Free Forex masterclass
Kick start your Forex trading. Join our webinar on 30th April.
What is Litecoin?
Litecoin is a direct competitor to Bitcoin in that it supports cross-border payments at very little cost to its users. It is sometimes referred to as the ‘silver’ to Bitcoin’s ‘gold’. Litecoin claims faster transaction confirmation times than Bitcoin. Litecoin sets what are called ‘proof of work’ tasks to computers. This means that they have to solve complex problems as part of the encryption processes that support blockchain.
Owners of the computers that work on blockchain problems can be paid in Litecoin. It shares many of the same characteristics as Bitcoin, but its developers claim it is more efficient.
The big difference between the two is that Litecoin has been set up to be harder to mine at scale, and is faster to process transactions.
How to trade Litecoin
Litecoin has been designed to make it very easy to transact and many people are using Litecoin to make international payments already. It can still be cumbersome to trade this Cryptocurrency on a regular basis using a wallet which is why some investors choose to trade the price of Litecoin using CFDs instead.
Litecoin has a real world value in currency, which will go up and down over time. This is the amount of another established currency (for example USD) one Litecoin unit can be exchanged for.
- Without owning: take advantage Litecoin price volatility without the need for a wallet
- Volatility: react more quickly to changes in price without owning Litecoin.
- Leverage: trade Litecoin with only a small initial investment
Litecoin 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 Litecoin means you will be more exposed to changes in the price. Make sure that you use stop losses and take profit orders to protect yourself against losses and secure your potential profits. Make sure you are aware of what your total exposure to the Litecoin price is at all times.
Buying vs trading Litecoin
Buying Litecoin requires the use of specialist Cryptocurrency platforms and a Cryptocurrency ‘wallet’ to store your currency in. Trading Litecoin using CFDs allows you to react even more quickly to price changes and take advantage of short term volatility. You don’t need to own Litecoin to be able to trade its price.
Factors impacting Litecoin
Litecoin is similar in many respects to Bitcoin. Many experts see it as Bitcoin’s little brother, but with the potential to eclipse Bitcoin because if it’s more efficient transaction system.
A new Cryptocurrency called Litecoin Cash was launched in February 2018. This uses the same algorithm as Bitcoin rather than the Litecoin one. Litecoin Cash is not affiliated with Litecoin, but events like this can create uncertainty and confusion around a Cryptocurrency, undermining confidence and sometimes driving the price down.
Like other Cryptocurrencies, Litecoin’s price is also driven heavily by news flow, rumours and the statements of its global community.
Is Litecoin risky?
Litecoin is a volatile market and although this presents opportunities for traders it can also represent risks. Both buying and trading Litecoin involves risk.
- Litecoin has high volatility and sharp price fluctuations are very likely
- Leveraged trading can magnify both your profits and losses
The price of Cryptocurrencies like Litecoin 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 Litecoin, this could, in theory, cause prices to tumble sharply. Litecoin 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 Litecoin 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 Litecoin, please see our Crypto FAQs
Litecoin price movements
As with other Cryptos, it is important to understand that the ‘rules’ affecting the way Litecoin 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.
Trade risk-free with a demo account