What is Crypto & Crypto Trading

Key Takeaways

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

• Crypto trading can be done through CFDs, aka Crypto CFD Trading or centralized exchanges, each with distinct advantages.

• Key concepts include leverage, margin, lots, pips, and spreads.

• Managing risk is crucial in crypto trading due to market volatility.

The Birth of Cryptocurrency

Cryptocurrency began with the creation of Bitcoin in 2009, in the aftermath of the global financial crisis. In October 2008, an anonymous person or group using the pseudonym Satoshi Nakamoto published a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System," outlining the concept of a decentralized digital currency that would operate 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. In the early years, technology enthusiasts and privacy advocates primarily used Bitcoin. One famous transaction in 2010 involved purchasing two pizzas for 10,000 Bitcoin (worth billions at today's prices).

Following Bitcoin's creation, other cryptocurrencies began to emerge:

Figure 1: Illustrates other cryptocurrencies

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

• Ripple (2012) – Developed for institutional payment systems

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

• Thousands more have followed, each with varying features and purposes

Key Characteristics of Cryptocurrencies

Cryptocurrencies are digital assets designed to function 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 encryption techniques, ensuring security and resistance to counterfeiting. Unlike traditional fiat currencies, cryptocurrencies exist purely digitally, with no physical counterparts. 

Many cryptocurrencies, such as Bitcoin, have a limited supply, with predefined maximum issuance (e.g., Bitcoin’s cap of 21 million coins), which helps influence scarcity and value over time.

What is Cryptocurrency Trading?

Cryptocurrency trading involves speculating on cryptocurrency price movements via a CFD trading account or buying and selling the underlying coins via an exchange. This activity allows traders to capitalize on the volatile nature of crypto markets and generate potential profits.

Traders often adopt different strategies depending on their goals and risk appetite. Day trading focuses on short-term movements, with positions opened and closed within the same day. Swing trading involves holding positions over several days or weeks to capture broader price swings. Meanwhile, spot trading refers to buying and selling cryptocurrencies at current market prices for direct ownership without leverage. Each approach comes with its own set of risks and advantages, and selecting the right strategy depends on the trader’s preferred 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 enable you to speculate on cryptocurrency price movements without taking ownership of the underlying coins. With TMGM's cryptocurrency CFDs:

• You can go long ('buy') if you think a cryptocurrency will rise in value

• You can go short ('sell') if you think a cryptocurrency will fall

• Both approaches use leveraged products, meaning you only need to make a small deposit—known as margin—to gain full exposure to the underlying market.

• Your profit or loss is calculated according to the full size of your position.

• Leverage will magnify both potential profits and losses.

#2 Buying and Selling Cryptocurrencies via Centralized Exchanges

When you buy cryptocurrencies via an exchange:

• You purchase the coins themselves

• You need to create an exchange account

• You must put up the full value of the asset to open a position

• You must store the cryptocurrency tokens in your wallet until you're ready to sell

Exchange trading presents challenges:

• The steep learning curve to understand the technology

• Difficulty interpreting market data

• Deposit limitations on many platforms

• Potentially expensive account maintenance

• Security concerns with wallet management

How Do Cryptocurrency Markets Work?

Cryptocurrency markets operate on a fundamentally different basis than traditional financial markets:

Decentralized Network Structure

Cryptocurrency markets are decentralized, which means they are not issued or backed by a central authority such as a government. Instead, they run across a network of computers. Despite this decentralization, cryptocurrencies can be bought and sold via exchanges and stored in 'wallets.'

Digital Asset Ownership Records

Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership stored on a blockchain. When a user wants to send cryptocurrency units to another user, they send it to that user's digital wallet. The transaction isn't considered final until verified and added to the blockchain through mining. This is also how new cryptocurrency tokens are usually created.

What is Blockchain Technology?

A blockchain is a shared digital register of recorded data. For cryptocurrencies, this is the transaction history for every cryptocurrency unit, which shows how ownership has changed over time. Blockchain works by recording transactions in 'blocks' and adding new blocks at the front of the chain.

Figure 2: Illustrates Blockchain

Advanced Security Features of Crypto and BlockchainUnique Security Features

Blockchain technology has unique security features that standard computer files do not have:

Consensus Mechanisms in Crypto Networks

A blockchain file is always stored on multiple computers across a network – rather than in a single location – and is usually readable by everyone within the network. This makes it both transparent and very difficult to alter, with no one weak point vulnerable to hacks or human or software error.

Cryptographic Foundations of Crypto

Blocks are linked together by cryptography – complex mathematics and computer science. Any attempt to alter data disrupts the cryptographic links between blocks and can quickly be identified as fraudulent by computers in the network.

What is Cryptocurrency Mining?

Cryptocurrency mining checks recent cryptocurrency transactions and adds new blocks to the blockchain.

How Transactions are Verified on the Blockchain

1. Checking Transactions: Mining computers select pending transactions from a pool and check to ensure that the sender has sufficient funds to complete the transaction. This involves checking the transaction details against the transaction history stored in the blockchain. A second check confirms that the sender authorized the funds transfer using their private key.

2. Creating New Blocks: Mining computers compile valid transactions into a new block and attempt to generate the cryptographic link to the previous block by solving a complex algorithm. When a computer succeeds in generating the link, it adds the block to its version of the blockchain file and broadcasts the update across the network.

Figure 3: Illustrates Cryptocurrency Mining

What Moves Cryptocurrency Markets?

Cryptocurrency markets move according to supply and demand. However, as they are decentralized, they remain free from many economic and political concerns that affect traditional currencies.

Key Factors That Influence Crypto Prices

While there is still a lot of uncertainty surrounding cryptocurrencies, the following factors can have a significant impact on their prices:

• Supply: The total number of coins and the rate at which they are released, destroyed, or lost

• Market Capitalization: The value of all the coins in existence and how users perceive this to be developing

• Media Coverage: The way the cryptocurrency is portrayed in the media and how much coverage it is getting

• Integration: The extent to which the cryptocurrency easily integrates into existing infrastructure, such as e-commerce payment systems

• Key Events: Major events such as regulatory updates, security breaches, and economic setbacks

How Crypto Trading Works with TMGM

With TMGM, you can trade cryptocurrencies via a CFD account – derivative products that enable you to speculate on whether your chosen cryptocurrency will rise or fall in value. Prices are quoted in traditional currencies such as the US dollar, and you never take ownership of the cryptocurrency.

CFDs are leveraged products, which means you can open a position for just a fraction of the trade's full value. Although leveraged products can magnify your profits, they can also magnify 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. Like many financial markets, when you open a position on a cryptocurrency market, you'll be presented with 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, which is slightly below the market price

What are Lots in Crypto Trading?

Cryptocurrencies are often traded in lots – batches of cryptocurrency tokens used to standardize the size of trades. As cryptocurrencies are very volatile, lots tend to be small: most are just one unit of the base cryptocurrency. However, some cryptocurrencies are traded in bigger lots.

How Leverage Works in Crypto Trading

Leverage is the means of gaining exposure to large amounts of cryptocurrency without paying the full value of your trade upfront. Instead, you put down a small deposit, known as a margin. When you close a leveraged position, your profit or loss is based on the full size of the trade.

While leverage magnifies your profits, it also brings the risk of amplified losses—including losses that can exceed your margin on an individual trade. Therefore, learning how to manage your risk in leveraged trading is extremely important.

Figure 3: Illustrates Leverage

Crypto Margin Explained

Margin is a key part of leveraged trading. It is the term for the initial deposit you make to open and maintain a leveraged position. When trading cryptocurrencies on margin, your margin requirement will change depending on your broker and trade size.

Margin is usually expressed as a percentage of the full position. For instance, a trade on Bitcoin (BTC) might require 10% of the total value of the position to be paid for it to be opened. Instead of depositing $5000, you'd only need to deposit $500.

Measuring Crypto Price Movement with Pips

Pips are the units used to measure movement in the price of a cryptocurrency and refer to a one-digit movement in the price at a specific level. Generally, valuable cryptocurrencies are traded at the 'dollar' level, so a move from a price of $190.00 to $191.00, for example, would mean that the cryptocurrency has moved a single pip. However, some lower-value cryptocurrencies are traded at different scales, where a pip can be a cent or even a fraction.

Before placing a trade, it's essential to read the details on TMGM's trading platform to ensure you understand the level at which price movements will be measured.

Getting Started with TMGM's Crypto CFD Trading

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

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

3. Choose a Cryptocurrency: Select from available crypto CFDs

4. Analyze the Market: Use TMGM's tools to assess potential trade opportunities

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

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

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

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

Risk Management for Crypto Trading

The volatile nature of cryptocurrency markets makes risk management essential:

• Use stop-loss orders to limit potential losses

• Consider using guaranteed stops for extra protection during major market events

• Keep leverage levels reasonable to avoid excessive exposure

• Diversify across different cryptocurrencies and asset classes

• Never risk more than you can afford to lose

• Stay informed about market developments and news

Free Crypto Trading Courses and Learning Tools

Becoming a successful trader takes skill, knowledge, and practice. TMGM offers everything you need to get there, with a wealth of free trading courses and webinars. It also provides a free demo account with US$100,000 in virtual funds to help build your confidence in a risk-free environment.

We also provide trading strategy insights, market analysis, and news articles for all experience levels—so whether you’re a complete newcomer or a seasoned trader, TMGM has something for you.