Understanding Cryptocurrency Trading: Everything You Need to Know

Cryptocurrency trading encompasses predicting price fluctuations through either a CFD trading account or by engaging in transactions on a digital exchange platform.

With thousands of cryptocurrencies available, diving into trading can feel daunting. However, it’s crucial to understand that crypto trading isn’t a shortcut to instant wealth. It demands knowledge and preparation. Here you’ll find more information about cryptocurrency trading, how it works, and what moves the markets.

Exploring the World of Cryptocurrencies

Suppose bonds represent the traditional gentleman in a top hat and stocks embody the pushy loudmouth with a gigantic phone to his ear. In that case, cryptocurrencies are akin to the nerdy kid in a hoody coding and doodling heavy-metal album covers at the back of the class. While they’ve been in existence for over a decade, cryptocurrencies only truly captured mainstream attention in 2017 as their prices skyrocketed (before subsequently retracing most of those gains in 2018).

So, What Exactly Are Cryptocurrencies?

Cryptocurrencies aim to facilitate transactions – or other forms of information exchange – between individuals without the need for oversight from a central authority (like a government or a bank). Numerous attempts had been made to create such digital currency before, but all failed until Bitcoin emerged in 2008.

What Makes Bitcoin Unique?

Bitcoin operates across a decentralized network of computers rather than a centralized set of servers like those employed by traditional banks or e-commerce platforms. All transactions are recorded on an immutable ledger, famously known as blockchain.

Exploring Other Cryptos

While Bitcoin and other cryptocurrencies have revolutionized the concept of digital money, many other projects are leveraging blockchain technology for diverse applications. From social media to file storage, blockchain-based initiatives are seeking to disrupt established industries. In the blockchain realm, you’ll often encounter the term “token.” Unlike arcade tokens, these digital assets exist on the blockchain and can function as currencies, digital goods, or services.

Understanding Cryptocurrency Value

The value of cryptocurrencies and tokens is determined by supply and demand dynamics. If a token attracts users, its value tends to appreciate. For instance, if there’s demand for using Bitcoin as a medium of exchange, a market develops for it. Additionally, digital tokens can be backed by real-world assets like real estate or commodities, deriving their value accordingly. However, some crypto transactions garnering media attention may seem eccentric, such as someone paying $170,000 for a token representing a digital kitten.

Is Cryptocurrency Investment Worth Considering?

Whether cryptocurrency investment is worthwhile depends on your objectives and risk tolerance. The market is still nascent, largely unregulated, and prone to significant price fluctuations. Hence, it may not be suitable for allocating your emergency savings.

What is cryptocurrency trading?

Cryptocurrency trading entails forecasting price shifts either through a CFD trading account or by executing transactions on a digital exchange platform.

DYOR – Conduct your own research

The primary rule in crypto trading is to conduct thorough research. Each cryptocurrency comes with its own unique features and purposes (some may not even have a genuine use case), so it’s essential to evaluate why you anticipate the price of a particular crypto to increase in the future. Take the time to read through their whitepaper and comprehend the project and the objectives of its founders. Additionally, consider reading feedback from other investors about the token before making any investments!

Cryptocurrency CFD Trading: Understanding the Basics

Trading cryptocurrency CFDs involves using derivatives to speculate on price movements without actually owning the digital coins. Traders can take a long position (‘buy’) if they anticipate a rise in value, or a short position (‘sell’) if they predict a decline. These products are leveraged, requiring only a small deposit, known as margin, to access the full market exposure. However, leverage amplifies both potential profits and losses based on the entire position size.

Invest only what you can afford to lose

In the realm of crypto trading, there’s always a risk factor involved since life offers no guarantees. While the volatile nature of crypto trading presents opportunities for significant gains, it also carries the potential for substantial losses. Therefore, it’s prudent not to put all your life savings into crypto investments, especially if you’re new to the game.

Navigating Cryptocurrency Challenges

Venturing into the dynamic world of cryptocurrencies can feel daunting, with headlines rife with terms like “51% attack” and “exchange hack.” As comedian John Oliver quipped, it’s a blend of the perplexities of money with the complexities of computers. However, if you’re intrigued about diving into the realm of tokens, this guide will illuminate the path to get started.

Where Can I Purchase Bitcoin?

To embark on your cryptocurrency journey, you’ll need to locate a crypto exchange. These platforms facilitate the acquisition of cryptocurrencies using conventional currencies like dollars or euros (often referred to disdainfully in crypto circles as fiat currency). Additionally, they enable trading between various cryptocurrencies.

How Do I Select an Exchange?

Crypto exchanges vary widely, making the choice a challenging one. Not every exchange supports trading for all crypto tokens, and not all allow conversions to or from fiat currencies. Moreover, exchanges are occasionally targeted by hackers attempting to pilfer tokens, so it’s crucial to assess the security measures in place to safeguard your assets.

What Other Components Are Necessary?

Storing your funds solely on an exchange carries inherent risks, as any mishap involving the exchange could result in the loss of your assets. For enhanced security, it’s advisable to transfer your funds to a wallet. Aptly named after the leather pouches used to store traditional currency, a wallet serves as a secure repository for managing your cryptocurrencies. Wallets come in diverse varieties, some tailored for a single cryptocurrency while others support a multitude.

An essential aspect of wallets is the presence of a public and private key. Comparable to sharing your email address to receive emails, you can share your public key to receive funds. However, akin to safeguarding the password to your email account, it’s imperative never to divulge your private key. Possession of the private key grants control over the associated funds, with no intermediary authority to arbitrate disputes or validate ownership.

What About 51% Attacks?

A 51% attack poses a significant threat to many cryptocurrencies. In this scenario, hackers seize control of the majority of computing power within a network, granting them the ability to double-spend tokens, effectively generating counterfeit currency. Smaller cryptocurrencies are particularly vulnerable to such attacks.

Purchasing and Selling Cryptocurrencies Through an Exchange

When you purchase cryptocurrencies through an exchange, you’re acquiring the actual coins themselves. This process involves creating an exchange account, investing the full value of the asset to initiate a position, and securely storing the cryptocurrency tokens in your personal wallet until you’re ready to sell. Using exchanges can be challenging as you’ll need to navigate through the technology and understand how to interpret the data provided. Additionally, many exchanges impose deposit limits, and maintaining accounts can be costly.

Spread out your investments

Expanding on our previous point, it’s crucial to ensure that if one of your trades doesn’t go as planned, it doesn’t wipe out your entire investment portfolio. That’s why it’s advisable to diversify your investments across multiple assets rather than putting all your resources into one token. Going a step further, you might want to consider employing the barbell strategy, where you allocate 80% of your assets to low-risk investments and 20% to higher-risk ones. This approach is believed to help offset gains and losses, ultimately resulting in overall profitability.

Understanding Cryptocurrency Market Operations

Cryptocurrency markets operate in a decentralized manner, meaning they lack a central authority, such as a government, to issue or back them. Instead, these markets function across a network of computers. However, individuals can still buy and sell cryptocurrencies through exchanges and store them in digital “wallets.” Unlike traditional currencies, cryptocurrencies exist solely as a shared digital record of ownership, which is stored on a blockchain. When a user wishes to send cryptocurrency units to another user, they transfer them to the recipient’s digital wallet. The transaction remains pending until it is verified and added to the blockchain through a process known as mining. This process also facilitates the creation of new cryptocurrency tokens.

Grasp the concept of the order book

Understanding how an order book functions is crucial to comprehending the structure of crypto trades. In any trade, one party emerges as the winner while the other is the loser, and your goal is to buy at a low price and sell at a high one.

When there are more buy orders for a particular asset than sell orders, the price typically rises due to increased demand for the cryptocurrency. Conversely, if there are more sellers than buyers, the price tends to decrease. Many exchange platforms, such as Wirex’s interface, indicate whether there is more buying or selling activity in the market through color coding, with green often representing buying and red indicating selling. This feature can assist you in determining whether it’s an opportune moment to buy or sell.

Understanding Blockchain Technology

Blockchain technology serves as a shared digital ledger of recorded data. In the context of cryptocurrencies, it encompasses the transaction history for each unit of the cryptocurrency, illustrating the changes in ownership over time. The functioning of blockchain involves the recording of transactions in “blocks,” with new blocks continuously appended to the front of the chain. Notably, blockchain technology offers distinctive security features absent in conventional computer files.

Network Consensus

A blockchain file is distributed across multiple computers within a network, rather than being centralized in a single location. Typically, it is accessible to all participants within the network, ensuring transparency and significantly reducing susceptibility to alteration. This decentralized nature eliminates any singular weak point vulnerable to hacking attempts, human error, or software glitches.

Cryptography

Blocks within the blockchain are interconnected through cryptographic techniques, involving intricate mathematical algorithms and principles of computer science. Any attempt to manipulate data disrupts the cryptographic links between blocks, immediately flagging it as fraudulent to computers within the network.

Understanding Cryptocurrency Mining

Cryptocurrency mining entails the verification of recent cryptocurrency transactions and the addition of new blocks to the blockchain.

Verification Process

Mining computers select pending transactions from a pool and verify that the sender possesses adequate funds for the transaction to be completed. This verification process involves cross-referencing transaction details with the transaction history stored in the blockchain. Additionally, a secondary verification ensures that the sender has authorized the fund transfer using their private key.

Block Creation

Subsequently, mining computers compile validated transactions into a new block and endeavor to establish the cryptographic link to the preceding block by solving a complex algorithm. Upon successfully generating the link, the computer appends the block to its version of the blockchain file and propagates the update throughout the network.

Factors Influencing Cryptocurrency Market Movements

Cryptocurrency markets experience fluctuations driven by supply and demand dynamics. Due to their decentralization, they are less susceptible to the economic and political factors that impact traditional currencies. Despite the lingering uncertainty surrounding cryptocurrencies, several key factors exert substantial influence on their prices.

Key Influencing Factors:

• Coin Supply: The total number of coins in circulation and the rate at which they are issued, eliminated, or lost.
• Market Capitalization: The perceived value of the entire cryptocurrency market and how investors perceive its growth potential.
• Media Coverage: The portrayal of cryptocurrencies in the media and the level of attention they receive.
• Adoption: The degree to which cryptocurrencies integrate into existing infrastructure, such as online payment systems.
• Significant Events: Major occurrences like regulatory changes, security breaches, and economic downturns.

Understanding Cryptocurrency Trading Mechanisms

When trading with IG, you have the opportunity to engage in cryptocurrency trading through a CFD account. These are derivative instruments that allow you to speculate on whether your selected cryptocurrency will increase or decrease in value. Prices are denominated in traditional currencies like the US dollar, and you do not possess the actual cryptocurrency.

CFDs represent leveraged products, enabling you to initiate a position with only a fraction of the total trade value. While leverage can amplify your potential gains, it also exposes you to greater losses in the event of adverse market movements.

Engage in technical and fundamental analysis

Technical and fundamental analysis represent the primary methods for analyzing crypto market behavior. Fundamental analysis delves into present economic and financial factors that could impact token prices, such as significant news events like government announcements regarding inflation rate hikes. On the other hand, technical analysis scrutinizes the complete price history of the token.

Assessing Cryptocurrency Ventures

Once you’ve decided to dip your toes into the cryptocurrency realm, the inevitable question arises: which one to choose?

Contrary to their name, only a handful of cryptocurrencies aim to supplant traditional currency functions, such as wealth preservation or making purchases. The majority are endeavors geared towards addressing real-world challenges, like global data file transfers, and derive their worth from the demand for these solutions.

How Do I Determine a Crypto Token’s Value?

Cryptocurrencies typically do not yield any income for holders. They resemble inert gold reserves rather than stocks or bonds that generate consistent dividend or interest payments. Consequently, most crypto investors speculate on the probability of a particular token achieving widespread adoption and consequently, heightened demand.

A prevalent trend among crypto projects is the utilization of blockchain technology to revolutionize established business sectors. The premise is that these initiatives will disrupt conventional industries by leveraging the decentralized nature of blockchain technology. Analogously, this upheaval mirrors how Uber revolutionized the taxi industry, albeit without leveraging blockchain technology.

How Can I Assess a Project?

Amidst the blockchain fervor, many projects endeavor to integrate the technology into contexts where its applicability is dubious. This initial assessment is critical: does the proposed application genuinely necessitate blockchain technology?

What Other Factors Should I Consider?

The caliber of individuals steering the project holds paramount importance. A meticulously planned endeavor helmed by an incompetent team is destined to falter. Ultimately, project performance aligns with the capabilities of the individuals spearheading the initiative.

In the ensuing section, we’ll delve into the distinctive perils inherent in the cryptocurrency ecosystem and prevalent avenues through which investors incur losses.

Identifying Cryptocurrency Frauds

The realm of cryptocurrency is rife with fraudulent schemes, and numerous factors contribute to this notoriety. Transactions conducted on the blockchain are irreversible, rendering them an ideal playground for hackers.

Additionally, the absence of regulatory oversight allows teams to solicit funds for projects that conventional investors would dismiss outright. This lack of regulatory framework also means consumer protection laws provide no safety nets in the event of business failures or dubious practices.

What Does this Mean for Investors?

In traditional markets like stocks, the primary risks involve investment depreciation or company insolvency. However, in the cryptocurrency sphere, investors must also contend with the reliability of service providers and exercise caution in navigating online spaces, where scam artists abound.

Social media platforms such as Instagram and LinkedIn have become breeding grounds for fraudulent activities aimed at swindling unsuspecting individuals of their hard-earned money.

How Can Investors Safeguard Their Interests?

The cardinal rule is “don’t trust, verify.” Verify the legitimacy of any entity that contacts you, and exercise skepticism if the pieces of the puzzle don’t fit together.

Beware of overly lucrative promises; if returns seem too good to be true, they likely are. Several high-profile projects have crumbled after failing to deliver on unrealistic profit guarantees. For instance, Bitconnect, a venture purporting to offer interest on bitcoin holdings, collapsed in 2018, resulting in approximately $1 billion in losses for investors.

Exercise prudence in selecting where to allocate funds, as even established exchanges today may cease to exist a decade hence. Opt for credible exchanges with a proven track record of user trust. Reviews from fellow investors can serve as valuable resources in this regard.

Regarding wallets, remember that the private key serves as the gateway to accessing your funds. Unless stored securely offline, be mindful that wallet providers could potentially gain access to your assets.

In the subsequent segment, we’ll delve into overarching strategies for managing your cryptocurrency portfolio.

Understanding Key Concepts in Cryptocurrency Trading

In cryptocurrency trading, the spread refers to the variance between the buy and sell prices quoted for a specific cryptocurrency. When initiating a position, traders encounter two prices: the buy price, slightly above the market value, for long positions, and the sell price, slightly below the market value, for short positions.

What is a lot in cryptocurrency trading?

In cryptocurrency trading, lots represent standardized batches of cryptocurrency tokens utilized to regulate trade sizes. Due to the high volatility of cryptocurrencies, lots are typically small, often comprising just one unit of the base cryptocurrency. However, some cryptocurrencies are traded in larger lot sizes.

What is leverage in cryptocurrency trading?

Leverage allows traders to access significant amounts of cryptocurrency without requiring full upfront payment. Instead, traders deposit a small amount, known as margin. Profits or losses upon closing a leveraged position are based on the total trade size. While leverage can amplify profits, it also entails the risk of increased losses, including losses that exceed the initial margin. Therefore, mastering risk management is crucial when engaging in leveraged trading.

Stick it out during market downturns

HODL is a crucial term in the ever-expanding lexicon of crypto jargon. It first emerged in 2013 when an inebriated forum member created a thread titled “I AM HODLING” (a misspelling of holding) to announce his commitment to holding Bitcoin regardless of market fluctuations. Since then, HODL has become entrenched and now serves as an acronym for Hold On for Dear Life – emphasizing the belief that cryptocurrencies represent the future and should not be sold when the market experiences downturns. There are numerous anecdotes of individuals who purchased Bitcoin early and sold it when the price was only a few dollars, failing to foresee its astronomical rise in value – evidence that by HODLing, one might achieve even greater gains than expected!

Take market capitalization into account, not just price

Considering market capitalization alongside price is crucial because the price of a single share doesn’t necessarily reflect a company’s overall value, size, or profitability. In the crypto world, market capitalization represents the total value of a cryptocurrency, calculated by multiplying the number of circulating coins by the current price, typically denominated in dollars. Therefore, a cryptocurrency may have a low price per coin due to a large circulating supply and still possess a high market capitalization, or vice versa.

Market capitalization indicates the amount of traditional currency invested in each cryptocurrency, leading us to prioritize ranking cryptocurrencies based on market capitalization rather than price per coin.

Understanding Margin in Cryptocurrency Trading

Margin plays a crucial role in leveraged trading, referring to the initial deposit required to initiate and uphold a leveraged position. In cryptocurrency trading, it’s essential to recognize that margin requirements vary depending on the broker and the size of the trade.

Margin is typically represented as a percentage of the total position. For instance, trading bitcoin (BTC) may necessitate a 10% deposit of the overall position value to open the trade. Instead of depositing the full $5000, only $500 would be required.

Explore various trading techniques

Beyond simply purchasing and selling cryptocurrencies opportunistically, there exists a wide array of trading approaches. These include day trading, margin trading, and swing trading, among others. It’s crucial to comprehend which strategy suits you best and the advantages of each before implementing it. Our Head of Trading will delve into these diverse trading strategies in the upcoming posts, so stay tuned to our blog for valuable insights!

Explaining Pips in Cryptocurrency Trading

Pips serve as the units for measuring price movement in cryptocurrencies, denoting a one-digit shift in price at a specific level. Typically, major cryptocurrencies are traded at the dollar level, where a movement from $190.00 to $191.00 signifies a single pip. However, some lower-value cryptocurrencies may be traded at different scales, where a pip could represent a cent or even a fraction of a cent.

Before initiating a trade, it’s essential to review the specifications of your chosen trading platform to comprehend the level at which price movements will be gauged.

Investment Strategies in Cryptocurrency

Once you’ve acquainted yourself with the world of cryptocurrencies, there are several investment approaches to consider. Ultimately, it hinges on whether you prefer active trading or merely wish to dip your toes into this burgeoning realm of technology.

Active Trading versus Passive Exposure

Active traders engage in frequent buying and selling, aiming to capitalize on market fluctuations akin to speculators in traditional markets like commodities or currencies. They conduct thorough analyses of projects, employing techniques such as technical analysis to inform their decisions. This involves scrutinizing past price data to glean insights into future market movements.

Conversely, some investors opt for a more hands-off approach. They may simply purchase cryptocurrency assets and hold onto them with the expectation of long-term appreciation.

The “Buy and HODL” Strategy

The “buy and HODL” strategy, born from a humorous typo in a crypto forum post in 2013, entails steadfastly holding onto acquired assets regardless of market fluctuations. “HODL” has since become a colloquial term signifying an unwavering commitment to holding onto investments.

Exploring Passive Investment Options

For those averse to active trading, there are alternatives like cryptocurrency bundles or passive index funds offered by platforms such as Coinbase. However, it’s essential to scrutinize associated fees, as they can be considerable.

Coin Push Crypto Alerts

Coin Push Crypto Alerts stands as a testament to the power of mathematical algorithms and data-driven analysis in providing actionable insights to traders. By prioritizing reliability and transparency, Coin Push Crypto Alerts empowers traders to make informed decisions and navigate the complex crypto market with confidence.

And always remember – No fortune telling, just math!

With Coin Push Crypto Alerts leading the way, traders can trade smarter, not harder, and seize the countless opportunities that the crypto market has to offer. Choose reliability, choose transparency, and install Coin Push Crypto Alerts.