How to Trade
Geopolitical events like wars, natural disasters or pandemics can wreak havoc on the global economy and financial markets. During these times traders gravitate towards assets that aren’t influenced by geopolitical factors. Cryptocurrencies are an example of such as they are not regulated by a single nation, government or central bank. Consequently, they are not as susceptible to the global economy as other financial products such as fiat currencies and commodities.
Institutional traders and regulatory authorities across several countries are showing an increased interest in these digital assets, giving cryptocurrency trading a boost. Bitcoin (BTC) continues to be the most popular digital currency to the extent that it is now pitted against major currencies such as the US Dollar and traded as a CFD on the forex trading platforms. Several altcoins such as Ethereum (ETH), Ripple (XRP), and Litecoin (LTC) are gathering more momentum with crypto funds the latest concept to emerge.
The legalisation of digital currencies as a medium of exchange in some countries, including Australia, coupled with the brokers and trading platforms offering trading instruments like contracts for difference (CFDs), is also fuelling the demand for cryptocurrency trading.
Here are answers to some of the most common questions asked by those who want to get involved in the forex market for the purpose of trading Bitcoin or other cryptocurrencies.
Cryptocurrencies are digital currencies that use cryptography to secure and verify transactions as well as to control the creation of new units. The main feature that differentiates cryptocurrencies from fiat currencies is that the former run on a totally new monetary system that is not regulated by a central bank or government.
There are several types of cryptocurrencies, each of them supported by a decentralised peer-to-peer network, based on blockchain technology. The technology ensures that all cryptocurrency units can be tracked, whether they are held in a digital wallet or being used for trading.
As of Q1 2020, the top three cryptocurrencies by market cap were Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP).
What are the
Different Types of
Since the launch of Bitcoin in 2008, thousands of altcoins have been introduced in the market. Nevertheless, only a few are actively traded. Here’s a look.
Launched in 2008, it has been more than a decade since Bitcoin was born as the very first cryptocurrency. Today, it remains the digital currency with the highest market cap and trading volume. Each transaction in Bitcoin is verified through a network of miners who are required to solve complex mathematical problems. The first miner to accurately solve the problem gets to add a new block on the distributed public ledger, earning a reward for their efforts.
The public ledger records all the transactions and cannot be altered by any single party. The blockchain is decentralised, meaning it is not owned by anyone but is self-run and self-governed.
The total supply of Bitcoin is fixed at a maximum of 21 million BTC by its creator, Satoshi Nakamoto. Of this total, more than 18 million are already in circulation. Bitcoin trading accounts for nearly 40% of the total crypto market. Due to the sheer volume that is traded, Bitcoin now has good liquidity with the Bitcoin price a key benchmark for digital currencies.
Launched in 2012, Ripple is both a cryptocurrency and a platform. The Ripple platform is also open source, like Ethereum, that uses XRP as its native currency. This cryptocurrency and digital payment network were designed for use by large corporations moving large amounts of money across the globe.
Ripple’s digital payment protocol allows transfer of money in any form, whether fiat or crypto. Ripple has gained popularity due to its ability to handle up to 1,500 transactions per second.
Bitcoin Cash (BCH)
A hard fork of Bitcoin, implemented in 2017, Bitcoin Cash was launched to overcome some of the limitations of the Bitcoin network, such as speed of transactions. With greater block sizes, BCH allows for a larger number of transactions to be processed, as compared to BTC. In November 2018, BCH was further split into two, Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision).
Created in 2015, Ethereum (ETH) is an open-source ecosystem based on blockchain technology. It not only tracks the ownership of digital currency transactions, but also focuses on running the programming code of any decentralised application. Ethereum enables the use of smart contracts and the development of Distributed Applications or DApps, which are not vulnerable to fraud, downtime or interference by any third party.
The native cryptocurrency of this ecosystem is Ether (ETH), which is the second most traded cryptocurrency, accounting for about 18% of the total trades.
Created in 2011 by Charlie Lee, a former employee of Google, Litecoin works in the same way as Bitcoin, as an online payments system. The main features of this cryptocurrency are shorter transaction times and more concentrated miners.
How to Trade Cryptocurrencies?
Investors have the choice to invest directly in cryptocurrencies via exchanges, or indirectly via funds or CFDs.
Actual Purchase of
The actual purchase of a cryptocurrency can be done by opening an account with a cryptocurrency exchange, as well as a digital wallet to store your holdings. All major crypto exchanges offer wallet services, but it is advisable to store your holdings in an offline wallet on your hard drive or in a hardware wallet. This will help you avoid potential losses that may arise if the exchange gets hacked. Opening an account with a crypto exchange is a simple process that involves the provision of your personal details and submission of some identification documents.
Different crypto exchanges may show different prices for Bitcoin and other digital currencies. This is because each exchange calculates the price of a crypto on the basis of the volume of trades and the supply and demand among its users. Larger exchanges with more sophisticated trading systems such as the MT4 platform trade higher volumes and tend to offer more relevant prices.
Investing in Funds
Investors can also gain exposure to digital currencies by investing in funds that purchase Bitcoin or altcoins. Investment in these funds is possible through conventional investment accounts, such as IRAs and personal accounts. Some funds are extremely active with managers constantly looking for trading opportunities.
Just like forex, digital currencies can be either traded against another digital currency, such as BTC/ETH, or against a fiat currency, such as BTC/USD. Cryptocurrencies can be traded in the form of futures contracts and contracts for difference or CFDs.
When you choose to trade crypto CFDs, you don’t need to gain ownership of the digital currency. This means that you can enter a trade at a fraction of the cost of purchasing the underlying asset. CFDs allow traders to speculate on the future price movements of a cryptocurrency.
For CFD crypto trading, you will first need to open a trading account with a registered and experienced broker. Another advantage offered by cryptocurrency CFDs is leverage, which allows traders to enter into much larger positions than would be possible if they were limited to the funds in their trading account. This is because the trader needs to fund only a percentage of the entire trade, while the broker lends the remaining amount, in the form of leverage.
To trade Bitcoin or other cryptocurrencies with a regulated broker, traders will also need to familiarise themselves with the trading platforms offered.
What are Trading
Both forex and cryptocurrency trading is done through a trading platform that allows traders to execute trades in the cryptocurrency of their choice. The software provides substantial support including technical analysis, charting tools, news updates and an economic calendar which can be used for fundamental analysis of the markets.
Online trading platforms allow traders to access the markets from anywhere in the world, on any device, such as laptop, desktop, smartphone or tablet. MetaTrader 4 and MetaTrader 5 are among the most popular trading platforms with Iress and WebTrader also prominently used. These platforms are offered for free download by brokers, when you open a trading account with them.
Developed by MetaQuotes Software in 2005, this platform is offered by forex and crypto brokers. It has become a benchmark for trading platforms for stocks, currencies, indices, futures and cryptocurrencies. The platform is compatible with MacOS, iOS, Windows and Android. Initially launched to facilitate stock trading, the software is now widely being used to trade all types of assets, including popular cryptocurrencies, such as BTC and ETH. Most brokers offer the software for free to their customers.
The MetaQuotes language MQL4 used in this platform is a script that facilitates automated trading and customisation of technical indicators and libraries, as per the user’s requirements or trading strategy. A trader can also trade directly through a web browser on their MacBook or Chromebook.
Released in 2010, MetaTrader 5 is very similar to MT4 but not an updated version of the latter. Instead, it was designed for a different market, trading in options and futures. The MT5 software is also designed to comply with the no hedging rule in the United States, which states that clients of forex brokers in the USA must deal on a FIFO or First in First Out basis. This is where the two software differ. While MT4 logs every trade individually and allows for management of individual positions separately, MT5 automatically aggregates all positions. So, people outside the US, looking to hedge their positions, prefer MT4 over MT5.
Reputed and experienced brokers offer both MT4 and MT5. Check out the platforms offered before you start trading.
There are numerous advantages offered by both MT4 and MT5 making them the most popular platform for trading forex, cryptocurrencies, commodities, stocks and currencies.
Amazing variety of market analysis tools for both technical and fundamental analysis. For instance, MT5 offers 30 technical indicators as well as 24 analytic objects.
Ability to hedge positions and manage risks, including stop loss, trailing stop loss and pending orders.
In-built push notification, alerts and financial news features.
Market Depth, with real time access to prices and liquidity.
Numerous automation scripts and trading bots, including neural networks, martingale robots and scalpers, to minimise manual effort.
Access to the MetaTrader Marketplace, the largest market for technical indicators, charts and Expert Advisors.
Highly customisable, allowing traders to customise almost all aspects of the platform to their preferences. For instance, traders can change colours and styles of charts to make it easier to understand price movements and identify trends and more. It is easy to add customised indicators too.
Develop your own EAs or technical indicators, using the MQL programming language.
Advanced charting capabilities to help traders simultaneously analyse different aspects of the market.
Demo version offers all the features and functionalities of the platform to help beginners familiarise themselves with MetaTrader and the market they wish to trade in.
Both MT4 and MT5 are multi-language platforms. This means that traders from different countries can use the platform in their native language or whichever language they are most comfortable with. This helps prevent errors that could arise out of a misunderstanding of terms or jargon in an unfamiliar language.
While both MT4 and MT5 offer significant advantages, the latter has two key programming-related advantages over the former. MT5 offers back-testing, where one can test their trading strategies before using them on the live markets. So, for experienced traders who wish to fine tune their strategy by running a large number of back tests, MT5 could prove more useful. But for beginners, MT4 may be more suitable. Most brokers offer both MT4 and MT5, so you can take your pick, based on your experience level and needs.
How to Start Trading
Cryptocurrencies on MetaTrader?
The most important thing in cryptocurrency
trading is to choose a regulated broker, who
will provide the best trading platform and
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