What is Cryptocurrency & Cryptocurrency Trading

Key Takeaways

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

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

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

• Effective risk management is essential 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," introducing the concept of a decentralized digital currency operating without intermediaries like banks.

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

Following Bitcoin'’s inception, other cryptocurrencies emerged:

Figure 1: Illustrates other cryptocurrencies

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

• Ripple (2012) – Designed for institutional payment systems

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

• Thousands more have followed, 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 such as governments or banks. They operate on decentralized networks and are secured through advanced cryptographic methods, ensuring security and resistance to counterfeiting. Unlike traditional fiat currencies, cryptocurrencies exist solely in digital form, with no physical representation. 

Many cryptocurrencies, including Bitcoin, have a capped supply with a predefined maximum issuance (e.g., Bitcoin’’s limit of 21 million coins), which influences scarcity and long-term value.

What is Cryptocurrency Trading?

Cryptocurrency trading involves speculating on price movements through a CFD trading account or buying and selling the underlying tokens via an exchange. This enables traders to leverage the inherent 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 over several days or weeks to capitalize on broader market swings. Meanwhile, spot trading refers to purchasing and selling cryptocurrencies at current market prices for direct ownership without leverage. Each method carries distinct risks and benefits, and selecting the appropriate approach depends on the trader’’s style and market outlook.

Two Main Ways to Trade Crypto

#1 Trade Crypto CFDs with TMGM

Crypto CFDs (Contracts for Difference) are cryptocurrency derivatives that allow you to speculate on price movements without owning the underlying tokens. With TMGM'’s crypto 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 value 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 total 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 tokens

• You must create and verify an exchange account

• You need to provide the full asset value upfront to open a position

• You are responsible for securely storing the cryptocurrency in your wallet until you' decide to sell

Trading on exchanges presents challenges:

• A steep learning curve to understand the underlying technology

• Complexity in interpreting market data

• Deposit limits on many platforms

• Potentially high account maintenance fees

• Security risks related to wallet management

How Do Cryptocurrency Markets Work?

Cryptocurrency markets function fundamentally differently from traditional financial markets:

Decentralized Network Architecture

Cryptocurrency markets are decentralized, meaning they are neither issued nor backed 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 traditional fiat currencies, cryptocurrencies exist solely as a shared digital ledger of ownership recorded on a blockchain. When a user transfers cryptocurrency units to another user, the transaction is sent to the recipient’s digital wallet. The transaction is not finalized until it is verified and appended to the blockchain through 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 records the transaction history of every unit, showing how ownership has changed over time. Blockchain operates by grouping transactions into 'blocks' and sequentially adding new blocks to the chain.

Figure 2: Illustrates Blockchain

Advanced Security Features of Crypto and BlockchainUnique Security Features

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

Consensus Mechanisms in Crypto Networks

A blockchain ledger is stored redundantly across multiple computers in the network – rather than centralized in a single location – and is typically accessible to all network participants. This structure ensures transparency and makes unauthorized alterations extremely difficult, eliminating single points of failure vulnerable to hacking or errors.

Cryptographic Foundations of Crypto

Blocks are cryptographically linked –using advanced mathematics and computer science. Any attempt to tamper with data breaks these cryptographic links, which network nodes quickly detect as fraudulent.

What is Cryptocurrency Mining?

Cryptocurrency mining validates recent transactions and adds 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 that the sender authorized the transaction using their private key.

2. Block Creation: Mining nodes bundle valid transactions into a new block and attempt to generate the cryptographic link to the previous block by solving a complex computational puzzle. Upon success, the block is appended to the blockchain and the update is broadcast across the network.

Figure 3: Illustrates Cryptocurrency Mining

What Drives Cryptocurrency Markets?

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

Key Factors Influencing Crypto Prices

Although cryptocurrencies remain subject to considerable uncertainty, the following factors significantly impact their price movements:

• Supply: The total circulating supply and the rate at which coins are issued, burned, or lost

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

• Media Coverage: The portrayal of the cryptocurrency in media outlets and the extent of coverage

• Integration: The degree to which the cryptocurrency is adopted within 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

With TMGM, you can trade cryptocurrencies via a CFD account – derivative instruments that allow speculation on whether a cryptocurrency’s price will rise or fall. Prices are quoted in fiat currencies such as the US dollar, and you do not own the underlying cryptocurrency.

CFDs are leveraged products, meaning you can open a position by depositing only a fraction of the trade'’s full value. While leverage can amplify profits, it also increases potential losses if the market moves against you.

Key Terms in Crypto Trading

Understanding Crypto CFD Spreads

The spread is the difference between the buy and sell prices quoted for a cryptocurrency. As with many financial markets, when opening a position in a cryptocurrency market, you' will see two prices:

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

• To open a short position, you trade at the sell price, slightly below the market price

What are Lots in Crypto Trading?

Cryptocurrencies are commonly traded in lots – standardized batches of tokens used to define trade sizes. Due to high volatility, lot sizes tend to be small, often just one unit of the base cryptocurrency. However, some cryptocurrencies are traded in larger lot sizes.

How Leverage Works in Crypto Trading

Leverage allows traders to gain exposure to larger cryptocurrency positions without paying the full trade value upfront. Instead, a margin deposit is required. Upon closing a leveraged position, profits or losses are calculated on the total trade size.

While leverage can enhance profits, it also increases the risk of amplified losses—, including losses exceeding your initial margin on a single trade. Proper risk management is therefore critical in leveraged trading.

Figure 3: Illustrates Leverage

Crypto Margin Explained

Margin is the initial deposit required to open and maintain a leveraged position. Margin requirements vary depending on the broker and trade size when trading cryptocurrencies on margin.

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

Measuring Crypto Price Movement with Pips

Pips measure price changes in cryptocurrencies and represent a one-digit movement at a specific decimal place. High-value cryptocurrencies are generally priced at the 'dollar' level, so a price change from $190.00 to $191.00 represents one pip. Lower-value cryptocurrencies may have different scales, where a pip could be a cent or a fraction thereof.

Before trading, it' is important to review TMGM'’s platform details to understand how price movements are measured.

Getting Started with TMGM'’s Crypto CFD Trading

1. Open an Account: Register with TMGM and complete 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 identify trade opportunities

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

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

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

8. Monitor and Close: Track your position and close it when appropriate
    
    
    
   

Risk Management for Crypto Trading

Due to the high volatility of cryptocurrency markets, risk management is critical:

• Use stop-loss orders to limit potential losses

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

• Maintain reasonable leverage levels to avoid excessive risk exposure

• Diversify your portfolio across different cryptocurrencies and asset classes

• Never risk more than you can afford to lose

• Stay updated on market developments and news

Free Crypto Trading Courses and Learning Resources

Becoming a successful trader requires skill, knowledge, and experience. 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 provide trading strategy insights, market analysis, and news updates for traders of all levels—, ensuring that whether you’ are a beginner or an experienced trader, TMGM has resources tailored for you.