Cryptocurrencies are a unique new asset class, which burst onto the world stage during 2017 with sharp rises in price. Cryptocurrencies were at first poorly understood and can still be a confusing concept. We tackle the question of what are cryptocurrencies in the first lesson in this course, which outlines how they are created and administered, and what they represent. This first lesson also looks at blockchain technology, which is at the heart of all cryptocurrencies, and reviews how risky and volatile cryptocurrencies naturally are.

The second lesson asks why cryptocurrencies could be interesting for both traders or investors, with a special focus on traders. The lesson looks at the statistical principle of volatility clustering and infers that there is likely to be a great deal of price movement in the major cryptocurrencies over the near term, as well as reviewing the profits which early investors in significant disruptive technologies have made over recent decades.

The third lesson in this course looks at how to decide whether you might be better off investing or trading in Cryptocurrencies. Accessing cryptocurrencies is not always a straightforward operation, as most Forex/CFD brokers still do not offer trading in cryptocurrencies, and direct investment can present issues of large commissions, storage, and security. The lesson also examines the rough targets and time horizons which make sense for investors and traders respectively.

The final lesson looks at how to trade Cryptocurrencies through a CFD broker, including costs and other issues to watch out for. Methodologies are discussed, including the full details of a complete Bitcoin trading strategy.

9.1  What is Cryptocurrency? 

What is Cryptocurrency? An amazing new asset class which exploded into prominence in 2017. A new type of currency, which will succeed in disrupting the global monetary system and ending cash as we know it, say its admirers, who say it is a store of value superior to precious metals. A passing fad which governments and central banks will soon destroy or subvert, say its detractors.

In this introductory lesson, we explain how cryptocurrency is a new class of currency, created and managed by computer software using blockchain technology, beyond the control of governments and central banks. As a new and highly controversial, little understood asset class, it is both extremely risky, and extremely potentially profitable. 


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9.2  Why Trade Cryptocurrencies? 

Why trade Cryptocurrencies? Cryptocurrencies are a new asset class based upon a potentially disruptive technology, and so are the focus of intense interest from investors, speculators, and traders. Cryptocurrencies have shown extraordinarily high price movements – high volatility, meaning there are potentially large profits that might be made on both the long and short side, although there is also an accompanying extremely high risk.

In this lesson, we explain how cryptocurrency offers a lot of price movement over all time frames, and differentiate between the time horizons of investors and traders. We review the statistical basis for expecting a high amount of price volatility to persist, and for expecting hot new assets making record high prices to be most likely to continue doing so. 

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9.3  Investing versus Trading in Cryptocurrencies 

Investing versus trading in Cryptocurrencies. What is the difference? These two types of speculators have different time horizons, with investors typically aiming to exit with profit after months or years, while traders jump in and out of deals, both long and short, usually in hours, minutes, or even seconds. Investors face the pressures of sitting tight for a long time, usually either itching to grab a profit or cut a loss prematurely. Traders face the pressures of confusion, panic, indecision and snowballing losers. Both must overcome such pressures to succeed.

Traders and investors are forced into using different channels for their operations, with traders effectively confined to the few retail brokerages offering Cryptocurrencies, or a fast-moving exchange. Investors work at a more leisurely pace, and have a much wider choice of exchanges, digital ATMs, or even private transactions.

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9.4  How to Trade Cryptocurrencies ? 

How to trade Cryptocurrencies. Before you can trade Cryptocurrencies, you will need to find an online broker offering the Cryptocurrency or Cryptocurrencies that you wish to trade, to open an account there. Be aware that most traditional Forex / CFD brokers do not offer trading in Cryptocurrencies, and of those that do, only about half offer any other Cryptocurrencies than Bitcoin. It is extremely difficult to locate a broker offering more than the four largest Cryptocurrencies by market capitalization. Most brokers offering Cryptocurrencies place extremely tight restrictions on the maximum leverage offered. Using leverage in trading Cryptocurrencies is extremely risky.

When you are ready to trade Cryptocurrencies, you will need to design a Cryptocurrency trading strategy. You will find that technical analysis is more influential here than fundamental analysis, although a correct fundamental analysis to pick a currency and direction over the long term can increase trading profits. Overtrading can be expensive, as spreads and overnight fees are relatively high compared to traditional Forex currency pairs.

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