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Your guide to trading Ripple (XRP)

Capital.com's guide to trading Ripple (XRP): everything you need to know on how to trade EOS
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Why is Ripple (XRP) important to traders?

Ripple is a real-time settlement system and currency exchange network created by Ripple Labs that uses their native cryptocurrency, XRP, to process transactions. Ripple is a system for exchanging many different assets digitally, and this is where it differs from cryptocurrencies such as Bitcoin (Bitcoin was designed primarily as a digital asset to be used as a medium of exchange).

Ripple aims to enable secure, instant and near costless global transactions. Not all transactions are processed in XRP; some are processed in fiat currencies, but in the case of the latter, the Ripple ledger only records the amounts owed with assets represented as debt obligations, as opposed to using XRP on their internal ledger.

Ripple is also the informal name given to the XRP cryptocurrency, and from this point onwards, Ripple will be used to refer to XRP and not the company.

Ripple is currently one of the top 5 biggest cryptocurrencies in terms of market capitalisation. The value of a lot of cryptocurrencies is linked to the projects behind them, even if the project does not use the native coin by default.

Ripple info

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You can trade Ripple CFDs on Capital.com 24/7.

How to trade Ripple CFDs?

An individual has two options when trading in the cryptocurrency market. Firstly, they can buy actual cryptocurrency on exchanges, such as buying XRP on an exchange like Bitstamp, so they own the XRP themselves. This is considered a long-term investment, as the individual is waiting for the price to rise significantly, so they can sell their crypto coins on an exchange.

Alternatively, they can trade a contract for difference (CFD) on a particular cryptocurrency, and speculate on the price difference.  A CFD is a financial instrument, which is a contract, typically between a broker and an investor, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade. You can either hold a long position (speculating that the price will rise) or a short position (speculating that the price will fall). This is considered a short-term investment as CFDs are used within shorter timeframes. For instance, to trade Ripple CFDs, you can speculate on the XRP/USD pairing.

There are pivotal differences between buying a cryptocurrency and trading a CFD in a crypto market. When buying cryptocurrency, it is stored in a wallet, but when trading CFDs the product is stored in your account, which is regulated by a financial authority. You are more liquid when you purchase CFDs because you are not tied to the asset, you have merely purchased the underlying contract. As well as this CFDs are a more established and regulated financial product.

What is Ripple? What is cryptocurrency?

Ripple (XRP) is a cryptocurrency used primarily to process transactions in enterprise. A cryptocurrency is a digital asset conceived for use as a medium of exchange, which uses cryptography to secure transactions, control the supply of additional units, and corroborate transfers. In short, cryptocurrency is a decentralised electronic currency. Cryptocurrency is stored in a ‘wallet’, which can take various forms. For instance, Ripple coins can be stored in an online wallet, or alternatively in an offline electronic wallet, and it can even be stored physically in hardware.

Why trade Ripple CFDs with Capital.com

Advanced AI technology at its core: A Facebook-like News Feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative News Feed offers a range of materials to put him back on the right track. The neural network analyses in-app behaviour and recommends videos, articles, news to polish your investment strategy.

Trading on margin: Providing trading on margin (up to 2:1 for cryptocurrencies), Capital.com gives you access to the cryptocurrency market with the help of CFDs.

Trading the difference: When trading a Ripple CFD, you don’t buy the underlying asset itself, meaning you are not tied to it. You only speculate on the rise or fall of the XRP price. CFD trading is nothing different from traditional trading in terms of strategies. A CFD investor can go short or long, set stop and limit losses and apply trading scenarios that align with his or her objectives.

All-round trading analysis: The browser-based platform allows traders to shape their own market analysis and forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS, and Android.

Focus on safety: Captal.com puts a special emphasis on safety. Licensed by the FCA and CySEC, it complies with all regulations and ensures that its clients’ data security comes first. The company allows to withdraw money 24/7 and keeps traders’ funds across segregated bank accounts.

History of Ripple

Ripple chart

Designed for enterprise use, Ripple sets itself apart from the regular cryptocurrencies. Ripple, although utilising validating servers and consensus mechanisms, is not a blockchain. Ripple uses something called a HashTree – a kind of cryptography – to summarise data into a single value that is compared across its validating serves to provide consensus.

Ripple also is criticised for having more centralised control, due to the company reserving the right to be able to freeze and reverse changes. However, the company argues that they are decentralised, based on the fact that their network is supported by many different institutions and individuals. Ripple’s value can be seen immediately: XRP derives its value from the network itself and its ability to move assets globally at incredible pace. Although the network and XRP are two different things, they are often conflated by investors. XRP is used within two of the three products Ripple Labs offer: xRapid (by default) and xVia (optionally).

FAQ

Before buying XRP, you will need a place to store it. This is what a wallet is for, and it consists of two elements: a private key and a public address. A wallet requires a private key, specific to the individual, that enables access to the XRP address stored in the wallet, which is also the public key. The wallet is what enables XRP, or any cryptocurrency, to be a secure medium of exchange. Essentially, people can send XRP to certain wallets using the public key, which only the individual can access with their private key. Some individuals choose to keep their coins in their wallet provided by their cryptocurrency exchange, due to the fact that a lot of exchanges have mobile apps that allow people to easily buy, sell and spend cryptocurrencies.

Cryptocurrency exchanges or online wallets are far from immune to the dangers of cybertheft. The infamous case of the Mt Gox Bitcoin exchange highlights this. Historically, Mt Gox was the largest global exchange for Bitcoin, until it declared bankruptcy in 2014 after its security had been compromised. Mt Gox had 850,000 Bitcoins, valued at $450 million in February 2014, before their exchange was emptied by hackers. It is believed that the private keys of Mt Gox’s digital wallet were stolen from as earlier as 2011. These risks are avoided when trading Ripple CFDs because you do not need a wallet.

A ‘bubble’, in market terminology, is where the price of an asset far exceeds its intrinsic value. For instance, the dot-com bubble that occurred between 1995 and 2001, is a prime example, where information technology industry firms saw their stocks rise, merely because of the market sentiment around that particular industry, irrespective of their profits or chances of succeeding. This market then crashed in March 2000.

The problem here is that it is hard to determine the value of cryptocurrency to begin with. Although a lot of investors are holding cryptocurrencies as if they were equities, they are not. Yet they do not particularly act like currencies either, which makes comparisons to currency valuations difficult.  However, with any new technology, caution is advised. It could well be the case that the valuations of Bitcoin or Ripple are not overvalued, and that the bubble, if there is one, is represented by the various new cryptocurrencies that are being driven by market sentiment. Arguably, this is comparable to the dot-com instance, where stocks like Amazon were not overvalued, but others like Pets.com, which went from IPO to liquidation in 268 days, clearly were. So, it seems that only time will tell whether the market is overheating, but in either case, there are options to trade using CFDs to take both long and short positions.

From late 2017 to early 2018, there was a surge in the price of Bitcoin (reaching $20,000 per Bitcoin), followed shortly behind by other cryptocurrencies. The market then crashed between January and February 2018, and Bitcoin free fell, dropping 65% in value. Consequently, most other cryptocurrencies crashed as well. So there clearly was a bubble in the crypto market. The question that this begs is whether there still is one. The value in most cryptocurrencies is derived from their potential; how they could be used to advance society in the future. Without institutional acceptance however, the potential value, will remain merely potential, but whether this implies that cryptocurrencies are overvalued is another question.

Some would argue that Ripple is centralised due to the fact that the network, in order to appease regulators and adhere to anti-money laundering (because of its use within enterprise), involves network operates and regulators having critical roles in providing stability to payment systems. Ripple also has jurisdiction or network specific rule that are provided by existing systems and operators. However, Ripple itself claims that the network is decentralised. This is because their software is open-source, meaning people are free to modify it however they please. Ripple also uses a consensus protocol, that relies on a majority of validators to record and verify transactions – these validators are composed of numerous actors around the globe, from individuals to institutions.

In short, Ripple may not be as decentralised as cryptocurrencies such as Bitcoin, but anyone can run Ripple servers, were the company to disappear tomorrow, XRP would still operate – so they have an element of decentralisation. The main fear of centralisation, is that one party could manipulate the network, but Ripple remains open-source, Ripple also couldn’t add XRP (as many fear) due to the way the protocol works. But Ripple was designed to transfer assets digitally at low cost – one XRP will cost you about $0.5, and its network was created with its design, and compliance, in mind.