Crypto trading seems like a new area in blockchain technology and cryptocurrency but it is an integral part of blockchain technology.
For better understanding of this blog post, you can read what is blockchain and different type of cryptocurrencies.
Before we proceed let’s look at the underlying psychology of crypto trading.
Bitcoin as the first cryptocurrency was used as a medium of exchange but as its demand exceeds supply, its price tends to increase.
This is a notable change in Bitcoin because it is now considered as a store of value.
The increase in price leads to more individuals joining the train and buying with the aim of selling at a higher price.
Note that this set of people do not need to understand how blockchain technology works. All that is needed is how to buy and sell any cryptocurrency of their choice.
After much innovation to the trading of crypto assets, contract trading was introduced to crypto trading.
The introduction of contracts trading leads to the current form of crypto trading.
Types of crypto trading
There are two types of crypto trading.
Spot trading
It is easy to know from the name “on the spot” which means immediately.
Spot trading involves transfer of crypto assets immediately payment is made.
The major essence of spot trading is to buy a crypto asset and hodl until the price increases and probably sell.
Selling the cryptocurrency after the price appreciates is the only reason for buying the cryptocurrency.
If you want to exchange Naira for BTC, you can fund your kumo wallet and buy bitcoin. At the point of exchanging naira for BTC, you have performed spot trading.
The ownership of the amount of BTC that you bought is transferred to you immediately.
Spot trading is limited because you only make money if the price of the crypto asset increases.
If it takes longer period for the crypto asset to increase in price, you will have to wait or probably sell at loss
Future trading
For better understanding of future training let’s check out derivatives.
A derivative is a financial contract that derives its value from the performance of an underlying asset. In a derivative market, your contract can either be for an increase in price or a decrease in price.
Future trading is a type of derivative contract which derives its value from the performance of cryptocurrency which can be an increase or decrease in price.
Contrary to spot trading where you make profit by selling at a higher price, you make money in both directions, that is buy or sell, in future trading.
Futures trading can be seen as placing a bet on the price movement therefore your profit is determined by how precise your decision is.
Another advantage of future trading is leverage. It allows you to use more money than your capital in the contract while you are limited to your capital in spot trading.
Nevertheless, future trading exposes your capital to higher risk compared to spot trading and therefore it is considered for experienced and advanced traders.
Do you miss any of this?
Basics of blockchain technology
History of blockchain technology
Introduction to cryptocurrency
Different types of cryptocurrency.
Types of cryptocurrency wallets
About Kumo
Kumo, registered as Kumo Technologies Inc in Delaware, U.S. is a fiat and crypto social payment app which allows users to exchange fiat (NGN) to crypto, save and earn interest in dollar with as low as $5, utility payment such as DSTV subscription, airtime, data among others.
Kumo wallet is your all-in-one social payment app for seamless payment solutions.
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