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A cryptocurrency is a digital or virtual currency that uses cryptography to secure and verify transactions and control the creation of new currency units. Because they only exist digitally, cryptocurrencies do not have a physical form like notes or coins.
Unlike traditional currencies, which are typically issued and governed by a central authority, such as the US Federal Reserve or the European Central Bank, cryptocurrencies are decentralised. This means they operate independently of a central bank and are instead managed by a network of computers around the world.
The first cryptocurrency and the largest in terms of market capitalisation is Bitcoin. It was created in 2009 by an individual or group under the pseudonym Satoshi Nakamoto, and since then, thousands of other cryptocurrencies have been developed.
The cryptocurrency market is like other well-known financial trading markets such as forex, commodities, and stocks. It consists of a variety of cryptocurrencies, such as Bitcoin, Ethereum, and many others, with buyers and sellers trading the items on each side. As the demand for each cryptocurrency fluctuates, so does the price of the underlying asset in the market. Because the cryptocurrency market is open 24 hours a day, prices are continuously shifting.
The cryptocurrency market has a reputation for being volatile and susceptible to significant price movements. This is due to several factors, including:
Cryptocurrency trading happens when you buy or sell digital currencies with the aim of making a profit from the changing value of the underlying asset. Historically, many traders used Crypto CFDs to speculate on price movements. Today, the landscape is more diverse.
Feature |
Spot Trading |
Crypto CFDs |
Perpetual Futures |
Asset Ownership |
Yes | No | No |
Strategy |
Long-term | Short-term | Short-term & long-term |
Leverage |
No leverage | Up to 200:1 (Axi) | Up to 125:1 (Axi) |
There are two ways to profit from cryptocurrencies. The first is using a digital wallet to buy cryptocurrency at the current market rate, like investing in stocks. Once you own the currency, you profit by selling it at a higher price than what you paid.
Alternatively, you can trade cryptocurrencies as CFDs. This is the same as trading FX and commodities, where you do not own the ‘physical’ asset but instead trade on the price movements, meaning you can profit whether the price is going up or down.
Because cryptocurrency CFD trading allows you to use leverage, a small amount of capital can give you access to a higher-value trade. For example, $1,000 in your trading account with a leverage of 100:1 allows you to open trades to a value of $100,000. Note that while leverage can generate high returns, it also increases the level of risk.
To help understand how crypto CFD trading works, let’s use a simple example:
You want to trade Bitcoin, which is currently priced at $70,000. You believe that the price will go up, so you decide to go long (buy) on Bitcoin. You then enter a contract with a broker to exchange the difference in price between the current price of $70,000 and the future price at which you will close the trade.
Suppose the price does rise, and you close the position when the price of one Bitcoin reaches $80,000. The $10,000 difference in price between when you opened and closed the trade would be your profit. However, you would have suffered a loss if Bitcoin's price fell.
Trading CFDs allows you to benefit even when the market price is falling. In that instance, if you believe the price of Bitcoin will fall, you might enter a short (sell) position. If the market price did go down, you would make a profit. But in this situation, you would lose money if the market price rose.
Since there is no asset ownership involved in cryptocurrency trading, you can start trading with relatively little capital and learn about trading without having to deal with all the complications associated with conventional financial investments, such as stocks and commodities.
Some traders also prefer the crypto market’s characteristic high volatility over traditional markets, as it gives them the potential to make significant gains when using leveraged trading. However, it is important to remember that when using leverage, both gains and losses are magnified, so you need to have a strong awareness of risk management.
The crypto market is accessible to anyone with an internet connection and a computer or smartphone. Trading crypto CFDs can be done 24/7, and it is possible to get started with relatively small amounts of money. Here’s a quick, step-by-step guide on how to trade cryptocurrencies using CFDs:
As a general guide, if you are new to crypto trading, it is important to educate yourself on how the market works and the risks involved. You should also strongly consider starting your investment journey with a small amount of money that you are prepared to lose if the trade goes against you.
Trading cryptocurrencies has several advantages over traditional forms of financial investment, including:
There are also potential disadvantages to trading cryptocurrencies, including:
Because the terms “investing” and “trading” are often used interchangeably, you might think they are the same thing. However, investing in cryptocurrencies differs from trading them.
Investing is a longer-term approach that involves buying the actual token (Spot trading) and holding it for months or years. Investors focus on the fundamentals and tokenomics of the project.
On the other hand, trading is a short-term approach that focuses on the daily price movements of cryptocurrencies. Using instruments like Crypto CFDs or Perpetual Futures, traders do not own the underlying asset and instead use technical analysis to speculate on volatility.
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This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.
FAQ
Bitcoin was the first and remains the most well-known cryptocurrency. It uses blockchain technology to provide a highly secure and decentralised form of digital currency.
Since its inception, bitcoin has been gaining acceptance as a store of value and medium of exchange. It can be traded openly on the markets as a CFD in the same way as other currencies and commodities, along with other cryptocurrencies such as Litecoin, Ethereum, Ripple, and many more.
Blockchain is the underlying technology behind cryptocurrency transactions that helps make them secure. It is a decentralised network of computers that records a sequence of transactions while at the same time making that chain of records transparent to all users in the network.
Each time a new transaction is recorded, a copy of this new block of data is added to the chain and updated across every computer on the network. Therefore, despite not being governed by a formal body, the transparency of blockchain technology makes it simple to detect attempts to tamper with transactions or records.
‘Mining’ is the way a new unit of cryptocurrency enters circulation; you could think of it as being like the way a central bank mints a traditional currency. But the way it happens is not through a printing press; it is through a technologically complex process where significant computing resources are applied to solve complex mathematical equations.
As they work, the miners operate as de facto auditors, checking blocks of cryptocurrency transactions to make sure nobody is attempting to use the same coin again. The miner is compensated with a newly produced unit (or sub-unit) of the cryptocurrency as payment for their assistance in ensuring the currency's overall validity.
Trading cryptocurrency CFDs is the same as trading other financial instruments like foreign exchange, gold, oil, or stock indexes. This is because you are not actually buying the underlying item; rather, you are only trading price changes.
However, it is important to keep in mind as a trader that each asset is susceptible to different market dynamics and acts differently (for instance, certain items are more volatile than others). Because of this, it is crucial to have general market knowledge in addition to technical and fundamental analysis. Additionally, you should use the tools integrated into the trading platform that help protect your account, such as stop-loss and take-profit tools, while trading any financial instrument. You should also have a suitable risk management strategy in place.
One major benefit of trading cryptocurrency CFDs is that a relatively small amount of money, like $100, can be enough to kickstart a trading journey. This is made possible by using leverage. For example, if you applied leverage of 100:1 to a $100 account, you could open a position for $10,000. Be aware that, while there is a chance for substantial rewards, leverage can also increase the chance of losses.
When deciding how much money to use in your trading, it is important to consider your level of overall risk tolerance. Cryptocurrencies are among the riskier and more volatile asset classes, whereas other asset classes are more stable and see less price fluctuation. Knowing how much risk you can tolerate can help you decide which markets to look at and how much money to invest.
No, you do not need your own personal crypto wallet to trade or buy cryptocurrency with Axi. If you are trading Crypto CFDs or Perpetual Futures, you are only speculating on the price movement and not taking ownership of the asset. If you choose Spot Trading (Buy Crypto) to own the actual coins, Axi provides secure custody solutions. This eliminates the technical risks and complexities of managing private keys and personal digital wallets, protecting you from common vulnerabilities like hacking or losing access to your funds.
Axi offers a wide range of cryptocurrency trading products, including Bitcoin, Ethereum, Litecoin, Ripple, and many more. For a full and current list of crypto products, refer to our Product Schedule.
