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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 293 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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Analysis

Crypto Update: Bitcoin Blows Through $7000 but Altcoins Still Lag Behind

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The relief rally in the cryptocurrency segment continued in earnest today, as Bitcoin still lead the way higher posting its best daily performance since April. The most valuable coin stole the show, although the whole market blasted higher, with the total value of the coins getting close to $300 billion, up by around 20% in a matter of days.

While the segment is still not out of the woods, BTC triggered a short-term buy signal in our trend model, as it overcame major resistance levels for the first time since May, finally showing some technical progress. That said, most of the majors are still stuck in, or right at the top of their trading ranges, and besides Bitcoin, buy signals are few and far between even considering the smaller coins, as correlations are still very high.

Trading volumes were also the highest in months, as especially Bitcoin triggered automatic orders while surging through several strong resistance levels. Bulls would still need further coins to join the break-out and fro now the long-term setup is still just little changed.

BTC/USD, 4-Hour Chart Analysis

BTC cleared the $6750, $7000, and $7350 levels in a bit more than an hour, and the epic short squeeze settled down near the latter resistance, for now. The coin is now on a short-term buy signal, and should a higher low form in the coming days, a new short-term uptrend could be established.

The coin needs to stay above the $7000 level to keep the signal intact, and given the relative weakness in Altcoins, the long-term outlook is still mixed. Resistance is now ahead between $7650 and $7800, while further support is at $6500.

Ethereum at $500 as Ripple Tests $0.51

ETH/USD, 4-Hour Chart Analysis

While Bitcoin is already above primary resistance, Ethereum is trading right at the $500 level, leaving the short-term trading range intact. The coin is close to triggering a buy signal, but it remains relatively weak and traders should wait for follow-through before playing a possible trend change. Primary support is still found at $450, with other levels at $420, $400, $380, and $360, while further resistance is ahead between $555 and $575.

XRP/USDT, 4-Hour Chart Analysis

With all of the majors registering large gains, and even some the recently weak coins like LTC, XRP, and Dash are trading near key resistance levels, further short-term buy signals could pop up in the segment, but until a confirmed new uptrend, traders should remain cautious with new positions.

As an example, Ripple is trading slightly above the $0.51 resistance currently, but a break-out is not yet confirmed, and the trading range remains dominant. Further resistance levels are ahead at 0.54 and $0.575, while support is now found at $0.49 and $0.45.

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 293 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

Altcoins ADA, BAT, XLM, ZEC and ZRX Enjoy a Coinbase Pop

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The Ethereum price wasn’t able to hold onto its gains today despite seemingly marching toward the $500 level on Monday, as market technicians have predicted that the downward trend remains intact despite yesterday’s rally. Meanwhile, daily trading volume in the cryptocurrency market is hovering at about $13.8 billion compared to its 2017 peak of more than $50 billion, as per CoinMarketCap data cited in reports.

The more trading in digital currencies, the higher the revenue of bitcoin exchanges like U.S.-based Coinbase, which incidentally is in the process of adding a handful of altcoins. While it may seem that Coinbase’s answer to the weaker average trading volume these days is to bolster its platform with more coins, a leading exchange executive said that’s not the case. Coinbase Vice President and General Manager Adam White told CNBC that customer demand fueled the decision.

“Certainly volumes today are lower than they were at the end of Q4 and January. The idea behind adding new assets is very simple: our customers want it,” White said, adding that more than 20 million individuals are signed up on the exchange in addition to institutional investors, the latter of whom are demonstrating “unprecedented” interest in the space.

The assets that Coinbase is moving toward adding include Cardano (ADA), Basic Attention Token (BAT), Stellar Lumens (XLM), Zcash (ZEC) and 0x (ZRX). And while these coins are likely to be directed to the exchanges indexes, their presence does not reflect a bullish position on the part of Coinbase, White noted. Nonetheless, let’s take a look at each of them.

Cardano (ADA)

eToro exchange just published a report focused on Cardano, referring to the smart-contract-fueled platform as “Blockchain 3.0.” Cardano remains in the nascent stages but it’s designed to pick up where the Bitcoin and Ethereum networks fall short on scalability. ADA has advanced about 13% since Coinbase’s Friday announcement. But Cardano has shed more than three-quarters of its value since the beginning of the year.

Basic Attention Token (BAT)

Basic Attention Token describes itself as a “blockchain-based digital asset” startup. BAT is advancing more than 4% today and has been among the top performers since Coinbase announced plans to add the coin. BAT has added 33% to its value since the Coinbase announcement.

Stellar Lumens (XLM)

Stellar is advancing about 1% today and has tacked on about 28% since the Coinbase announcement. The coin also got a boost when the SEC Thailand said that Stellar would be an acceptable form of payment by iPO issuers. A Stellar follower on Twitter joked that soon XLM would be accepted at every McDonald’s.

Zcash (ZEC)

Privacy coin Zcash is up almost 2% today and its value has ballooned by 22% since the Coinbase announcement. ZEC was also added by fellow U.S.-based cryptocurrency exchange Gemini in recent weeks, so it has the tailwind of both listings.

0x (ZRX)

The thing about 0x is that it already had a relationship with Coinbase ahead of the listing announcement. So much of the enthusiasm for a listing may have already been baked into the price. ZRX is shedding some ground today, down about 1%, but it’s up about 48% since last week.

Disgruntled XRP Investors

Coinbase was accused by some XRP investors, a community that has been waiting for their Coinbase day in the sun, of price manipulation in the altcoin the exchange announced it’s exploring now.

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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4.6 stars on average, based on 23 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.




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Altcoins

Dogecoin Price Surges 20% After Robinhood Listing

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Dogecoin has been one of the day’s biggest movers, climbing 20.8% and trebling its daily volume in the process.

Given that we’re dealing with DOGE, we’re going to have to make full use of our decimal places. This time last night one DOGE coin was trading at a price of $0.0024. Fast forward 24 hours and its value now stands at $0.0029 – that’s a 20.8% growth which has come fairly steadily over the last day, except for the brief spike which sent it to $0.0027 at 6pm (UTC) last night.

Today’s movement puts Dogecoin at 31.8% gains for the week, based on the $0.0022 starting point seven days ago.

Looking at DOGE’s monthly numbers, we see that it has now returned to the monthly high with its breach of the $0.0029 mark today. But as is always the case at this stage of a market downturn, such numbers require to be placed in the larger context. Three months ago, during the mild peak of April, one DOGE was worth $0.0058, meaning that even with today’s growth factored in, Dogecoin is still down 50% over the last 90 days.

Robinhood and DOGE

Recently launched crypto exchange, Robinhood, added Bitcoin Cash and Litecoin just last week, and now a press release has dropped which signals Dogecoin’s integration onto the Robinhood platform. As stated in the release:

“Starting today, you can invest in Dogecoin on Robinhood Crypto, commission-free. With last week’s announcement of Litecoin and Bitcoin Cash, you can now invest in five different cryptocurrencies on Robinhood.”

Robinhood is a U.S based exchange which offers compatibility with stocks and ETF trading, as well as cryptocurrencies. The service is only available in the U.S at the moment, but has not yet been rolled out across all states. According to Robinhood they are currently working on extending their reach beyond the current 17 states they have already.

“We’re working hard to make Robinhood Crypto available to everyone, and it’s currently available in 17 states: AZ, CA, CO, FL, IN, MA, MI, MS, MO, MT, NJ, NM, PA, TX, UT, VA, and WI.”

Beyond the Meme

Everyone will be somewhat familiar with DOGE’s humble beginnings in the crypto space, and many initially derided it for its seeming silliness and triviality.

Yet the community at large thought differently, and eventually DOGE grew in stature to become a regular fixture in the top-100 coins, and has taken its position just in front of the fire in the cryptocurrency living room.

During January’s peak DOGE reached a market cap of over $2 billion and a price of $0.0178. DOGE’s 11 billion circulating supply contributes to keeping its relative value down, but Dogecoin has often popped up as the most transacted cryptocurrency in existence at certain times, although not necessarily the most valuable.

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 23 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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