How to Trade Cryptocurrency
Cryptocurrencies seem to have taken the world by storm. There was next to no traction at its inception is 2009 with the creation of Bitcoin. However, the next several years saw the currency blossom into an accepted, decentralized standard for trading that is now accepted by many parties.
Though the exchange medium has taken off in such a strong way, there are still many people who are out of the loop where it is concerned. It’s not so easy to understand initially, and some of the sources of information seem to complicate things more than they do make them clearer.
A big part of the cryptocurrency market is trading. Knowing how that works is one of the biggest assets to functioning in this wildly successful market.
For a long time, Bitcoin was the only cryptocurrency that seemed to be making the headlines. This made sense back in the late 2000s and the early 2010s since there was no real competition.
Since then, however, many have been created, and there are now over 1,000 that are available. There’s not as much spotlight shed on some of the smaller and newer ones, so many people don’t know how viable or feasible they are.
Take Vertcoin, for example. This is probably the first time you’ve heard of it, but it is one of the cryptocurrency alternatives to watch based on market analysis. Vertcoin borrows heavily from the Bitcoin formula in terms of its workflow and underlying design.
Based on information provided by CoinMarketCap, there are over $53 million VTC in circulation. At the time of writing, VTC trades for $0.39 USD apiece. However, it has demonstrated its volatile nature by fluctuating as high as over $9.
Of course, the less popular currency alternatives are not traded as heavily, which means that if you decide you want to sell yours, finding a buyer could prove to be a very challenging task.
If you’re the type of buyer that wants to understand everything that is available instead of what’s popular, then you can investigate some of the less popular cryptocurrency alternatives. CoinMarketCap provides a listing of the available ones, their rank, the available and circulating supply, etc.
As a beginner though, it is recommended that you start with some of the leading ones to keep things a bit less confusing. The current leaders are currencies such as Bitcoin, Litecoin, Ethereum, and Bitcoin Cash.
Bitcoin and Ethereum account for over 50% of the current market, which explains their immense popularity. Some of the other cryptocurrency types that are available and somewhat viable are:
- Bitcoin SV
- Binance Coin
Understanding Cryptocurrency Trading
As you’ve probably noticed, the value of cryptocurrencies tends to be expressed in comparison to US dollars. This is the universally accepted currency of exchange, so traders buy and sell their coins in exchange for US dollars.
Trading cryptocurrencies is like trading forex in many ways. Forex investors trade an option or position, and these trades are done at times that are deemed fit by the investors. Whenever a trade is made, there is an expression of a profit or a loss.
You buy and sell your cryptocurrency in the same way. You can watch the market to see how it moves before making any decisions. The buy-and-hold strategy is a very popular one, which aims to maximize from trading based on the volatility of a currency.
In most cases, you profit when your cryptocurrency goes up in value, since it means that it has amassed a higher value and purchasing power. Be that as it may, you can use things like futures contracts to set a value in stone in the context of an agreement so you can profit even if the value falls.
As a new entrant into the world of cryptocurrency, you may feel a bit hesitant to enter when you see the price tag attached to these currencies. Bitcoin, for example, is in a position where a single coin is worth thousands of US dollars. The prospect of buying a coin for that amount of money is scary, especially since there’s no guarantee of profit.
What you may not know is that the units of these coins are not limited to the whole. In other words, you don’t need to purchase a whole coin. There are modular decimal units that you can purchase. The current crop of Bitcoin can be split 100 million times, which makes things way more affordable and welcoming.
Of course, calculating such small units to decide how much you can buy would be a chore, so exchanges do it the other way. You specify a US dollar amount that corresponds to what you are willing to spend, then you are told the coin amount that you can get for that money.
Brokers and Exchanges
While you can invest in funds, the context of this article is to discuss direct trading. This is where the concepts of exchanges and brokers come into the mix. Basically, you can choose to trade on the exchange, or you can take a more hands-off approach and have your trading done via a broker.
Now, you may be looking at this in the same manner that you would exchanges and brokers on the stock market. While there are many similarities, there is one key difference that tends to push people towards trading directly on the exchange.
If you choose to go with a broker, what you are doing is entering into a Contract for Difference (CFD). With a CFD, ownership of the cryptocurrency is not yours, which is an understandably huge problem for potential traders.
Therefore, many people decide to go with an exchange (or several) and learn the trading platforms on their own.
Exchanges to Consider
Are you looking for one or more exchanges to consider for your trading? Consider the following:
The Trading Workflow
Different exchanges operate in different ways, but you are likely to see a similar workflow to that of a stock exchange here. The concept boils down to an expression of desire from both buyers and sellers on the market. Both sets of people advertise the amount of cryptocurrency they are interested in either buying or selling, and they also indicate the price at which they are comfortable doing so.
On an exchange, there’s no penalty for canceling orders because you change your mind or because the price is undesirable. However, in a market, such orders are not reversible.
Expressions of profits and losses are only recorded digitally until a sale happens. At that point, the figures are set in stone.
Watching trends is a great way to help you to decide when to make a move. While there have been spikes and falls, the prices for cryptocurrencies have been steadily trading upwards. Choose how much trading you want to do based on your goals and the type of trading style that fits you. If you want to hold a currency indefinitely because you think it’s likely to appreciate consistently, you are free to do so.
Note that, if you’re more of a short term trader, things can get a bit rougher. Day traders are known to have the biggest issue. The heart of this issue is the volatility of cryptocurrencies. There are many events that can lead to unbelievable price spikes and falls.
Now that you have all the puzzle pieces that you need to start trading, it’s fitting to end with some considerations that you should bear in mind.
The first is the intrinsic value of a cryptocurrency. You need to establish your own stance on the matter, which helps you decide if you want to trade or not. Many people believe that the only reason there is value placed on these currencies is their scarcity. Of course, the same can be said about other assets, but that’s for you to decide.
A bigger concern is the regulation aspect. A part of the decentralized and uncontrolled nature of cryptocurrencies means that there is no regulation currently. Organizations such as the SEC are not fond of this and are lobbying for cryptocurrencies to fall under their regulation. To date though, these currencies have not been officially cited as acting illegally.
The final and largest consideration is the relative failure rate of cryptocurrencies. While Bitcoin and Ethereum sound like huge success stories, there are numerous types that never saw the light of day after their creation. It remains to be seen whether the current crop of successful coin types may meet a similar fate.