Cryptocurrencies are digital currencies that operate on a blockchain network. They are decentralized, impervious to hackers, and not subject to government regulations or central bank intervention. An important difference between cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) versus fiat currencies is that they do not exist in any physical form. Digital currencies only exist online and are used for facilitating smart contracts, online transactions, and secure payments processing.
Cryptocurrencies are the next wave of technological evolution. They exist because of the shortcomings in the current financial system whereby central banks, government authorities, commercial banks and retail banks drive up costs and slow down processing times of regular financial transactions. The inefficiencies in the current financial system have facilitated the explosive growth of cryptocurrencies and the blockchain networks they are founded upon.
Some of the many benefits of trading cryptocurrencies include the following:
UK clients are some of the most active cryptocurrency traders and investors in the world
Cryptocurrencies (digital currencies) have minimal transactions processing costs, fees and commissions
They are extremely volatile and can generate significant profits/losses in a fraction of the time of a traditional investment
Cryptocurrencies have recorded the most explosive growth of any financial asset in recent times, and traders who get in early can enjoy significant growth potential
Cryptocurrencies have replaced traditional fiat currency trading almost overnight, with $850 billion invested in this burgeoning new market
Bitcoin and Ethereum are ranked in the top 3 cryptocurrencies by market capitalization and trading volume
Cryptocurrency trading is undertaken in much the same way as traditional currency trading with pairs like the GBP/USD. The difference between Bitcoin and Ethereum and currencies like the USD and the GBP is that cryptocurrencies are traded against fiat currencies, while traditional Forex are official currencies of countries. For example, if the price of Bitcoin is $17,000 per unit, it means that 1 BTC: US$17,000.
By trading cryptocurrencies in a derivative trading instrument such as a CFD (contract for difference) buyers and sellers set prices in the present for delivery at a future date. If the trader goes long, he/she forecasts that the cryptocurrency will appreciate in USD terms. If the trader goes short on the digital currency, he/she forecasts that the price will drop in USD terms. Cryptocurrencies are quoted in pairs like traditional currencies, for example BTC/USD or ETH/USD.
There are many similar trading processes between BTC/USD and GBP/USD for example. However, the volatility with cryptocurrencies is significantly enhanced when compared to the volatility of traditional Forex pairs. There are many other differences between the two, for example fiduciary currencies are fully regulated by the monetary authorities.
Cryptocurrency is not regulated by central banks in any way. Cryptocurrency like Bitcoin is not subject to inflation. However, there is a degree of price inflation built into cryptocurrency valuations. Given that most cryptocurrencies are limited in supply, the inflationary element is notably absent.
While traditional currencies are influenced by geopolitical considerations, monetary and fiscal policy, politics and the like, cryptocurrencies are influenced solely by speculators (supply and demand). However, that will likely change when central banks, corporate establishments and governments start imposing rules and regulations for cryptocurrency trading.
This already started with Bitcoin through futures markets at the CME and CBOE. Government controls regulate price levels with traditional currency; there is no regulation with blockchain technology which operates on independent systems of nodes on decentralized networks.
UK traders should always choose UK-based cryptocurrency trading platforms. FCA regulation is sacrosanct when trading cryptocurrency online. The top UK brokers such as InterTrader, AvaTrade, IQOption, and Markets.com are examples of fully regulated brokers with a range of credible trading options for clients. Factors to consider when trading cryptocurrencies include the number of cryptocurrencies available, the spreads, mobile functionality for iOS and Android devices, and the reputation of the brokerage.
At iForexTrader, all of the featured UK Forex brokers are highly rated by traders. Feel free to browse them at your leisure.