Trading cryptocurrencies means speculating on price movements of cryptocurrencies via a CFD trading account, or buying or selling the underlying currencies via an exchange.
How does the technology behind Defi work?
The prerequisite for the implementation of decentralized crypto exchanges financial markets is that the underlying blockchain technology supports smart contracts. Smart contracts implement contracts as computer programs and have self-executable and self-enforceable contract conditions. The Bitcoin blockchain, for example, only partially includes the required instruction sets for smart contracts.
The control is decentralized. That is the decisive difference to the traditional financial markets with their centrally acting financial intermediaries. The banks and securities dealers should be mentioned here in particular. These do not apply to the decentralized model.
Defi is undoubtedly experiencing hype at the moment, but in principle, Decentralized Finance is much more than just that. Defi is a huge playing field and opens up the possibility of using new technologies to put the financial world and a wide range of financial services on a new footing. How stable and stable these legs can be in the long run remains to be seen. However, the chances are good that Defi can use the potential to span the world as a new, transparent and decentralized financial system and to connect all participants and users of financial services.
CFD trading with cryptocurrencies
CFDs are financial derivatives that allow you to speculate on the price movements of cryptocurrencies without having to physically purchase the underlying currencies. You can go long buy if you think the respective cryptocurrency is gaining in value, or short sell if you expect the price to decline. CFDs are leveraged products, which means that you only have to make a small deposit – the so-called margin – to receive full market exposure in the underlying market. Since your profits and losses are calculated based on the total size of your position, leverage can lead to larger profits as well as losses.
Buy and sell cryptocurrencies through an exchange
When you buy cryptocurrencies through an exchange, you are physically purchasing the currency. In that case, you open a stock exchange account, deposit the full value of the asset to open a position and hoard the crypto tokens in your wallet until you are ready to sell the cryptocurrency.
Exchanges are a challenge, however, as you have to grapple with the technology and learn to use the existing data. Many exchanges also have restrictions on the amount of money deposited. Account management costs can also be very expensive.
A blockchain is a shared digital record of data. In the case of cryptocurrencies, it is a transaction history of each unit of a cryptocurrency, which shows how the owners have changed over time. The blockchain stores transactions in so-called blocks, with new blocks being appended to the beginning of the chain.
