How to trade Ethereum cryptocurrency
Hello friends forex traders!
Earlier we were already sorting out how to trade Bitcoin, now it's time to take a look at the new popular cryptocurrency - Ethereum.
The logical question is - why do I need some new-fangled hipster cryptocurrencies when there is a good old EURUSD? Everything is very simple - if on old instruments the market long ago learned to work out all the typical inefficiencies, then on new ones there is an untouched field of possibilities. If in a simple way: with the new tools, the most banal technical analysis strategies can bring hundreds of percent profit when you can hardly go to zero with established systems on similar currencies.
The mere fact that the popularization of the cryptocurrency Bitcoin worried the shaky foundations in the heads of the drafters of the law already speaks of the viability and potential power of the new technology. It turns out that in fact there may be a currency that is not subject to any state. And the fact is that we are no longer talking about bitcoins, but about a lot of other currencies based on blockchain technology, whose popularity is growing exponentially. A logical question arises, what is the future of cryptocurrencies behind? Therefore, let's see if that very ideal cryptocurrency is found and what it should be in general.
What is Ethereum
The founder and one of the main developers of the project is Vitalik Buterin, a Canadian programmer of Russian origin. Born in the Moscow region, in the city of Kolomna, and moved to Canada at the age of six. In July 2014, he received a grant of $ 100 thousand for the concept of a new cryptocurrency, and in the same year he won the World Technology Awards.
The development is based on the very blockchain - decentralized accounting technology. In the context of cryptocurrencies, blockchain is a distributed database for storing transactions. It is in it that the confirmation and synchronization of all transfers between wallets is made.
The concept of Ethereum is trying to develop the idea of bitcoin into something larger. Essentially, Ethereum is a platform for developing decentralized applications. At Ethereum, it was decided at the protocol level to realize the untapped potential of the Bitcoin scripting language, adding a tool for creating smart contracts to the network.
A smart contract is an attempt to automate transactions, where all conditions and the result of transactions are taken into account in advance. This simultaneously ensures safety and reliability, since third parties are not involved in the procedure, and the terms of the contract cannot be changed.
With the help of such contracts, for example, it is possible to carry out a real revolution in microcredit. The terms of such a contract may include the transfer of ownership of some digital property in case of non-repayment of the loan before a certain date, repayment taking into account the accrued interest and much more. In fact, the capabilities of smart contracts allow you to create your own currency within another currency.
In theory, Ethereum is able to completely displace bitcoin from the market, being its more perfect alternative. This is facilitated by the presence of a well-coordinated development team and a vector for active development. However, the stability of Ethereum is still in question.
In fairness, it is worth noting that the implementation of the same smart contracts is available on bitcoin, provided that a separate setting is used. If this mechanism gains popularity, the future of Ethereum will not be obvious.
One of the biggest problems with bitcoin is the size of the blockchain. With the advent of the new currency, the problem only worsened, and therefore it takes an unacceptably long time to launch a wallet. This factor can seriously inhibit growth when it reaches a certain mark, as this will directly affect the spread of the currency.
Another extremely unpleasant story happened not so long ago with the decentralized crowdfunding project “The DAO”, built on the basis of Ethereum smart contracts. So, about a third of the entire fund (approx. $ 50 million equivalent) was transferred to the wallets of an individual who took advantage of the vulnerability in the smart contract code. The problem is that the whole responsibility of the decentralized system lies with the computer code, which, subject to errors, can lead to a large-scale failure, which, in fact, happened.
As a result, it was decided to create a parallel branch of the project and fix the detected problem. This led to the separation of the community, since the original ideology of the free open source project was aimed at eliminating financial corruption and the absence of manual interference in the functioning of the network. Now we have the “fixed” Ether from the main branch of the project - ETH and the “classic” unchanged Ether - ETC (Ethereum Classic), where all those who disagree with the decision about hard fork moved.
In general, investors are very emotional about any rumors regarding the project. So, the fake news that appeared on the evening of June 25 about the death of the founder of the cryptocurrency project further accelerated the depreciation. In truth, the course after that has returned to its previous value.
Where to get the schedule
A currency chart can be obtained through the TradingView service directly on our website in the online chart section, indicating the name of the ETHUSD instrument.
Here you can immediately choose which stock exchange quotes you are interested in. For analysis, it is better to choose the most popular exchanges (Kraken, BTC-e, Bitfinex), since quotes can vary greatly depending on the site.
Of the well-known brokers, Ethereum is already available for trading in FXopen and Amarkets. Below are the specifications for an account in USD.
In A-Markets, the minimum lot for cryptocurrency is 0.1, which is equivalent to 1 Ether. Be careful, since opening 1 lot of ETHUSD the instant minus will be about 30-60 dollars, given the commission and the current spread. Leverage is 1: 5, which means the guarantee will be 20% of the total value of the contract.
FXOpen also makes it possible to trade contracts from 1 ether, but provides a standard 1 to 3 leverage for cryptocurrencies and a much smaller spread. With a leverage of 1 to 3 and a current rate of 210 usd, it will take $ 70 to open 1 lot.
Key features of the ETHUSD pair:
|Min order size||1 unit of base currency||1 unit of base currency|
|Number of decimal places||3||5|
|Min volume||0.1 lot in 0.1 increments||1 lot in increments of 0.01|
Best of all, try first to open a couple of deals on a demo in order to get used to the trading conditions. The specifications of the contracts on the demo and live accounts are no different.
Cryptocurrency is traded 24 hours a day, 7 days a week and is in constant motion. This is a trending tool where there is a short consolidation. Therefore, trending strategies will work well.
At the same time, the global trend tends to rise, when growing volatility generates more and more strong corrections.
Fortunately, Fibonacci levels work well for measuring kickbacks.
In this way, a correction completion zone can be determined. Most often, the price stops at 61.8%.
For Ethereum, strategies that have already become obsolete in popular currencies are suitable. So, for example, a significant difference in the quotes of various exchanges indicates the suitability of the currency for the trading of classical arbitration. The essence of arbitration is extremely simple - buy where it is cheap, sell where it is expensive. Naturally, in real life, the transfer of funds between exchanges and the commissions imposed in this case may become a pitfall, but with due calculation, arbitration may well work.
On the other hand, no one prohibits the use of statistical arbitrage. After all, cryptocurrencies are still quite young as trading tools, and therefore have a large number of inefficiencies. By analyzing the correlations of different cryptocurrencies, you can determine the very hidden dependencies and try to trade them. But because of the high overhead (spread + commission), the main attention should be paid to long-term dependencies.
Bitcoin, for example, is sometimes used as a buffer zone to insure funds from excessive volatility. Given the volatility of Bitcoin itself, this sounds strange, but it can easily be explained by its political neutrality. A good solution would be to create a neutral market portfolio that includes both traditional fiat currencies and cryptocurrencies.
Still, expect and be prepared for collapses. In less than two weeks, Ethereum lost 40% of its value for no apparent reason, and such surges in volatility are quite typical for a developing cryptocurrency.
This has already happened with Bitcoin, and with sufficient frequency. Unless the fall was more like a sharp correction than a gentle slope, as in the case of Ethereum. The tool is still too young for investors to be able to adequately assess its potential and risks.
In general, Ethereum is now at the stage of formation and is likely to survive several more similar stages of inflation and deflation of the bubble, during which it will be possible to earn extra money.
If you are aiming for a long-term investment, wait until the pair falls to the lowest possible (according to an individual assessment) mark and stand on the purchase. Most likely, the global uptrend will continue.
As for intraday trading, even the most primitive strategies will work there. You can use technical analysis, fundamental, astrological ... But, given the instability of the market as a whole, you need to pay special attention to the release of relevant news. Anything can provoke a sharp collapse or growth, and you need to be on the alert in time to take appropriate measures.
The cryptocurrency market is definitely not to be ignored. In some ways, trading cryptocurrencies is even easier, given the huge number of untreated inefficiencies and the lack of centralized aggregators. However, such trading is unlikely to be suitable for beginners, given the unpredictable surges in volatility, high overhead and low liquidity.
Brokers and exchanges with Ethereum trading available