What is Ethereum?
The Ethereum project is an effort to democratise the internet by creating a ‘world computer’. It seeks to replace the old model of servers or clouds hosting data with a new approach – ‘nodes’ provided by volunteers. The creators of Ethereum are seeking to introduce an alternative model for data and apps that is not dependent on big technology companies.
Ether, the currency that powers Ethereum, is used to pay for the transactions that occur on the Ethereum network. Its primary purpose is reward the miners who are processing the data transactions on the Ethereum network.
Most people not actively involved with the Ethereum network refer to Ether as Ethereum. Ether was issued as part of the crowd funding campaign that launched Ethereum but millions of new coins are created every year.
How to trade Ethereum?
To trade Ethereum you don’t need to be working on the Ethereum network. It is possible to trade the price of this Crypto using CFDs, for example. Ethereum has a real world value in currency, which will go up and down over time. This is the amount of another currency one Ether can be exchanged for.
Go long or short: take advantage of both the rises and the falls in the Ethereum price
Volatility: react more quickly to changes in price without owning Ethereum
Leverage: trade Ethereum with only a small initial investment
Ethereum can be traded around the clock, as it does not depend on a particular market being open.
Be aware, however, that using leverage to trade Ethereum means you will be more exposed to changes in the price. Make sure that you keep stop losses in place to protect yourself against sudden price reversals and you are aware of what your total exposure to the Ethereum price is.
Buying vs trading Ethereum
Buying Ethereum requires the use of specialist Cryptocurrency platforms. This can be both a cumbersome and time consuming practice and will make it difficult to react to short term changes in price.
Trading Ethereum using a CFD allows you to react quickly to price changes and take advantage of short term volatility. You don’t need to own Ethereum to be able to trade its price.
Is Ethereum risky?
Ethereum is a volatile market and although this presents opportunities for traders it can also represent risks. Both buying and trading Ethereum involves risk.
- Ethereum has high volatility and sharp price fluctuations are very likely
- Leveraged trading can magnify both your profits and losses
The price of Cryptocurrencies like Ethereum can surge and fall dramatically and this represents one of the biggest risks to traders, the extreme volatility within Cryptocurrency markets. Cryptocurrency markets are currently much more volatile than almost any other market and when excess volatility crashes, you can be faced with significantly larger losses than you anticipate.
Because there are often a limited amount of reputable digital asset exchanges and no single reliable price source for Cryptocurrencies like Ethereum, this could, in theory, cause prices to tumble sharply. Ethereum is also a very new asset so we don’t yet know how it may perform in a major financial crisis.
It is also possible that certain governments may ban its citizens from holding Ethereum with the effect that the price may collapse.
Furthermore, there is a possibility for large scale cyber-attacks on digital asset exchanges which are likely to have a strong, short-term impact on the price of Cryptocurrencies.
Investors involved in trading Cryptocurrencies should also be aware of the potential for a so-called “51 percent attack”. A 51 percent attack refers to one centralized mining operation gaining over 50% control of a blockchain which would allow the operation to reverse transactions making the entire blockchain unusable.
If you have further questions about trading Ethereum, please see our Crypto FAQs
Factors impacting Ethereum
There is technically an unlimited supply of Ethereum. While 60 million Ethereum ‘coins’ were issued as part of the Ethereum crowd funding campaign in 2014, approximately 18 million new coins are mined every year.
As with other Cryptos, it is important to understand that the ‘rules’ affecting the way Ethereum is mined and processed can be changed suddenly, and this can have a big impact on the price, for better or for worse.
Cryptocurrency forking policy
In the event that the current cryptocurrency splits into two, new cryptocurrencies are created, this is known as a hard fork. We will generally follow the cryptocurrency that has the majority consensus of cryptocurrency users and will therefore use this as the basis for our prices. In addition we will also consider the approach adopted by the exchanges we deal with, which will help determine the action we take.
We reserve the right to determine which cryptocurrency unit has the majority consensus behind them.
As the hard fork results in a second cryptocurrency, we reserve the right to create an equivalent position on client accounts to reflect this. However, this action is taken at our absolute discretion, and we have no obligation to do so.
If the second cryptocurrency is tradeable on major exchanges, which may or may not include the exchanges we deal with, we may choose to represent that value, but have no obligation to do so. We may do this by making the product available to close based on the valuation, or by booking a cash adjustment on client accounts.
If, within a reasonable timeframe, the second cryptocurrency does not become tradeable, then we may void positions that had previously been created at no value on client accounts.
Over periods of substantial price volatility around fork events, and we may take any action as we consider necessary in accordance with our terms and conditions including suspending trading throughout if we deem not to have reliable prices from the underlying market.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.
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