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Trading 101: Utilizing Currency Pairs in Investing and Trading

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As we wrote in our previous look at fiat and cryptocurrency pairs, you can benefit from the properties of exchange rates n several ways. No matter if you are primarily a trader or an investor, it’s essential for you to be familiar with some of the simple methods in order to optimise your strategies and maximise your returns.

Fiat Currencies

In the fiat world, the most important things that affect the value of currencies are interest rates, economic growth, and inflation. Trust is another crucial element, as the “value” of fiat currencies is based on the faith that the currency will be there going forward without losing purchasing power. The value of money also comes from the traditional functions that it serves in the economy:

The three functions of money (Source:disinfo)

Currencies generally move slowly, with a 1% daily change already being considered a significant move. That said, in times of crisis, fiat currencies can quickly lose their value if the faith in them crumbles, destroying the savings denominated in them and jeopardising economic transactions in the territories that use them. Besides the traditional functions of money (store of value, medium of exchange, unit of account), international exchange rates give a new dimension to currencies with several different ways of profiting from them (with the risk of losing money as well).

The most common ways are:

  • Hedging investments in different currencies
  • Speculative positions, forex trading, usually using leverage because of the small movements
  • Benefiting from interest rate differentials (carry trade)
  • Covering exposures and expenses in different currencies; personal hedging

Cryptocurrency pairs

When it comes to crypto-coins, there are several huge differences. First of all, volatility is much higher in them, liquidity is lower (for now), and that has a profound effect on the price movements of the currencies, as well as the most successful strategies that investors should consider. As central banks are constantly destroying the “store of value” function of traditional currencies through inflation, the likes of Bitcoin, Litecoin and Ethereum are even superior in that regards. Also, the coins all have very important usability features that could define the demand for the tokens and their expected future values in addition to their value that comes from their traditional “money” functions.

That said, some of the usage methods of the crypto-pairs are similar to fiat currencies, although the investment component of these positions transforms it to a whole different playing field. Why? Because if you invest in crypto-pairs, so you hold your investments in crypto pairs (not to be confused with buying tokens with other coins such as Bitcoin), you are always betting on the relative performance of the two currencies and that can be a lot different from the performance in fiat terms. This is especially true when trading with leverage. But what is the difference exactly? Let’s see what the case is regarding the different investment/trading methods.

Investing in one or more coins through holding the coins

In this case, your position is simple. You have an exact amount of the various coins that can be changed at any time to other coins or fiat currencies. In this case, by default, the currency pairs are useful for information, and you don’t have to do anything with them. That said, you can still utilise them for hedging, especially if you have a relatively big position in one or more in the coins. This way, you can use currency pairs to temporarily reduce your exposure to the coins without having to sell them or exchange them for other coins.

Let’s see an example:

Let’s say you bought 10 ETH coins for $100 each ($1000 in all) and now those coins are worth $350 each ($3500 in all). Now, you think that Ethereum has risen too quickly, so you want to wait for a correction to re-enter. You could convert your ETHs to Dollars or Bitcoins, but that might take time and it could have steep fees.

What you can also do is to take a short position in the ETH/USD or ETH/BTC pair in any of the exchanges you trade to “hedge” your exposure. This is an instant and possibly cheaper solution than a sale, of course, depending on the transaction and margin costs.

Trading with currency pairs or other investment vehicles

This is the point where it might get a bit confusing for beginners, as with a margin account, the currencies or coins you own are not necessarily reflective of the trading or investment positions you hold. And as traditional brokers are broadening the ways of investing in cryptocurrencies, and we will probably soon see crypto-ETFs popping up, this will likely just get more complicated. So if you have a trading account denominated in Bitcoins, you might actually end up being short Bitcoin through pairs. Also, in the future, you will have more and more ways of getting exposure to cryptocurrencies without even having a wallet or as much as one coin.

So, even if you have a trading account denominated in Bitcoin or Ethereum, you might actually end up being short those currencies through pairs. In the future, you will have more and more ways of getting exposure to cryptocurrencies without even having a wallet or as much as one coin, meaning that you will always have to exactly know what positions you have in the different vehicles and what those mean for your portfolio.

The most important thing, again, is that currency trading means “betting” on the relative performance of two currencies not just investing in a currency. When taking on a leveraged position, these bets might be outsized compared to your portfolio, especially given the volatility of the crypto-world, while also coming with huge transaction costs in the form of commissions and fees.

The different performance of the most traded crypto-pairs in 2017

Of course, as is the case with traditional forex trading, the profit potential is very tempting, but beware that entering the world of investment through short-term trading or day-trading often leads to steep losses, as it is one of the most challenging fields of financial markets. On other note, you can actually reduce your risks with cryptocurrency pairs as well, and get exposure only to the relative performance of two coins, and remove the generally huge volatility of coins versus fiat currencies, like Ethereum’s swings against the Dollar on the chart above

As you can see, currency pairs provide fascinating investment opportunities if you take the time to understand their basic properties. Once again, we would like to encourage you to ask your questions and give your personal insights about the topic in the comment section.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 377 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

Coinbase Unleashes Ox; Volumes Hit Five-Month High; ZRX/USD Surges

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Ox (ZRX) is the latest cryptocurrency to feel the benefits of the Coinbase treatment, and on Wednesday morning trade volumes surged to new five month highs.

Coinbase Pro, the dedicated trading wing of the Coinbase platform, has seen $29 million worth of ZRX trades pass through their books – less than twenty-four hours after exposing the Ethereum-based token to the market.

ZRX/USD

This morning’s surge saw ZRX peak at $1.07 before the momentum cooled – the highest valuation in nearly three months. Even at the current valuation in the $0.90 range, that still leaves ZRX up 76% for the last thirty days.

From Tuesday’s valuation of $0.737949, Ox surged to 44% gains in just over twenty-four hours en route to the $1.07 peak. That was accompanied by a 1,544% increase to trade volumes, carrying total trades from $9 million to $148 million – the highest in five months.

Binance remains the exchange fronting the highest concentration of trades, with over 50% coming from its ZRX/BTC and ZRX/ETH trades. However, Coinbase Pro now accounts for around 18% of all ZRX trades, equalling around $29 million in less than a full day.

The Coinbase Effect

As per the official announcement by on the Coinbase Medium blog:

“Starting today, Coinbase supports ZRX at Coinbase.com and in the Coinbase Android and iOS apps. Coinbase customers can now buy, sell, send, receive, or store ZRX, along with Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic and Litecoin.”

Also noted is that UK and New York customers will not yet have access to ZRX trades, owing to regulatory concerns in those regions, meaning today’s momentous ZRX action has come without the benefits of playing with a full deck, so to speak.

Some of you may remember the last cryptocurrency that got to experience the Coinbase treatment – Ethereum Classic (ETC). Back in early July ETC surged over 30% on the back of the Coinbase announcement, and was bolstered by it during the market wide dip of August.

Since then the effect has been less felt, with less than 1% of ETC trades coming from Coinbase Pro in the last twenty-four hours.

Ox Protocol

Ox is a rare exception in the crypto world right now. Here at the end of 2018 most coins are many hundreds of percent below their all-time highs. Yet with this morning’s surge to $1.07, Ox was briefly just 116% off its ATH.

For some perspective, if Ethereum (ETH) grew in value by 116% it would be priced at just over $400 – some way off the ATH in the $1,400 range. If Ox trade volumes rise by another $6 million today, they will have reached levels not seen since the surge of January 2018.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 79 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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Analysis

Crypto Update: Sideways Drift in Cryptoland

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Not much has changed in the past 24 hours in the cryptocurrency segment, with most of the majors experiencing light trading activity and low volumes following Monday’s spike.

Ripple stayed in the center of attention as the third largest coin has been drifting higher together with Stellar, outperforming the broader market. Despite the gains, XRP also remained clearly in Monday’s range, and the technical setup continues to be shaky even concerning the strongest digital currencies.

While Tether continues to trade with a discount, leading to a slight premium in the price of cryptos on several exchanges, volatility is very low in the markets. Although most of the top coins are slightly lower today, the small moves mean that the total value of the market is still near the $210 billion level, and Ripple is edging closer to Ethereum in market cap yet again.

XRP/USDT, 4-Hour Chart Analysis

Ripple is holding on above the key $0.42-$0.46 zone thanks to its relative strength, but the coin is still on a short-term sell signal in our trend model, as it failed to show real momentum since the surge that was fueled by the dislocation in Tether’s market. XRP still faces strong resistance levels near $0.51, $0.54, and $0.57, and until a move above the spike high, a new short-term uptrend is not confirmed and traders should still not enter new positions.

BTC/USD, 4-Hour Chart Analysis

Bitcoin failed to rally back above the primary resistance level at $6500, even as the coin stabilized well north of the $6275 level and its pre-surge price zone. With that in mind, the coin remained on a short-term sell signal, with a test of the $6000 support still being likely.

While the long-term setup is still neutral, and the long-term support zone near $5850 is fairly safe currently, given the overwhelmingly bearish long-term outlook in the segment, we continue to be defensive towards Bitcoin as well. Further resistance levels are ahead at $6750 near $7000, while below $5850 the next major support zone is found between $5000 and $5100.

Ethereum Holds Just Above $200 as Litecoin and Dash Continue to Lag

ETH/USD, 4-Hour Chart Analysis

With the exception of Ripple and Stellar, altcoins are leaning bearish today, with Ethereum still being the most important laggard of the segment. While ETH is trading above $200, it remains in bearish technical setups on both time-frames, and the recent days confirmed the weakness of the second largest coin again.

Traders and investors shouldn’t enter positions here, as a move towards the $170 bear market low is still likely in the coming period, with strong support level as also found near $180 and $160 and with resistance ahead near $235 and $260.

Dash/USD, 4-Hour Chart Analysis

Dash has been showing weakness throughout this month, and the coin is now likely headed back towards the key $150 level. A move below primary support would warn of a test of the bear market low near $130, while an unlikely move above $170 would signal a trend change. For now, Dash remains on sell signals on both time-frames, and trades should stay away from the coin.

LTC/USD, 4-Hour Chart Analysis

While Litecoin experienced an encouraging bounce in September, it is among the weaker major coins again, and the $51 support level is back in the spotlight. A move below that level is still likely even after the spike above $56 on Monday, since sellers are clearly in control of the currency’s market.

The next major support zone is found near $44, with the bear market low above that at $47, while further resistance is ahead near $59 and $64.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 377 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

TRON Price Analysis: TRX/USD Cools After Reports Suggest of Potential Baidu Partnership, but Not Blockchain Focused

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  • Reports of TRON and Baidu partnership focused on cloud computing resources.
  • TRX/USD price has cooled over the past two sessions, but supported within an ascending channel.

Potential TRON and Baidu Partnership – Not Blockchain Related

The founder of TRON Justin Sun, had left the community very excited on Friday, after tweeting “Finally, First time to partner with tens of billions USD valuation industry giant. Guess the name.”

According to ODaily, a local Chinese newswire, the partnership will be focused on cloud computing resources, not blockchain. It covered that TRON would be buying cloud computing resources from China’s equivalent to Google, Baidu. This was cited and translated by CNLedger.

If this being the case, it could be somewhat disappointing for some of the TRON community. There would have been general expectation and hope, of this being related to the foundation’s blockchain network. As it states the partnership remains focused on the purchase and use of Baidu’s basic cloud computing resources, rather than being a connection “at the blockchain business level.”

The report covered that Tron and Baidu will be working to maximize inter-compatibility. In addition, “to build, operate and debug blockchain products” based on Baidu Cloud. Baidu and Tron have not yet formed any connection at the blockchain business level. Currently the cooperation mainly focuses on the purchase and use of (Baidu’s) basic cloud computing resources.” As covered by CNLedger’s translated report.

Despite the circulating details, there has not been an official confirmation from either TRON or Baidu.

TRON Launches TronGrid

Most recently, TRON launched a website known as TronGrid, which will toolbox for developers. As a result, it will assist them in being able to integrate DApps smoothly into the TRON ecosystem. The move somewhat similar to Ethereum’s Infura.

Technical Review – 4-hour Chart View

TRX/USD 4-hour chart

TRX/USD price has cooled over the past two days now. Following a large spike up to $0.027980 on 15th October, the price had headed deep into a known supply zone. This is seen tracking form around $0.02700 – 0.028500 range. As a result, sellers forced TRX/USD back down within an ascending channel pattern.  It has been grinding higher within this channel since the 12th October.

Given the cooling in price action, it is worth noting the support seen at the lower trend line of the mentioned pattern. Furthermore, comfort can be observed around $0.024850. A breach may see a very fast move back south, reversing the upside move from 12th October. This could see a drop down to $0.020670.

Looking to the upside, should this ascending channel continue supporting the price, as it has been. Then expect bulls to give the near-term supply zone another retest. However, this area has been respected since the back-end of September. It is evident that sellers remain camped within this territory, not an easy task for the bulls to break down. ­

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 30 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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