Stellar Crypto Trading Guide: How to Trade the XLM

Beyond Bitcoin and Ethereum, other competitive blockchain networks like Stellar can facilitate transactions and storage of digital assets.

Accordingly, in this article, we will explore the Stellar blockchain and XLM trading:

Main Points:

• Stellar is a blockchain network that facilitates the creation and low-cost transfer of digital assets between banks, payment platforms and individuals.
• To facilitate transactions on the network, a small number of Stellar's native tokens, Lumen (XLM), must be held by each account on the network.
• Since its inception in 2014, Stellar has achieved notable milestones and formed significant partnerships with companies like IBM and Deloitte.
• By trading crypto CFDs on platforms like Plus500, traders can speculate on XLM's price movements without owning any piece of the token.

What Is Stellar?

Stellar (XLM/USD) is a decentralised, open-source payment solution that aims to facilitate fast and low-cost transfers of digital assets, including currencies and tokens between banks, payment systems, and individuals. As a blockchain protocol, it enables the creation, transfer, and trading of digital assets representing fiat currencies, cryptocurrencies, commodities, and other units of value.

What Is Stellar Lumen (XLM)?

While the Stellar network was made to support digital representations of any asset, it also has its native token called the Stellar Lumen (XLM).

The Lumen fulfils a special role within the Stellar network, it facilitates transactions and provides other functionalities for various purposes. By design, the Stellar network requires that each account always hold a small number of lumens.

How Does Stellar Work?

The stellar network operates based on the following principles:

1. Distributed Ledger: The core foundation of the Stellar network is a shared ledger of all accounts, transactions and digital assets on the network, which is updated every five seconds.
2. Digital Asset Issuance: The blockchain facilitates the creation and trading of digital tokens representing various assets including fiat currencies like the US dollar, commodities like gold, and also real estate assets.
3. Network Validation: Nodes within the network are distributed globally. They validate transactions by participating in consensus processes. If the majority of nodes agree on the validity of a transaction, it is added to the ledger.
4. Stellar Consensus Protocol (SCP): The validation process of the network uses the Stellar Consensus Protocol (SCP) to keep transactions fast and eco-friendly. Unlike some other blockchain consensus mechanisms like Proof-of-Work (PoW) or Proof-of-Stake (PoS), SCP works by a Proof-of-Agreement (PoA) mechanism. SCP does not require all nodes to validate all transactions but reaches a consensus on the ledger through iterative rounds of communication and voting.
5. Global Transactions: With this secure and validated system, the Stellar network facilitates seamless transactions between different currencies and assets by connecting disparate financial systems and fostering global interoperability.

A Historical Timeline of Stellar Lumen Cryptocurrency

The timeline of events that have shaped the Stellar Lumen are as follows:

2014: The Stellar Network was forked out of Ripple and founded by Jed McCaleb (co-founder of Ripple) and Joyce Kim. In the same year, the Stellar Development Foundation received funding from Stripe, BlackRock, and Google. Then later in August, Mercado Bitcoin, the first Brazilian Bitcoin exchange, announced it would integrate the Stellar network.

2015: The Stellar network achieved 3 million unique users and was upgraded to run on a new consensus algorithm known as Stellar Consensus Protocol (SCP). The consensus algorithm was created by David Mazieres and went live in November 2015.

2016: Deloitte collaborated with Stellar to build the Deloitte Digital Bank, a seamless and secure platform for cross-border payments.

2017: Stellar established a partnership with IBM for real-world blockchain solutions and Mobius ICO (initial coin offering) was also conducted on the Stellar network.

2018: During this period, the cryptocurrency market was bullish and Stellar Lumen XLM reached its all-time high of $0.91. A significant partnership also came through for the Stellar network, as IBM announced Lumen XLM as its token of choice for cross-border payment solutions.

2019: The Stellar Foundation burned 55 billion XLM coins, reducing the maximum supply to 50 billion coins. The foundation also adjusted the circulating supply of Stellar Lumen (XLM) to approximately 24.3 billion coins.

2022: After generating returns of 34,047% since its inception in 2015, Stellar Lumens fell 42% in 2022 due to a decline in the crypto markets.

Understanding the Importance of the Stellar Blockchain Network

• The Stellar network offers fast transactions typically finalised in 5 seconds on average.
• It is reported that the Stellar network operates with remarkable energy efficiency. The network emits footprints equivalent to the annual electricity usage of 33.7 typical US households.
• The network provides a scalable platform for global financial activities, capable of processing up to 1,000 operations per ledger.
• When it comes to transaction costs, Stellar's average fee is just 0.000054 XLM. This makes it a very affordable option for developers.

The Uses of the Stellar Network

• The Stellar network enables users to create tradable tokens representing various assets like gold, commodities and even your work hours.
• Tokens pegged to the digital US dollar or other digital currencies like the euro, or peso, allow for international payments without geographical restrictions.
• The direct exchange of all tokens is possible between buyers and sellers on the network. Transactions require no intermediary or custodian because the network is decentralised.
• With the aid of the Stellar network Automated Market Makers (AMMs), users can send money in their local currency and the recipient receives the money in their preferred currency, all within a single transaction. This eliminates the worry of rate fluctuations or delays.

What Is Stellar Crypto Trading?

Fluctuations in the price of Stellar Lumen can present opportunities for traders seeking to speculate on XLMUSD and potentially profit from its price movement. Therefore, traders can buy Stellar Lumen if they anticipate the price of the Lumen to appreciate and they can sell Stellar Lumen if they anticipate the price of the Lumen to decline.

Where Can I Trade Stellar Lumen Cryptocurrency?

The Stellar Lumen cryptocurrency can be traded on Contracts for Difference (CFD) providers’ platforms or on various crypto exchanges. On the Plus500 CFD trading platform, for example, you can trade Stellar Lumen just like any other cryptocurrency CFD or financial instrument. The table below shows some features on the Plus500 Platform while trading Stellar Lumen, as opposed to trading on crypto exchanges.

Factors Affecting Stellar Lumen Price Movement

The price movement of Stellar Lumen is affected by various market factors. These are as follows:

Supply: Unlike Bitcoin's finite supply of 21 million coins, there is no maximum supply of lumens. Instead, there is a fixed inflation rate of 1% annually. Therefore, as more lumens are introduced into circulation through the fixed inflation rate, the overall supply of XLM increases over time and consequently affects its market value.

News: News, whether positive or negative, about the Stellar Development Foundation or the broader cryptocurrency market can affect the Stellar Lumen price.

Market Sentiment: The price of Stellar is closely tied to its adoption rate and usage. As such, market sentiment and demand for the network influence Stellar’s market value.

Competition: The Stellar network competes with Ethereum for hosting initial coin offerings (ICOs), and RippleNet for partnerships with banks and companies. This competition can impact Stellar's market positioning and may also reflect in the price movement of its native token.

How to Trade Stellar Lumen CFDs (XLMUSD)

• Understanding Stellar Lumens CFDs:

  Stellar XLMUSD is a CFD financial derivative that allows traders to gain exposure to the price movements of Stellar Lumens without directly owning the coin itself. Through this financial instrument, traders can speculate on the price movement of Stellar Lumen and make a profit or loss from the difference between their opening and closing price.

• Long and Short Positions on Stellar Lumen CFDs:

  With Stellar Lumen CFDs, XLMUSD, you have the flexibility to trade in both bullish and bearish market conditions. A long position on XLMUSD means buying Stellar Lumen CFDs with the expectation that the value of Stellar Lumen will increase, while a short position on XLMUSD means selling Stellar Lumen CFDs with the expectation that the price of Stellar Lumen will decline.

• Leverage:

  When trading XLMUSD, the CFD derivatives of Stellar Lumen, it is possible to use leverage* to control larger positions with a relatively smaller amount of capital. For example, with a leverage ratio of 1:2, traders can control a position size worth twice their trading account balance. Nonetheless, it is important to use leverage carefully because it can amplify both potential profits and losses.
  *Leveraged trading ratios are subject to change per operator.

Stellar Lumen Trading Hours

Unlike most other financial instruments like stocks, indices and forex, the cryptocurrency market including Stellar Lumen offers 24/7 availability for traders to gain exposure to its price movement. On the Plus500 platform, Stellar CFD trading* is available 24 hours a day, seven days a week including weekends (except for 1 hour on Sundays).

*Please note that trading platform hours depend on the individual operator.

What Are Some Popular Stellar Trading Strategies

The cryptocurrency market is very volatile and requires a well-defined trading strategy. Some popular trading strategies often employed when trading Stellar cryptocurrency are as follows:

Breakout Trading:

Stellar breakout trading involves identifying its previous levels of support and resistance. Then traders may look for breakouts above the resistance levels to go long or breakouts below the support levels to go short. Trading breakouts can be effective during periods of high volatility when the price of Stellar is poised to move in one direction.

Trend Trading:

Stellar trend trading involves identifying the prevailing trend of Stellar price movement and trading in the direction of that trend. Traders often use technical indicators such as moving averages or trendlines to identify trends across various timeframes. If the trend is bullish, traders may look for opportunities to buy Stellar whenever the price pulls back or retraces, and if the trend is bearish, traders may look for opportunities to sell Stellar.

Overbought and Oversold Trading Strategy:

In the context of trading stellar, overbought or oversold trading means identifying the price of Stellar Lumen when it has become overextended in one direction and is likely to reverse.
Traders often use technical indicators such as the Simple Moving Average (SMA), Moving Average Convergence Divergence (MACD), and Relative Strength Index (RSI) to identify overbought and oversold conditions. For example, when the RSI indicates that Stellar Lumen is overbought (above 70), traders may look for opportunities to sell, and when it indicates oversold (below 30), traders may look for opportunities to buy.

Guide to Trading XLM/USD CFDs

Besides knowing the factors and trading strategies of Stellar Lumen, you may also need a systematic approach to maximise potential profits while minimising risks. Here's a comprehensive step-by-step guide to buying and selling Stellar Lumen CFDs.

1. Set Up Your Trading Account:
   To trade XLMUSD CFDs, you need to register a trading account with a reputable CFD provider like Plus500 and deposit some capital to trade real accounts. However, you can also choose to practise your trading strategies on a demo account.
2. Explore the Trading Platform:
   There are lots of useful features on the interface of the trading platform to explore, including the market order section, trading charts, technical tools, the instruments categories etc. The instrument section offers a selection of cryptocurrencies CFDs. You can select ‘Stellar’ to view its live price, trading info and market sentiment.
3. Choose a Trading Strategy:
   It is crucial to decide on a trading strategy that suits your objectives and risk tolerance. This could be day trading, swing trading or long-term trading but either strategy has its own merits and risks involved.
4. Analyse the Stellar Lumen Market:
   The combination of both technical and fundamental analysis can help to decide whether to buy or sell XLMUSD. Fundamental analysis of Stellar Lumen involves evaluating related news, supply and demand dynamics, and industry developments. Technical analysis of Stellar Lumen involves using price charts and technical indicators to help identify trends or trading opportunities.
5. Implement Risk Management Practices:
   Various order types can be used to manage risks and protect your trading capital. With order types like stop-loss, take-profit orders or pending orders, you can adjust your risk parameters based on the volatility and market conditions of Stellar crypto.
6. Place Buy or Sell Trade:
   After defining the parameters of your trade.You can then place long or short positions using either a market order or a limit order. However, be mindful of the risks and margin requirements associated with using leverage.
7. Review and Monitor Your Trade:
   To make informed trading decisions, regularly review your open positions and monitor market developments that may impact Stellar's price movement.
8. Close Your Trade:
   You must exit your trade position on XLMUSD to realise any floating profits or losses. This can be done manually when your profit targets are met or automatically with the use of take-profit orders and stop-loss orders.

Why Trade Stellar Lumen CFDs with Plus500

Here are the key characteristics of trading Stellar with Plus500:

Portfolio Diversification: Plus500 offers exposure and lets you trade CFDs on various cryptocurrencies including Stellar Lumens, without needing to buy the actual coins.

Trade with Leverage: Plus500 allows margin trading on cryptocurrencies to potentially amplify your returns. Note that leverage can also amplify your losses.

Remote Access: Stellar Lumen including other cryptocurrencies can be traded from your web browser, or via the app on desktop, iOS or Android devices.

Reliable Execution: Plus500 prioritises swift order execution, ensuring you can enter and exit positions at your desired prices efficiently.

Vast Trading Tools: A wide range of analytical tools, including technical indicators, charts, economic calendars, and trading alerts, are all available on the Plus500 trading platform for traders to make informed trading choices.

Conclusion

Stellar, originally forked out of Ripple, has gained significant adoption, funding, and partnerships with top-tier institutions. Traders can gain exposure to the price movement of its native token, Stellar Lumens (XLM), without owning the actual coin by trading Stellar Lumens CFDs. However, this can be done on CFD trading platforms, as opposed to cryptocurrency exchanges.

To begin trading Stellar Lumens CFDs, open a demo or live account with Plus500.

Frequently Asked Questions:

Why Is Stellar a Unique Blockchain Network Compared to Others?

The Stellar network is built for speed and efficiency in cross-border payments. It can also tokenise traditional assets. These features contribute to Stellar uniqueness compared to other cryptocurrencies.

How Secure Is the Stellar Network?

Stellar utilises a combination of digital signatures and a special hashing function to secure the network. These parameters can be adjusted to stay ahead of hackers with powerful computers.

How Do I Make Transactions on Stellar?

Anchors are a third-party feature on the Stellar network used to facilitate transactions. They work by accepting deposits of traditional currencies and reissuing the corresponding digital credits on the Stellar network. This credit is then sent or received within the network.

What's the Difference Between Stellar, Lumens, and XLM?

It's all about terminology. Stellar refers to the entire blockchain network itself while Lumens is the actual name of the cryptocurrency used on the network and XLM is simply the trading symbol used to represent Lumens.