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The Basics of Trading Cryptocurrency
January 29, 2022 by Mark Allinson Leave a Comment
You have probably heard about the cryptocurrency phenomenon if you have been paying attention to the news lately.
Bitcoin and Ethereum are just two of the many cryptocurrencies currently on the market, and their values have been increasing rapidly in recent months.
So what is a cryptocurrency, and why is it becoming so popular? We will discuss the basics of trading cryptocurrency. We will cover everything from what cryptocurrency is to how you can buy it and sell it.
By the end of this post, you will know everything you need to start trading cryptocurrencies and identify top crypto exchange in the market.
1. What is Cryptocurrency?
Much like physical currencies such as the dollar, cryptocurrencies are created by a central entity. The difference is that any bank or government does not regulate the value of cryptocurrencies, and they are decentralized.
This means that there are no physical forms of cryptocurrency, only data stored in lines of code. This lack of physical condition is that the government would need to regulate cryptocurrencies to maintain their value by basing them on data rather than any regulated currency.
Another defining feature of cryptocurrency is that its value relies directly on demand. Unlike most currencies (including fiat), cryptocurrency can only be used for its intended purpose. For example, you can't buy a house with your bitcoins, but you can purchase an item using it.
This is possible because the value of cryptocurrency relies on how many people want it. Since its demand is so volatile, its value changes often and significantly.
2. The Types of Cryptocurrencies
There are three main types of cryptocurrencies: Utility, Platform, and Token. Utility cryptocurrencies are created to be used in a particular manner, such as for buying goods or services. The most well-known utility cryptocurrency is Bitcoin, designed for online transactions.
Platform cryptocurrencies serve as an intermediary base layer (much like the internet). The most well-known platform crypto is Ethereum, which was developed for brilliant contract creation.
Token cryptocurrencies only exist to offer a service. They don't serve as their base layer but rather live to power applications built on them. The most well-known token crypto is ERC-20, developed for blockchain-based investment funds.
3. How to Buy and Sell Cryptocurrencies
There are several ways to buy cryptocurrencies. The easiest way is by using an online platform such as Coinbase or Coinmama. When buying on these platforms, you create an account and link it with your bank account or credit card.
Then, when you want to purchase a certain amount of cryptocurrency, you input how much you want to spend and then click“Buy.”
You can also buy cryptocurrencies on crypto-only exchanges such as Binance. However, these exchanges do not support the purchase of cryptocurrency with fiat money (government currency). To use these exchanges, your funds must already be in a cryptocurrency.
If they aren't, you will need to purchase a currency like Bitcoin, Ethereum, or Litecoin to transfer them into another one.
The process of selling cryptocurrencies is similar to buying them. You input your cryptocurrency address so your funds can be transferred out and wait for the transaction to occur.
On sites such as Coinbase, you will also need to input your bank account or card information.
4. Which Cryptocurrencies Should You Invest In?
The cryptocurrency market is volatile, so it's impossible to answer that question. However, if you're interested in investing in it, you can follow some general guidelines.
One of the most popular rules is“Buy low, sell high”. This means that you should only invest when the market is low, then sell when it's high.
Another rule that many people follow is to diversify their portfolios. By investing in several different cryptocurrencies instead of just one, you can protect yourself against losing all of your money if one fails.
Tips To Sharpen Your Cryptocurrency Trading
1. Understand the Crypto Market
Although it is impossible to know with certainty what will happen in the crypto market, there are a few facts that you should take into consideration when investing in cryptocurrency.
The crypto market has been going up quickly over the last couple of years, and many predict that this trend will continue.
More and more investors are getting involved every day, making it a fascinating industry to work in.
2. Identify a Strategy
Cryptocurrency trading can be highly profitable if you set up an effective strategy. Since the crypto market is volatile, you should understand that several methods can succeed or fail, depending on the circumstances.
No system will be successful 100 percent of the time, and there is no strategy without risks.
3. Stay Informed
Crypto markets can change quickly due to outside factors such as news and regulations. That is why it is necessary to keep up to date with the latest news in the crypto world to ensure profitable trading.
Also, be sure to understand how local regulations can affect your cryptocurrency investments.
4. Diversify
Since one coin can only impact your overall profit or loss, it is essential to diversify your portfolio. Do not put all of your eggs in one basket and invest in various coins. This will not only increase your chances of success but will also make trading more exciting.
5. Do Your Research
Before investing, you should always do thorough research to ensure that the potential return is worth your risk.
Do your research to pick the best projects, understand the different factors affecting coin prices (supply and demand) and learn about safe trading practices.
6. Cryptocurrency Trading Is about Risk Management
Remember to manage your risk continuously. This means that you should only invest an amount of money you can afford to lose. Be responsible with how much money you invest and do not put in more than you can afford to lose.
7. Have Fun
Now that you have a better understanding of cryptocurrency trading go out there and have fun. It is important to remember that this should be a hobby, not a job. Although trading requires hard work and dedication, it should also be an enjoyable experience to increase your chances of success.
Never Stop Learning
If you set up an effective strategy, investing in cryptocurrency can be a very profitable and exciting experience. Never invest more money than you can afford to lose, stay updated with the latest news and never stop learning new things about this ever-evolving industry.
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