here.