Cryptocurrency is a digital asset. It is used as a virtual currency that can be exchanged for goods. Cryptocurrencies make use of blockchain technology on a decentralized network. These currencies are not regulated by any government or bank around the world.
Cryptocurrency trading has built many millionaires, but a lot of people have also lost money in this market. This article will teach you the basics on how to start trading cryptocurrency, from choosing the coin, selecting an exchange, and buying and selling.
Bitcoin is the most popular cryptocurrency and is also the coin with the highest market value. It was worth less than $1 when it first started and reached a high of around $20,000 at the end of 2017. From this high, it dropped again in 2018, recovered in 2019, and is at around $10,000 in 2020.
There is a lot of opportunity in cryptocurrency trading. To be able to capitalize on these opportunities, it is important to learn the market, study the coins you are investing in, and make firm decisions when buying or selling.
1. Why do you Want to Trade Cryptocurrency?
When starting trading, first off, ask yourself why you want to trade cryptocurrency. Many people get into trading crypto assets, but not all do it for the right reasons. There are those people who are just experiencing FOMO, or the fear of missing out, and end up buying cryptocurrency without thinking of the risks involved.
Do you want to trade cryptocurrency because of the technology? Do you have extra money to spend and you want to invest it to see where the cryptocurrency market is in a few years? Are you interested in building a portfolio of cryptocurrencies for future use?
If you have a legitimate reason to start trading cryptocurrency, and you have the means to do so, go for it! It is recommended to buy cryptocurrency only if you have the extra money. Never start trading cryptocurrency if you are just experiencing FOMO. Remember that this market is highly volatile, and trading always has risks involved.
2. How to Start Trading Cryptocurrency
Starting to trade cryptocurrency is quite straightforward. All you must do is create an account on a legitimate trading platform or cryptocurrency exchange. There are many exchanges that are now available, and some of the more popular exchanges include Coinbase, Binance, Robinhood, and Bitfinex.
Of these four exchanges, you can choose to start with Coinbase. This exchange is very popular with beginners. Coinbase has both a website and an app, so you can trade on your computer, or check the trades on your phone when you are out and about.
Coinbase has more than 30 million people using this exchange. It features a user-friendly interface, and you can buy and sell all the top cryptocurrencies on this platform. These reasons make Coinbase a good option for someone who is just starting to trade. Another great thing about Coinbase is that it provides insurance for your money. Thus, you will feel more secure that your coins and money are safe while you are trading.
3. What Coins to Trade?
There are already thousands of cryptocurrencies in the market and choosing which coins to trade can be a difficult decision. One factor that you should look at when selecting a coin is the market capitalization.
Market capitalization, or market cap, is the total market value of the cryptocurrency. It is calculated by multiplying the number of existing coins by the market price or value per coin.
Traders usually want to invest in cryptocurrencies that have a high market cap, because these coins are more stable than new cryptocurrencies. These coins also have a higher number in circulation, which can contribute to market price, demand, and adoption. In 2020, the top three coins in the market include Bitcoin with a market cap of around $128 billion, Ethereum at $19 billion, and Ripple at $8 billion.
These top cryptocurrencies have a higher market price per coin. You can choose to either buy one cryptocurrency, or diversify your portfolio, and buy several cryptocurrencies in smaller fractions.
To know all the details of a certain cryptocurrency so you can understand what you are investing in, you can read its white paper. The white paper will show you what the cryptocurrency was created to do, and how. It is important that you study each coin that you are interested in before making the purchase, to see if you are ready to invest in it.
4. When to Trade Cryptocurrency?
When you have decided on what cryptocurrency to trade, you need to figure out when to trade it. There are many trading strategies that you can use in trading. Due to the high volatility of the market, it is a gamble every time that you buy and sell. Therefore, you need to apply already proven and tested strategies when you are trading.
One strategy for trading is to follow the trend. When buying, look for big dips. This means that when the market price is on an upward trend and it suddenly dips or goes down, that is the time to buy.
For more stable coins, the price regularly goes up and down. Thus, the strategy of “buying the dip” can be applied because the assumption is that the coin will go on an upward trend again soon after.
When selling, it is important to set a target profit that you want your coin to sell at, especially if you are a beginner. This is called a “limit sell order.” This order will automatically sell your coin once it hits the target profit. This will help you avoid losses and add to your experience in trading. Learn more about trading cryptocurrency here!
Once you have learned how to start trading cryptocurrency, take the time to practice, and try out different strategies to see what works for you. A common mistake when trading is selling at the wrong time or getting emotions involved. You must understand that trading always comes with risks. Thus, it is important that you have understood the risks involved when beginning to trade.