“Crypto, shorts and futures: unpacked the world of cryptocurrency transactions”
The cryptocurrency market has been the subject of fascination for investors and traders in recent years. In its center, it involves the purchase and sale of digital currencies, such as Bitcoin (BTC), Ethereum (ETH) or others, using various techniques such as short sale, margin trading and investments. In this article, we will deepen in the world of cryptocurrency trading, exploring the concepts of crypto, short positions, decentralized exchanges (DEX) and Fiat coins.
What is crypto?
Cryptocurrencies are digital active that use cryptography for safe financial transactions, without the need for intermediaries such as banks. These are created by a process called “mining” or “hash function”, where strong computers solve complex mathematical equations in exchange for new units of cryptocurrency. The most popular cryptocurrencies include Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC).
Short sale: A risky bet
The short sale, also known as the purchase on margin, is a popular trading strategy among investors. This involves the loan of security units from your broker to sell them at a higher price, then their immediate purchase at the lower price to return the borrowed amount, plus the price difference. This strategy can be profitable, but it presents a significant risk.
Here’s how it works:
- Open a short position by buying a cryptocurrency by cash.
- If the cryptocurrency price increases, sell it and return the borrowed units with a profit.
- To cover your position, buy the same number of units at the lower market price to return to the broker.
However, if the price drops below your sale price, you will be asked to buy the units at a higher rate to return them to the broker, which leads to an advance loss.
Decentralized exchanges (DEX)
Decentralized exchanges are online platforms that allow users to trade cryptocurrencies without the need for centralized exchange. DEXs allow peer-to-peer trading, allowing users to buy and sell cryptocurrencies directly with each other, without going through a third exchange. This model offers several benefits, including increased security, low taxes and greater flexibility.
Coins Fiat
Fiat coins, also known as Fiat Money, are issued by governments and central banks and have no intrinsic value. These are supported by the issuer’s bonity, rather than any physical merchandise. Fiat coins can be used as a means of exchange for goods and services in the respective economies.
Unlike cryptocurrencies, which are based on cryptography and blockchain technology for security, Fiat use traditional monetary systems. The most traded Fiat currency is the US dollar (USD), followed by euros (EUR) and Japanese Yen (JPY).