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Gone are the days where traders focused on one financial market.
Retail investors trading Forex on the MetaTrader 4 (MT4) platform often monitor and trade other financial instruments, including the cryptocurrency market in the form of cryptocurrency CFDs (contracts for difference). CFDs are a derivatives product that’s readily accessible on the MT4 platform. Derivatives are capital-efficient trading instruments, deriving their value from underlying assets. Therefore, rather than trading on one of the many crypto exchanges, CFD traders can trade crypto derivatives, essentially betting on the rise and fall of the underlying crypto market.
The Cryptocurrency Market
The cryptocurrency market is a place where virtual currencies are secured by cryptography. Many cryptocurrencies are decentralised networks, based on blockchain technology: a digital ledger of transactions.
Normally, traders buy/sell cryptocurrencies on exchanges, holding coins in a virtual wallet until ready to settle. That’s the basics and is how the majority start trading.
However, as already highlighted above, CFDs are an alternative investment vehicle.
MetaTrader 4: A Versatile Trading Platform
Experienced Forex traders arm themselves with various trading strategies to operate successfully in the Forex market. Crypto trading is no different; a well-defined trading plan should be in place to effectively speculate on digital currencies.
Some Forex traders automate trading systems, generally referred to as Expert Advisors (EAs) or Trading Robots. This is a popular feature on MT4, programmed via MetaQuotes Language 4 (MQL4), and is available to crypto traders.
It is recommended that each trading system is thoroughly back tested in all trading conditions before unleashing it on the live market. A demo account, a simulated practice account, allows traders to not only familiarise themselves with the platform’s functions, but also back test and forward test prospective trading systems, including risk-management strategies.
Trade Cryptocurrencies: Fundamental Analysis
Bitcoin CFDs are a common starting point to begin trading cryptocurrencies. Not only is an abundance of information and research available, BTC has the largest market cap in the crypto market.
It is important to gain a fundamental understanding of BTC and its underlying technology: blockchain technology. Doing so, investors can undertake fundamental analysis to help forecast the price of bitcoin. Fundamental analysis is more suited to long-term investment horizons.
Traders who employ fundamental analysis to trade bitcoin must also analyse associated fiat currencies paired with the CFD. For example, BTC is usually traded against the US dollar (USD), known as the BTC/USD pair. In this example, traders should track the US Federal Reserve’s (the ‘Fed’) monetary policy framework (the central bank in the United States). There are three primary tools the Fed have at their disposal: the discount rate, reserve requirements and open market operations (OMOs).
Trade Cryptocurrencies: Technical Analysis
Due to the high volatility of cryptocurrencies compared to other financial markets, short-term traders are drawn to this market, largely focused on technical analysis. Technical analysis attempts to forecast price movement based on price history and volume studies.
Although MetaTrader 5 (MT5) has more technical indicators than MT4, the abundance of built-in indicators on MT4’s platform is sufficient for most advanced traders. These indicators are also available via the MT4 app on Android and iOS. With FP Markets, you can trade Forex and CFDs across shares, indices, commodities, futures and cryptocurrencies with our very own Trading App.
Irrespective of the technical approach, whether that be a price action method, a system developed on the back of technical indicators or a combination of the two, working with a well-defined trading plan is a must. This should include a trade management system (entry and stop-loss, for example), detailed trading strategies, and also clear risk and money-management arrangements.
Popular price action methods involve support and resistance levels, trendline studies and Japanese candlestick analysis. A common trading strategy involves locating clear support and resistance levels and confirming these areas with bullish and bearish Japanese candlestick patterns.
Frequently used technical indicators are moving averages, the Relative Strength Index (RSI), and Stochastics. Moving averages work well in trending environments, while the RSI and Stochastics are momentum oscillators and are considered to be better suited to ranging price action. Traders generally adopt crossover strategies with moving averages, involving longer-term and shorter-term timeframes. Another popular approach is a price crossover, whereby traders wait for price movement to close above or below a specified moving average to signal a trend change. The 200-day and 50-day simple moving averages (SMAs) are widely used.
Cryptocurrency Trading: Moving Forward
With an FP Markets trading account you can access the cryptocurrency market and trade the most popular cryptocurrencies, including Bitcoin, Ethereum, Ripple, Bitcoin Cash, and Litecoin. There is no requirement for a digital wallet and our cryptocurrency CFD trading platforms allow clients to trade both rising and falling prices.
To help newer traders, most Forex brokers provide free access to detailed technical and fundamental research as well as educational resources. FP Markets offer a dedicated Traders Hub, covering daily technical and fundamental analysis, weekly reports and regular webinars.
Disclaimer: The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives carry a high level of risk; losses can exceed your initial payment. FP Markets recommends that you seek independent initial investment advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.