How Cryptocurrency Trading Works? – A Simple Guide On Trading Crypto
Several cryptocurrencies are popping here and there in the “crypto-market.” That is why most people would prefer trading one coin to another, based on their trends and speculations. And in reality, most people made a profit from this investment. So, here you are, interested in trading crypto. Make sure to stick until the end to learn about how cryptocurrency trading works.
How cryptocurrencies work?
There is undoubtedly a lot to learn before you begin to see daylight with cryptocurrency. Cryptocurrencies are entries in a digital ledger or database no one could exchange or alter unless particular conditions are met. Cryptocurrencies are similar to virtual accounting systems. It lets you transact with credit cards, cash, or cheques to make purchases, accept payment, or invest. The transactions are recorded in digital blocks and then signed cryptographically - making them completely secure.
Bitcoin was introduced by Satoshi Nakamoto, a pseudonym for the genius or group, back in 2009. It was defined as a 'peer-to-peer electronic cash system,' an entirely decentralized system, running without any servers or central controlling unit.
What Is Crypto Trading?
This trading model consists of exchanging a cryptocurrency for another, buying and selling crypto coins, and trading fiat money into crypto. It is almost similar to FOREX (foreign exchange), where fiat currencies from different countries are traded 24 hours every single day.
The number of distinct cryptocurrencies has blown up in recent years. Today, there are estimates that more than 1,500 are in existence.
Many of these coins can only be earned using major cryptocurrencies such as Bitcoin or Ethereum. Because of this, you will likely have to trade to contribute to initial coin offerings (ICOs,) or use a blockchain company. One advantage of crypto trading is that you can get started without mining the coins yourself – a process that takes energy, technical know-how, time combined with a ton of computing power.
What Do You Need to Get Started?
To start trading, make sure to have the following:
- Any cryptocurrency wallet - paper, mobile, hardware, or software wallets
- Access to an 'exchange' that lets you buy, sell, or trade crypto
Some Reminders About Cryptocurrency Trading
- The cryptocurrency exchange is not part of stock exchange
- Beginners may opt and prefer to trade cryptocurrency stocks.
- Cryptocurrency trading is a 24-hour market
- The market is incredibly volatile.
Which Platform to Invest In?
There are a lot of exchange platforms for cryptocurrency, and each is almost different. If you decide to get into cryptocurrency trading, you need to analyze the platforms on the following criteria:
Many exchanges are showing off their security systems to their users. The worst thing that can occur is hacking, causing the loss of customer funds. Some exchange systems have started to accept insurance assuring reimbursement in case of such a mishap.
Even though the crypto trade has been steadily getting popular over the past years, there is a problem that the industry can't yet cope with - it is hacking. According to Chainalysis, an entity that helps governments and financial institutions fight money laundering, about $282.6 million was stolen from exchange sites in 2019. Although this is well below the $875.5 million stolen a year earlier (partly because of the higher value of the crypto monitors themselves), there is still insufficient assurance that the money stored in the wallets on the exchanges is safe.
Explore the Platform’s Suggested Cryptocurrencies
Usually, Bitcoin and Ethereum are always available, but there may be problems with less capitalization with other altcoins. Therefore, at this step, it is essential to study which cryptocurrency pairs are available on the site in the inquiry. This will help you learn what assets you can invest in.
Crypto-exchange platforms are not always transparent. For example, many of them have been found to distort the volume of trades largely. Honest company services usually do not hide their data.
Acceptance for Fiat Money
Of course, be attentive to the sites that work with your national currency. This will help save on commissions, especially if you pay with a credit card.
Some Beginner Mistakes You Should Avoid
- Avoid putting your entire investment in one basket. Just like good-old investing, it is better to have a diverse portfolio and spreading risk. In this way, if one cryptocurrency's price drastically goes down, it won't have a disastrous effect on your asset's overall value.
- Another tip is to determine the reason behind the rise and fall of a particular cryptocurrency's price before you make an investment. Buying a crypto coin in freefall and waiting for its value increase again may seem a wise option, but there is no formula saying that it'll bounce back. Chasing profit by backing a currency that surged can also be tempting, but there's always the danger of "pump and dump" schemes where the price crashes afterward. So, make sure to know fluctuation's "why" before you buy.
- Lastly, always check, over and over again while trading – a simple tip that even seasoned crypto holders seem to forget. When setting up buy or sell orders, ensure that your numbers add up, as even the smallest of nuances can make you lose significant amount. Also, when bargaining with an exchange, make sure you are sending crypto coins to the correct address.
Surely, there are a lot of things you need to master with any investment. But with the effort that you put in today, you can learn how cryptocurrency trading works. This is the first thing you must have to avoid any bad investment decisions, especially with crypto.
After all, it is your decision whether which platform and the cryptocurrency you want to invest and trade with.
To know if this investment model works with you, there is no other better way but to get started!
UPDATED April 6, 2021
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