Binary Options Cryptocurrency
Cryptocurrencies are digital assets. They are a means of exchange which uses cryptographic functions to initiate and execute financial transactions. The events that led to the development of cryptocurrencies is a long and interesting one, starting in 1983 when David Chaum, a cryptographer, conceived the idea of electronic payments and invented DigiCash.
However, the first official cryptocurrency would not come into existence until 2009, when Satoshi Nakamoto, a pseudonymous developer, created the Bitcoin. Bitcoin was followed by a flurry of other cryptocurrencies, with the creation of Namecoin and Litecoin in April and October 2011 respectively. Today, there are over 5,000 cryptocurrencies. Many more are still being developed. They have a total market capitalisation of at least $200 billion, with Bitcoin and Ethereum still having the largest share.
The emergence and increasing popularity of both binary options and cryptocurrencies have generated different reactions. For example, to many traders, binary options are a perfect speculative product while cryptocurrencies are a more effective store of value than the fiats. But to regulatory authorities, they are products to be watched with the eyes of the hawk.
Binary options and cryptocurrencies have some notable characteristics. While some have made them face intense regulatory scrutiny, others have made them attract trading and investing interest. Binary options, being purely speculative contracts, have an expiry time, which can be as short as 30 seconds and as long as a month, and a fixed payout, which is as high as 92% of the amount invested into the trade.
The standard type of binary options only requires you to predict if the price of a particular underlying instrument will either go up or down. However, more types of binary options, including one touch no-touch binary options, double-touch, and double no-touch, have now emerged. A one-touch binary option trade, for example, is said to be successful once a predetermined price of its underlying asset is touched once.
On the other hand, the most important characteristics of cryptocurrencies are:
Cryptocurrencies are completely decentralised. However, this decentralisation has to be defined. It is political and architectural decentralisation. They are politically decentralised in that they are not subject to the control of anyone while their architectural decentralisation stems from the fact that there is no infrastructural point of failure for them.
This characteristic of decentralisation helps to disperse power. As opposed to fiat currencies which central banks and governments can create and influence at will, cryptocurrencies are logically centralised, ensuring that they are completely independent of the power of any individual or government. This reduces their chances for failure and also helps to protect them against attack.
Blockchain is the underlying technology of cryptocurrencies and every cryptocurrency transaction is recorded on it. As far as it is concerned, it is completely immutable. That means that any transaction done on it cannot be undone. This characteristic comes with interesting consequences.
For example, as long as your details are not compromised, you are the only one that can move your funds. Since the elements of centralisation and trust have been removed from their operations, cryptocurrency transactions cannot be influenced by any third party and there is no need to trust anyone on them. As a result, the ledger of cryptocurrency transactions is extremely difficult to change.
Cryptocurrencies have been able to successfully solve the trust issues associated with the use of traditional currencies. Because they are trustless, there is no central authority that has to back them with its full faith. While the trust arrangement comes with its advantages, it also makes traditional currencies inflexible and susceptible to the whimsical desires of powers that be.
Instead, the blockchain system works in such a way that no one needs to trust anyone before a transaction can be done. Everyone within the ecosystem has a copy of the central ledger with which they can validate each transaction. This also confers a transparency advantage on them.
Bitcoin Binary Options Trading
There are many ways to go about cryptocurrency trading, but the most popular ones are the two, Contracts for Difference (CFDs) and direct trading of the coins on a crypto exchange. Otherwise, you can choose not to trade them directly. That is where binary options education can really be useful for you. You won’t have to buy or sell the cryptocurrencies themselves; instead, you’ll just buy or sell the binary options that underlie them.
However, whichever the way you choose, it is important you understand the following basic concepts of their trading.
In cryptocurrency trading, a pip is the smallest monetary amount by which a particular coin can move in price. For example, a cryptocurrency that moves from $200 to $201 has moved a single pip. Pips can also be measured in cent or fractions of it.
For standardisation purposes, cryptocurrencies are traded in lots. A lot is a batch of the units of a particular cryptocurrency that is bought or sold at a time. To buy any lot of a particular cryptocurrency, you will need to have a “wallet” to store it and a user account with an exchange on which it is traded.
Examples of cryptocurrency wallets are Blockchain, Jaxx, and Mycelium while cryptocurrency exchanges include Binance, OkEx, and Bittrex. It might be important to note that Coinbase integrates both a wallet and an exchange.
To trade cryptocurrencies, you do not need to put up the exact monetary value of the lot you want to trade. Instead, you can trade on leverage. Leverage is a provision that enables you to trade large cryptocurrency lots without having to pay for them in full.
Although binary options and cryptocurrencies are novel, they are still subject to similar forces that influence the price of any of the traditional financial assets. After all, financial trading, in whatever form, boils down to changes in the market dynamics of demand and supply. Hence, you can make informed trading decisions about them by using one of the two approaches, or both:
As stock traders analyse companies’ earnings and Forex traders check for changes in specific economic indicators so do binary options and cryptocurrency traders also engage in fundamental analysis. However, due to the decentralised nature of cryptos especially, their traders do not have to worry about most of the political and economic events that traders of other instruments have to worry about.
But they still have other concerns to contend with. News about regulatory updates, security breaches, and some economic setbacks do have effects on the cryptocurrency market, too. For example, news of how a particular coin has been successfully integrated with an already-existing system can push up its price. Conversely, a negative portrayal in the market can diminish the perceived value of a coin.
Technical Analysis, on the other hand, does not seek to analyse events or news. Instead, it is concerned with how those events have impacted or will impact the market. Hence, it uses tools such as charts and indicators to identify patterns on which investment decisions can be based. Technical Analysis exclusively uses historical price data to predict market movements.
Because technical analysis posits that every available information is reflected in the price, you might think that you can use it alone. However, changes in fundamental factors can be responsible for unexpected volatility in the markets. Hence, it might really be more effective to combine the two.
Know that these two methods of analysis can be applied to every binary option and cryptocurrency market. That is, you can also use them to trade Ethereum, the second-largest cryptocurrency after Bitcoin, and alt-coins, too.
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