Understand Cryptocurrency Trading: What is it, what are the risks,and how is it similar to gambling?

 

A Cryptocurrency is a form of digital currency used for transactions and investment purposes. The Indian government does not back it and it is not used for official purposes. Cryptocurrencies may be considered legal or illegal, depending upon the country's laws.

What is Crypto Trading?

Crypto trading is similar to share trading. Crypto trading is speculating on cryptocurrency price movements and buying and selling the underlying coins via an exchange such as coinbase, coindcx, WazirX, and others. Trading involves making a profit with the price action or momentum of price movement.

Let's understand with the help of an example:-

A crypto 'X' is at the price of $100, you buy trade at $100 and there are 10 in the lot. So, to execute this trade, you need to have $1000 in your account, but in trading, you have only to pay a margin, i.e. a part of the total contract value say 20% of trade value. So, you need only (20/100*1000) $200 to execute this trade. This trade is open for a short period, and when the price surges to say $120, and you sell the trade, you have earned $200($20*10) in profit.

The Risk Associated with Cryptocurrencies

The crypto return may look shimmering like gold to the eye, but you must remember an old saying that all that glitters is not gold. This quote best suits the crypto world. There are various risks associated with cryptocurrencies, namely:-

High Volatility - Cryptocurrencies are one of the most volatile assets, which can jump and fall way beyond people's imagination and wipe out your real money in just a blink of an eye.

Lack of regulation - Crypto is a decentralised asset, and there is no regulation on its uses, which can lead to the financing of antisocial activities.

Destroy the Monetary System of a country - Cryptocurrencies can destroy a country's monetary system, leading to a financial crisis.

Cyber Risk - Cryptocurrencies are susceptible to the risks associated with cyber-attacks.

Loss of Confidence - If due, for any reason, there is a loss of faith in cryptocurrencies that can lead to a financial crisis.

Pump-and-Dump- In the past, there were incidents where pump-and-dump schemes were used to wipe out the hard-earned money of the general public.

Market Risk - The cryptocurrency market works on volatile demand and supply mechanisms, and its exposure to market risk increases in an unregulated market.

External Risk - External risks such as taxation, supply of money, market sentiment, inflation, the legality of crypto, etc., are some external factors that increase the risk.

Is Crypto Similar to Gambling?

Crypto is neither investment nor exactly gambling. Investment is supposed to be calculated with keeping in mind the risk appetite, whereas, in gambling, the risk can't be calculated. It is unlimited. So it is more tilted toward the gambling side. The definition of gambling and investment depends upon the user of the word. 

It is a subjective question depending on where you are in the world. Some countries have banned cryptocurrencies for transactions, trading, as an asset for investment, or trading. Some have recognised and made restricted use only, like for investment and trading. At the same time, some have recognised digital money and made it legal tender money.

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Conclusion

Cryptocurrency is a digital currency and more of an asset that works on decentralised blockchain technology. It can be legal and illegal depending on the law of the land, and it's a highly volatile and risky asset, so it is more tilted toward gambling.

FAQs

 Is crypto trading safe?

Crypto is a highly volatile investment.

 

How much does crypto cost?

Crypto can cost from a few rupees to lakhs of rupees. 

 

Is crypto trading legal?

The legality of cryptocurrency is a subjective question depending on where you are in the world. Some countries have taken strict steps by banishing virtual currency for transactions, trading, as an asset for investment, or any other purpose. Some have recognised and made restricted use only, like for investment or trading. At the same time, some have recognised digital currency and made it legal to tender money.

 

What is cryptocurrency for a beginner? 

Cryptocurrency is a digital currency and more of an asset that works on decentralised blockchain technology. It can be legal and illegal depending on the law of the land, and it's a highly volatile and risky asset.

 

What are the four types of cryptocurrency? 

The four main types of cryptocurrencies are utility, payment, security, and stablecoins.

 

Is Bitcoin the same as cryptocurrency?

Yes, Bitcoin is one of the cryptocurrencies