What is it about Cryptocurrencies?

What is it about Cryptocurrencies?

Cryptocurrencies are fast becoming the newest and most volatile asset class for some fund managers. However, as in any form of securities trading, be it in FX, shares, market indices or commodities, the upside potentials for trading in cryptocurrencies need to be weighed against the downside risks.

Dominating news headlines throughout 2017, Bitcoin climbed from US$985 in January 2017 to US$17549 at its peak in December of that year. In a single year, Bitcoin climbed to nearly 18 times the value it had at the start of the year before falling more than 60% to its current value at the US$6,000 level.

Cryptocurrencies are, without a doubt, the newest and most exciting asset class on the market. There continue to be opportunities to trade cryptocurrencies but beware of the accompanying downside risks as well.

What are cryptocurrencies?

Cryptocurrencies are digital or virtual currencies, and typically feature cryptography as a security feature to prevent or deter counterfeiting. They are not issued by financial authorities or governments and their market values are not backed by the issuer's holding of gold or foreign reserves but determined by demand and supply forces. Cryptocurrencies were created to facilitate transfers of funds between any two parties, which in turn would allow the parties to complete the transfer without having to pay transfer fees.

What is the appeal of cryptocurrencies? What are the risks?

Cryptocurrencies, unlike government-issued currencies like the US Dollar, are entirely virtual and are not regulated in most jurisdictions. Some cryptocurrencies utilise blockchain technology, made famous by Bitcoin.

Blockchain technology allows Bitcoin to keep an online ledger of all transactions made using Bitcoin, which means that every new block along the chain must be verified by the ledgers of all other users on the market. This makes it difficult to forge transaction histories, although it does not mean that Bitcoin is completely secure and immune to hacking.

Cryptocurrencies are stored virtually, which means that if there is no backup of the holdings anywhere when the storage device crashes, investors' holdings can be wiped out. Theft by hacking is also possible and has indeed occurred.

More fundamentally, however, the value of cryptocurrencies is determined purely by supply and demand. Because there are no physical assets or foreign reserves for a cryptocurrency to be based on, their values can fluctuate in extremes. The newness of cryptocurrencies also makes it harder to be certain about how much a cryptocurrency should be worth.

How should I trade cryptocurrencies?

First, understand that cryptocurrency trading is speculative and risky. You should only trade with money that you are willing to lose in a worst-case scenario.

Second, find a regulated broker that offers contracts for difference ("CFD") on cryptocurrencies, such as Plus500. You could buy and sell a cryptocurrency directly, but because that transaction would not take place on a regulated exchange, you face counterparty risks. One such risk is where the other party does not hold up their end of the deal and absconds with the funds or cryptocurrencies you have transferred to them. Trading with a regulated CFD broker will ensure that the transaction is fulfilled. A CFD allows the trader to speculate on the price movements but not own the underlying cryptocurrencies.

However, do note that even with regulated brokers, traders may not be entitled to some regulatory safeguards because cryptocurrencies themselves are not regulated in Singapore.

Trade CFDs on Plus500

Plus500 is licensed and regulated by the Monetary Authority of Singapore and is a leading provider of CFDs. Plus500 offers CFDs on more than 2000 instruments from Forex to stocks. It was also one of the first brokers to introduce a Bitcoin CFD in 2013.

Plus500 has a user-friendly multi-asset trading platform that provides access to all those instruments. The platform also comes with an intuitive interface that supports complex technical analysis tools, and an economic calendar that keeps you up to date on important economic announcements and events that could affect the underlying instruments you are trading.

Trade with Care

Like all other forms of speculative trading, cryptocurrency CFD trading is risky. When entering trades, be sure to only put at risk money that you are willing to lose. The potential for profit exists, but so do the potential for loss.

For more information, please visit https://www.plus500.com.sg.

Note: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.

 

About Plus500

Plus500 is a leading provider of Contracts for Difference (CFDs), delivering trading facilities on shares, forex, commodities, ETFs, options and indices, alongside innovative trading technology. Plus500SG Pte Ltd (UEN 201422211Z) holds a capital markets services license from the Monetary Authority of Singapore for dealing in securities and leveraged foreign exchange trading (License No. CMS100648-1) and a Commodity Broker's License (License No. PLUS/CBL/2018) from Enterprise Singapore. The company currently offers a portfolio of over 2,000 instruments. Plus500SG Pte Ltd is a subsidiary of Plus500 Ltd, a company listed on the AIM section of the London Stock Exchange (LSE).

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