Cryptocurrencies are like any other currency, except that they are not legal tender and are available only digitally. Despite these differences, cryptocurrencies can be spent to buy goods and services, saved, traded and invested, much like fiat money.
Cryptocurrencies can be traded on a cryptocurrency exchange, which operates like any fiat currency exchange. The difference is that you can trade cryptocurrencies anonymously.
Trading on a Cryptocurrency Exchange
You would need to sign up and open an account, before you can begin buying Bitcoin, Ether and/or other cryptocurrencies, using fiat money. Cryptocurrencies can be purchased using any top currency, like euros and dollars.
The value of cryptocurrencies is relative to fiat currencies, just like the value of one fiat currency is relative to that of another. The value of a fiat currency is influenced by the country’s economic and political environment. If the economy is strong and there is political stability, the currency would be valued higher than another currency that belongs to an economically and politically weaker nation.
In some countries, the government would set the exchange rate of its currency, which then determines its value, albeit artificially. Also, governments can influence the exchange rate between currencies by regulating the flow of money via the nation’s central bank. Cryptocurrencies are not subject to such manipulations.
Cryptocurrencies can be traded like any commodity. A cryptocurrency exchange would facilitate this activity by publishing prices and supporting transactions.
Just like the forex market or trading in any commodity, you would need to watch the market for opportunities to make money and try your best to minimise the risk of losses. Given high volatility in the cryptocurrency market, the profit potential is huge, while also posing substantial risk.
The trading principles and strategies would be similar to what you may use in the forex market or when trading commodities. The advantage here would be low transaction fees when trading cryptocurrencies.