What is Cryptocurrency & Cryptocurrency Trading

Key Takeaways

• Cryptocurrency is a decentralized digital asset built on blockchain technology, enabling secure peer-to-peer transactions.

• Crypto trading can be conducted via CFDs, also known as Crypto CFD Trading , or through centralized exchanges, each offering distinct benefits.

• Key concepts include leverage, margin trading, lot sizes, pips, and spreads.

• Effective risk management is critical in crypto trading due to market volatility.

The Birth of Cryptocurrency

Cryptocurrency originated with the launch of Bitcoin in 2009, following the global financial crisis. In October 2008, an anonymous individual or group under the pseudonym Satoshi Nakamoto published a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System," outlining a decentralized digital currency designed to operate without intermediaries such as banks.

The first Bitcoin block, known as the "genesis block," was mined on January 3, 2009, marking the official inception of the world's first cryptocurrency. Initially, Bitcoin was primarily used by technology enthusiasts and privacy advocates. A notable transaction in 2010 involved purchasing two pizzas for 10,000 Bitcoin (now worth billions at current prices).

Following Bitcoin's introduction, other cryptocurrencies emerged:

Figure 1: Highlights other cryptocurrencies

• Litecoin (2011) – Developed as a "lighter" alternative to Bitcoin with faster transaction confirmation times

• Ripple (2012) – Designed for institutional payment networks

• Ethereum (2015)– Introduced smart contracts and decentralized applications (dApps)

• Thousands of other cryptocurrencies have since launched, each with unique features and use cases

Key Characteristics of Cryptocurrencies

Cryptocurrencies are digital assets designed to serve as a medium of exchange without reliance on central authorities like governments or banks. They operate on decentralized networks and are secured by advanced cryptographic techniques, ensuring security and resistance to counterfeiting. Unlike traditional fiat currencies, cryptocurrencies exist solely in digital form with no physical representation. 

Many cryptocurrencies, such as Bitcoin, have a capped supply with a predefined maximum issuance (e.g., Bitcoin’’s limit of 21 million coins), which contributes to scarcity and value appreciation over time.

What is Cryptocurrency Trading?

Cryptocurrency trading involves speculating on price movements via a CFD trading account or buying and selling the underlying tokens through an exchange. This enables traders to leverage the high volatility of crypto markets to seek potential profits.

Traders employ various strategies based on their objectives and risk tolerance. Day trading  targets short-term price fluctuations, with positions opened and closed within the same trading day. Swing trading  involves holding positions for several days or weeks to capture larger price swings. Meanwhile, spot trading  refers to buying and selling cryptocurrencies at current market prices for direct ownership without leverage. Each method carries distinct risks and benefits, and the choice depends on the trader’’s style and market outlook.

Two Main Methods to Trade Crypto

#1 Trade Crypto CFDs with TMGM

Crypto CFDs (Contracts for Difference) are derivative instruments that allow speculation on cryptocurrency price changes without owning the underlying tokens. With TMGM'’s cryptocurrency CFDs:

• You can go long ('buy') if you anticipate a cryptocurrency’s value will increase

• You can go short ('sell') if you expect a cryptocurrency’s price to decline

• Both options utilize leverage, meaning you only need to deposit a fraction—known as margin—to gain full market exposure.

• Your profit or loss is calculated based on the full position size.

• Leverage amplifies both potential gains and losses.

#2 Buying and Selling Cryptocurrencies via Centralized Exchanges

When purchasing cryptocurrencies through an exchange:

• You acquire the actual cryptocurrency tokens

• You must create and verify an exchange account

• You are required to pay the full asset value to open a position

• You need to securely store the cryptocurrency in your wallet until you' decide to sell

Trading on exchanges presents challenges:

• A steep learning curve to understand blockchain technology

• Complexity in interpreting market data

• Deposit limits on many platforms

• Potentially high account maintenance fees

• Security risks associated with wallet management

How Do Cryptocurrency Markets Operate?

Cryptocurrency markets function fundamentally differently from traditional financial markets:

Decentralized Network Architecture

Cryptocurrency markets are decentralized, meaning they are not issued or guaranteed by a central authority such as a government. Instead, they operate across a distributed network of computers. Despite decentralization, cryptocurrencies can be traded on exchanges and stored in 'digital wallets.'

Digital Asset Ownership Records

Unlike fiat currencies, cryptocurrencies exist solely as a shared digital ledger of ownership recorded on a blockchain. When a user sends cryptocurrency units to another, the transfer is made to the recipient’s digital wallet. The transaction is not finalized until it is verified and appended to the blockchain via mining. This process also typically generates new cryptocurrency tokens.

What is Blockchain Technology?

A blockchain is a shared digital ledger of recorded data. For cryptocurrencies, it tracks the transaction history of every unit, showing changes in ownership over time. Blockchain operates by recording transactions in 'blocks' and sequentially adding new blocks to the chain.

Figure 2: Depicts Blockchain

Advanced Security Features of Crypto and BlockchainUnique Security Attributes

Blockchain technology incorporates security features not found in standard computer files:

Consensus Mechanisms in Crypto Networks

A blockchain ledger is stored redundantly across multiple computers within a network – rather than centralized in a single location –, and is typically accessible to all network participants. This design ensures transparency and makes data tampering extremely difficult, eliminating single points of failure vulnerable to hacks or errors.

Cryptographic Foundations of Crypto

Blocks are linked using cryptographic algorithms – advanced mathematics and computer science. Any attempt to alter data breaks the cryptographic chain between blocks and is quickly detected as fraudulent by network nodes.

What is Cryptocurrency Mining?

Cryptocurrency mining validates recent transactions and appends new blocks to the blockchain.

How Transactions Are Verified on the Blockchain

1. Transaction Verification: Mining nodes select pending transactions from a pool and verify that the sender has sufficient balance to complete the transfer. This involves cross-checking transaction details against the blockchain’s transaction history. A secondary verification confirms the sender’s authorization via their private key.

2. Block Creation: Mining nodes group valid transactions into a new block and attempt to generate the cryptographic link to the preceding block by solving a complex computational puzzle. Once a node successfully generates this link, it adds the new block to its blockchain copy and broadcasts the update across the network.

Figure 3: Depicts Cryptocurrency Mining

What Drives Cryptocurrency Markets?

Cryptocurrency markets are driven by supply and demand dynamics. However, due to their decentralized nature, they are less influenced by many economic and political factors affecting traditional fiat currencies.

Key Factors Influencing Crypto Prices

Despite ongoing uncertainty, the following factors significantly impact cryptocurrency valuations:

• Supply: The total circulating supply and the rate of issuance, destruction, or loss of tokens

• Market Capitalization: The aggregate value of all coins in circulation and market sentiment regarding its growth

• Media Coverage: The portrayal and extent of media attention a cryptocurrency receives

• Integration: The degree to which a cryptocurrency integrates with existing infrastructures, such as e-commerce payment systems

• Key Events: Significant occurrences such as regulatory changes, security incidents, and economic disruptions

How Crypto Trading Works with TMGM

TMGM offers cryptocurrency trading via CFDs – derivative instruments that allow speculation on price movements without owning the underlying asset. Prices are quoted in fiat currencies such as USD, and traders do not take ownership of the cryptocurrency.

CFDs are leveraged products, enabling you to open positions by depositing only a fraction of the trade'’s total value. While leverage can amplify profits, it also increases the risk of losses if the market moves unfavorably.

Key Terms in Crypto Trading

Understanding Crypto CFD Spreads

The spread represents the difference between the bid and ask prices quoted for a cryptocurrency. As with many financial markets, when opening a position, you will see two prices:

• To open a long position, you transact at the ask price, which is slightly above the market price

• To open a short position, you transact at the bid price, which is slightly below the market price

What are Lots in Crypto Trading?

Cryptocurrencies are typically traded in lots – standardized batches of tokens that define trade sizes. Due to high volatility, lots are generally small, often consisting of a single unit of the base cryptocurrency. However, some cryptocurrencies trade in larger lot sizes.

How Leverage Works in Crypto Trading

Leverage allows traders to gain exposure to larger cryptocurrency positions by paying only a fraction of the total trade value upfront, known as margin. Upon closing a leveraged position, profits or losses are calculated based on the full position size.

While leverage can enhance profits, it also increases the risk of amplified losses—, including losses that may exceed the initial margin on a single trade. Therefore, effective risk management in leveraged trading is vital.

Figure 3: Depicts Leverage

Crypto Margin Explained

Margin is the initial deposit required to open and maintain a leveraged position. When trading cryptocurrencies on margin, the margin requirement varies based on the broker and trade size.

Margin is typically expressed as a percentage of the total position size. For example, a Bitcoin (BTC) trade might require 10% margin, meaning instead of depositing $5,000, you would only need to deposit $500.

Measuring Crypto Price Movement with Pips

Pips are units used to quantify price changes in cryptocurrencies, representing a one-digit movement at a specific decimal level. Generally, major cryptocurrencies are priced at the 'dollar' level, so a price move from $190.00 to $191.00 equals one pip. However, lower-value cryptocurrencies may use different scales, where a pip could represent a cent or a fraction thereof.

Before trading, it is essential to review TMGM'’s platform details to understand the pip measurement for each instrument.

Getting Started with TMGM'’s Crypto CFD Trading

1. Open an Account: Register with TMGM and complete identity verification

2. Deposit Funds: Fund your account using secure payment methods

3. Choose a Cryptocurrency: Select from available crypto CFDs

4. Analyze the Market: Utilize TMGM'’s analytical tools to evaluate trade opportunities

5. Set Your Position Size: Determine appropriate leverage and margin requirements

6. Implement Risk Management: Set stop-loss and take-profit orders

7. Execute Your Trade: Enter long or short positions based on your market analysis

8. Monitor and Close: Track your positions and close trades as appropriate
    
    
    
   

Risk Management for Crypto Trading

Due to the inherent volatility of cryptocurrency markets, risk management is essential:

• Use stop-loss orders to limit potential losses

• Consider guaranteed stop orders for additional protection during major market events

• Maintain reasonable leverage levels to avoid excessive exposure

• Diversify your portfolio across various cryptocurrencies and asset classes

• Never risk more capital than you can afford to lose

• Stay updated on market news and developments

Free Crypto Trading Courses and Educational Resources

Becoming a proficient trader requires skill, knowledge, and practice. TMGM provides comprehensive free trading courses and webinars. Additionally, it offers a free demo account  with US$100,000 in virtual funds to practice trading in a risk-free environment.

We also supply trading strategy insights, market analysis, and news articles suitable for all experience levels—, ensuring that whether you’ are a beginner or an experienced trader, TMGM has valuable resources for you.