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Crypto trading refers to the act of taking a financial position on cryptocurrency price movements. Cryptocurrencies can be traded in several ways, either directly through spot markets on centralised (CEX) or decentralised exchanges (DEXs), or indirectly using derivatives such as futures and contracts for difference (CFDs). Spot trading occurs on both CEXs and DEXs, and the average prices on these exchanges are used to provide the base rate for crypto CFD trading.
The crypto market is the organised financial marketplace for cryptocurrencies – digital assets that operate on blockchain technology. It is a complex set of trading venues where cryptocurrencies can be bought, sold or exchanged for other cryptocurrencies or fiat currencies. Compared to traditional financial markets, ‘organised’ is a bit of a stretch here, since the crypto trading space is a dizzying mess of competing trading platforms, brokers and exchanges. Crypto market structure is unique in that it operates 24/7 globally and encompasses both traditional centralised exchanges such as Binance, Coinbase, and Kraken, as well as decentralised protocols such as Uniswap where trading occurs directly on blockchain networks.
The largest markets centre around major cryptocurrencies, especially Bitcoin and Ethereum, which are traded against the USD. Before you get started, it’s important to understand some basics: what is Bitcoin, how crypto works, what is the Blockchain. You can read in-depth articles on these basic cryptocurrency concepts here.
Each crypto market is the responsibility of a different entity, and these entities can be categorised as CEX or DEX – centralised and decentralised markets. Centralised exchanges are operated by companies that maintain order books, provide custody and ensure market integrity. Decentralised exchanges, by contrast, are governed by smart contracts defined on their blockchain, sometimes allowing token holders to vote on protocol changes. For these assets, market making and liquidity provision is handled by specialised trading firms and automated market makers.
Unlike traditional financial markets, with clear closing times and daily liquidity patterns, crypto markets operate continuously across multiple venues, and prices generally moving in sync due to arbitrage. How does this work? Since each coin trades on multiple CEX and DEXs, some traders try and profit off very small price differences between the listings, making risk-free trades known as arbitrage.
It is important to understand cryptocurrency exchanges are not the same as stock exchanges, and crypto assets do not undergo the same thorough screening and reporting standards as exchange listed stocks or commodities.
Centralised exchanges operate similarly to traditional financial exchanges, with a single company controlling the trading venue. Users must create accounts, complete identity verification, and deposit assets which are then held in custody by the exchange. The exchange maintains a central order book, matches trades, and acts as an intermediary for all transactions. Examples include Binance, Coinbase and Kraken . These venues typically offer higher trading speeds, customer support, and accept mainstream payment methods, but require users to trust the exchange with custody of their assets, which is a significant drawback in a new market. Stock exchanges and brokers in traditional financial markets are tightly regulated, with deposit protection available in many jurisdictions, but crypto exchanges operate without any of these safeguards. That makes direct crypto purchases using exchanges risky.
Decentralised exchanges operate directly on blockchain networks through smart contracts, with no central authority controlling the exchange. Instead, transactions take place according to defined, transparent rules, protecting anonymity and avoiding the need for a central clearing authority. These characteristics mean DEX is closer to the original intentions of Bitcoin’s founder(s) as laid out in the Bitcoin white paper. DEX traders retain custody of their assets and trade directly from their own cryptocurrency wallets, with transactions settled automatically on the blockchain. Instead of traditional order books, many DEXs use automated market maker protocols, where liquidity is provided by users depositing assets into pools. These venues aim to reduce the counterparty risk of dealing with a crypto exchange, and they offer greater control over assets and privacy. On the other hand, DEXs often have higher transaction costs and can be technically complex, making them inappropriate for casual crypto traders.
The crypto market is global and decentralised, so UAE crypto traders can access any of the main exchanges or OTC markets directly. Most UAE crypto traders use derivatives like CFDs to access these markets. How are new coins launched? The largest cryptocurrency exchanges like Binance and Coinbase act as primary venues for launching new crypto assets. These exchanges select which assets to list, providing some screening of the provider, and market the assets to the general public.
Although major exchanges do have some oversight over which assets they offer through their platform, it is vital to remember they are not comparable to stock or futures exchanges in terms of thoroughness or consumer protection. ADSS clients can access a range of major cryptocurrencies through CFDs, sharing in the price action of different coins without owning or operating wallets, and providing exposure to this emerging market without entrusting your money to a crypto exchange.
The cryptocurrency market is highly decentralised, even compared to other OTC markets like bonds. While traditional financial markets either rely on exchanges or OTC trades between banks and brokerages, cryptocurrencies can be launched and traded without a formal exchange listing or any institutional backing. That creates large numbers of low-quality coins, most of which are very thinly traded. New cryptocurrencies can be created in different ways: initial coin offerings (ICOs), token generation events, or through ‘forks’ of existing blockchains. A notable example is Bitcoin Cash, which split off as a fork of Bitcoin in 2017, creating a new cryptocurrency by copying and modifying the original Bitcoin blockchain.
The crypto market is heavily concentrated around a few major coins, primarily Bitcoin and Ethereum, which dominate trading volume and market capitalisation. These make up a large majority of total trading volume, and the price of Bitcoin is often used as an indicator of overall crypto market sentiment. Despite the existence of thousands of cryptocurrencies, liquidity and trading volume are almost entirely concentrated in the top 100 assets, and largely concentrated in the top 5.
Bitcoin CFD traders don’t use cryptocurrency in the real economy, instead speculating on price movements in crypto markets without holding the underlying asset. However, Bitcoin and other cryptocurrencies such as Ethereum do serve a function in the real economy. Most people who hold Bitcoin are speculators, but it is accepted as payment by both online and bricks and mortar vendors. For everyday transactions, Bitcoin can be used through cryptocurrency debit cards, which convert crypto to fiat currency at the point of sale, or by making crypto payments. These payments are accepted by some major merchants, especially in the tech sector, and even accepted as legal tender by the government of El Salvador. Even so, the massive volatility seen across crypto markets makes prices unstable. Because of their rapid price swings, crypto assets have achieved more success in speculative investment than as a stable means of payment.
Understanding cryptocurrency markets and the different types of digital assets is the first step to speculating in these volatile markets. At ADSS, we offer CFDs on major cryptocurrencies including Bitcoin, Bitcoin Cash, Ethereum and Litecoin. Before entering your first trade in the cryptocurrency market, it’s important to understand these assets’ characteristics and trading patterns.
Risk management when trading cryptocurrencies requires meticulous attention due to high volatility and a 24/7 trading schedule. Without a clear beginning and end to the session, liquidity does not follow a regular pattern and big moves can happen at any time. It hardly needs to be stressed that crypto is extremely volatile – far more so than any other financial asset. That means routine risk management is more vital than ever, with cautious position sizing and careful use of stop loss orders. Unlike traditional financial markets, there is little to no benefit from diversifying across cryptocurrencies. Cryptocurrency markets show strong correlation between different digital assets, with all crypto assets archetypal risk on assets, and so both bull and bear markets tend to be felt across the entire asset class. Instead, diversification in the crypto market involves taking out short positions, or long positions in uncorrelated risk off assets, such as gold or US treasuries.
Cryptocurrency markets are a challenge for traders, and learning how to trade crypto takes time. Each crypto asset is different, and there is no single route to market for most coins, with volume split across centralised and decentralised exchanges, OTC markets, and derivatives. At ADSS, we offer cryptocurrency CFDs as a regulated way to gain exposure to major digital assets including Bitcoin, Bitcoin Cash, Ethereum and Litecoin, without the complexities and risks of dealing directly with cryptocurrency exchanges or holding coins in online wallets. Trading cryptocurrency CFDs requires an understanding of both the broader cryptocurrency market and the specific characteristics of major digital assets. Because these markets are volatile, proper preparation is more important than ever. Demo account trading and careful position sizing is essential before committing real capital to crypto trading strategies. Read and learn with ADSS today to discover more about cryptocurrency CFD trading, or open an account to experience these volatile markets firsthand.