How to trade EOS
If you’re thinking about buying or trading EOS, it is important to understand exactly how the network operates and what could move the price of EOS tokens.
What is EOS?
EOS is the native cryptocurrency of the EOS.IO blockchain protocol. The cryptocurrency facilitates transactions on the network, which can be used by developers to build decentralised applications, known as dapps – software programs that run across multiple computers.
The EOS.IO protocol was created by a private company called block.one and was released as an open-source network in June 2018. EOS.IO enables individuals and businesses to develop blockchain-based applications and smart contracts – agreements written in and enforced by code – with the aim of creating a secure and accessible online platform. For this reason, EOS.IO can be thought of in a similar way to Apple's app store.
How does EOS work?
EOS.IO works by giving each participant a certain amount of power, or a stake, which is dependent on how many EOS tokens they own. This is known as a token ownership model. Each network participant, or ‘node’, can elect representatives to maintain the blockchain, through a system called delegated proof of stake (DPoS). Individuals will make a transaction using the EOS token, which is then approved through the DPoS protocol before being recorded onto one of EOS’s multiple blockchains.
What is the token ownership model?
EOS.IO works through a token ownership model, in which each block producer – a participant on the EOS network – is given resources proportional to how many EOS tokens they own, known as their stake.
There are no transaction fees on the EOS.IO platform. Rather than having to pay for every transaction individually, a block producer is allocated a number of exchanges dependent on how many tokens they have. Let’s say a block producer owned 15 EOS tokens, they’d then be entitled to a number of transactions on the network that was proportional to that stake. To get more transactions, all a participant would need to do is buy more EOS tokens, or help produce the blockchain to gain rewards.
Each transaction creates a unique block on the network’s blockchain. A single block is produced every three seconds on EOS and are created in rounds of 21 blocks. Only one producer is guaranteed to create a block at any given time – so if the transaction isn’t processed at the scheduled time, it will be skipped.
Despite only 21 blocks being produced in a round, the platform can process thousands of transactions per second, without on-chain transaction costs, because the network operates across multiple blockchains.
What is delegated proof of stake (DPoS)?
The delegated proof of stake process is the EOS network’s consensus mechanism – the means by which transactions are approved on the network and added to the blockchain.
The difference between EOS and other platforms is that the consensus responsibility is given to elected users. On blockchains such as bitcoin and stellar, the majority of participants are required to approve a transaction, but on the EOS network just 21 block producers have the ability to edit the chain.
EOS producers can put their name forward to become a block producer. The EOS network will then randomly select 21 candidates through the election process. Anyone that holds tokens on a blockchain that uses EOS software can take part in the vote at any time, but the strength of each EOS investor’s vote depends on their stake and when it was cast. Votes less than a week old are given the most weight, while votes older than two years are given no weight.
Once elected, these 21 block producers are tasked to keep the network secure and approve transactions. If a block producer does not work fast enough, fails, or loses the support of the network, they will be replaced.
Why does EOS have multiple blockchains?
EOS has multiple blockchains – the public ledger on which transactions are recorded – so that the network can run quickly and efficiently. The splinter chains, called sidechains, use the same software and cryptocurrency as EOS.IO. This creates a network of interconnected ledgers that can send information to one another, which allows transactions on one chain to be recognised on another.
A lot of other cryptocurrencies operate on just one chain, which means that transactions can clog the network and cause scalability problems. As EOS uses multiple chains, this problem is significantly reduced and dapps can run unhindered.
The multiple sidechains enable thousands of transactions to be undertaken at any time, and because only 21 participants are required to approve the blockchain (rather than a majority of nodes), the process is a lot smoother.
Four steps to trading EOS
- Decide how you want to trade EOS
- Develop a trading plan and outline your strategy
- Create a risk management strategy
- Open and monitor your first position
Decide how you want to trade EOS
There are two ways that you can take a position on the value of an EOS token: buying it via an exchange, or trading on its price using derivative products.
When you buy EOS, you purchase the cryptocurrency outright with the expectation that it will increase in value and you can sell it on for a higher price. To do so, you would need an account with a cryptocurrency exchange – this process can take a long time and there may be costs involved to maintain the account or make a transaction.
If you decide to trade EOS, you would be speculating on its price movements, without ever taking ownership of the underlying coin. You can do so by using derivative products such as CFDs. Both enable you to take a position on markets that are rising and falling in price – known as going long and going short.
When you trade CFDs, you are entering into an agreement to exchange the difference in the price of EOS from when the position is opened to when it is closed. The profit or loss you make would depend on whether your prediction of the market direction was correct.
CFDs are leveraged products, which means that you only need to put down a small deposit in order to gain full market exposure. While leverage can magnify your profits, it can also magnify your losses, making it important to have a suitable risk management strategy in place.
Develop a trading plan and outline your strategy
Before you take a position on EOS, it’s important to create a trading plan that will help give your time on the market direction. Your plan should be unique to you, but most trading plans include:
- Goals. Your plan should look at daily, weekly and monthly targets for your trading and outline exactly what you are hoping to get from each position
- Markets. You should make a list of all the markets you are interested in, or would feel comfortable trading – whether this EOS, a different cryptocurrency or a different asset class entirely
- Risk. Your plan should also include your risk profile, including how much capital you have available and how much you would be willing to risk on each trade
You should also establish a trading strategy that will outline exactly how you will enter and exit trades. When you’re choosing your trading strategy, considerations would include which style of trading you prefer, whether this is day trading, scalping, swing trading or position trading.
Create a risk management strategy
The cryptocurrency market is known for its volatility, which can make for an exciting trading environment but also makes it imperative to have a risk management strategy in place.
Creating a strategy that will help you manage your risk and reduce unnecessary losses is a crucial step for any trader. This should include attaching stops and limits to your positions to help you protect your trades.
Open and monitor your first position
It is now time to open your first position on EOS. If you’ve decided to trade EOS, rather than buying it through an exchange, you can open a position to go long or short. If you think that the price of EOS is going to rise, you would open position to ‘buy’ EOS, and if you think that EOS is going to decline, you would ‘sell’ the cryptocurrency.
Your decision about which position to take should be informed by research and analysis into the market, as well as the strategy you have put in place.
Once you have opened your position, it is important to monitor its progress and keep up to date with anything that could impact the price of EOS.
What moves the price of EOS?
At genesis, a total of 1 billion EOS tokens were created. Of these, 10% were retained by block.one, 20% were sold in the initial coin offering (ICO) and the remainder have been distributed through an on-going sale. The total supply of EOS tokens grows constantly at 5% per annum.
The infinite nature of EOS supply means that its tokens haven’t yet achieved valuations as high as some of the larger cryptocurrencies. Even outside the crypto sphere, finite resources such as gold tend to be more valuable than those with unlimited supply. However, if demand for EOS tokens rises, the market price could increase.
The public perception of EOS and the cryptocurrency space as a whole can have a large impact on the market price. Media reports that portray EOS as useful and stable create the idea that EOS is valuable, and so the market price is more likely to increase. Whereas negative reports could damage the public’s perception of EOS and cause a decline in price.
Keep up to date with cryptocurrency market news and events with our news and trade ideas section.
As blockchain increases in use and more companies start to embrace the technology, the market price of cryptocurrencies could rise. And if EOS successfully establishes itself as a leading dapp platform the token could benefit from the increased interest.
The cryptocurrency market is still very new, and largely an unknown sphere to most. But if more financial institutions and mainstream companies come out in support of the cryptocurrency market, it could play out across the price of a wide range of coins.
The opposite is also true, if the EOS platform does not attract market interest or is faced with increased regulation, it could negatively impact the price of EOS tokens.
EOS has been dubbed ‘the Ethereum killer’ because it is vying for the same market of developers and dapp projects as Ethereum. And, while the more established blockchains– including bitcoin and Ethereum – suffer from issues with transaction speeds, EOS proudly boasts that it is highly scalable. In fact, EOS actively seeks to eradicate these problems by providing support for millions of users without being burdened by extremely large transaction fees.
If EOS attracts the attention of Ethereum users – or any other dapp platform users – it could become more widely used. However, its market cap is still behind ether, so that could be a way off yet.
EOS trading summed up
Trading the cryptocurrency market requires a lot of planning and preparation. Here are some key points to think about before you trade EOS:
- EOS is the native cryptocurrency of the EOS.IO network – a blockchain platform that enables developers to create decentralised applications
- EOS.IO runs on a token ownership model – each user buys a certain amount of EOS tokens, amounting to a ‘stake’, which determines how many transactions they can make
- EOS transactions are approved through a delegated proof of stake model, in which block producers vote for 21 representatives to maintain the blockchain
- EOS runs across multiple blockchains to prevent scalability problems
- Before you take a position on EOS, you should take time to decide whether you want to buy or trade the cryptocurrency and build a trading plan
- When you trade EOS, you can manage your risk with stops and limits
- Key factors such as EOS supply, public perception, mainstream adoption and the popularity of other cryptocurrencies can impact the price of EOS.
Publication date :
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.