How cryptocurrency trading works: Cryptocurrency Trading for Beginners
For novices, cryptocurrency is the buzzword and new kid on the block. As much as it is promising in terms of giving returns over a short time, it is also volatile and risky.
The whole idea of cryptocurrency is based on a distributed ledger that stores information on every transaction or trade.
Also, the trade is protected by high-grade cryptography. The simplest way of trading cryptocurrency is by trading (buying and selling) any crypto coin like Bitcoin, Ethereum, Dogecoin, Cadence, etc. These are done through cryptocurrency exchanges where investors open an account and start the trade.
What is Cryptocurrency
Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of being physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database that describe specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. You store your cryptocurrency in a digital wallet.
Cryptocurrencies work using a technology called a blockchain. Blockchain is a decentralized technology spread across many computers that manage and records transactions. Part of the appeal of this technology is its security.
So, where the heck do we get the word cryptocurrency from, anyway? Glad you asked. Cryptocurrency got its name because it uses encryption to verify transactions.
This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The aim of encryption is to provide security and safety.
How does Cryptocurrency work?
The concept of digital money that people spend online is not that complicated in itself. After all, most of us will be familiar with transferring money from one online bank account to another.
Cryptocurrency works a lot like PayPal or a credit card, except you exchange digital assets for goods and services instead of US dollars. To make a transaction with cryptocurrency, you must exchange currency with a peer using a digital wallet known as a cryptocurrency wallet.
Cryptocurrency runs on blockchain technology, but what exactly is a blockchain? The term has become so commonplace, its meaning and significance are often blurred. A blockchain is simply a digital ledger of transactions.
This ledger (or database) is distributed across a network of computer systems. No single system controls the ledger. Instead, a decentralized network of computers keeps a blockchain running and authenticates its transactions.
A cryptocurrency wallet is a software that allows you to transfer funds from one account to another. To complete a transaction, you need access to a password, known as a private key.
The private key is much like a bank account. You can own multiple keys and own all the funds sent to those keys. Transactions are recorded on a public ledger, which shows the transaction totals without revealing the identities of the parties involved.
What is cryptocurrency trading?
Cryptocurrency trading is defined as the act of speculating on cryptocurrency price movements via a Cryptocurrency trading account, or buying and selling the underlying coins via an exchange.
Cryptocurrency trading is often depicted as more high risk than stock trading, but it depends on what stocks or cryptocurrency you’re trading and how you’re trading it. Trading penny stocks or trading options can be equally, if not more, risky than trading cryptocurrency.
Before trading cryptocurrency, you should be aware that you risk losing your money to the market. If you really believe in the future of cryptocurrency, holding your crypto assets for the long term may be more beneficial than trying to time the markets.
How to trade Cryptocurrency and Make Profit
Take a look at the 5 steps to trading cryptocurrency.
Step 1: Make a cryptocurrency brokerage account.
Unless you already own cryptocurrency, you’ll need to make an account with a crypto brokerage. Coinbase, Gemini, and eToro are among the best crypto brokerages on the market. All 3 of these options offer a simple user interface and a variety of altcoins to choose from.
To make an account, you’ll need to provide your crypto brokerage with personal identification information, similar to opening an account with a stock brokerage. Some common information you need to provide when setting up your account includes your Social Security number, address, date of birth, and email address.
Step 2: Fund your account.
Once you’ve signed up with a crypto brokerage, you’ll need to connect your bank account. Most crypto brokerages offer bank funding through debit cards and wire transfers. Wire transfer is typically your cheapest option to fund your account — it’s free on Coinbase and Gemini.
Step 3: Pick crypto to invest in.
Most active cryptocurrency traders allocate most of their capital to Bitcoin and Ethereum. These cryptos move more predictably than smaller altcoins, so trading with technical indicators can be easier.
Many crypto traders allocate a portion of their capital to smaller altcoins. Although small mid-market cap cryptos are riskier than large-market cap cryptos, they offer higher upside potential. Many small altcoins have risen over 1,000% in a matter of months, making them attractive investments for risk-tolerant investors.
Step 4: Choose a strategy.
There are a plethora of trading indicators to choose from, and most traders take multiple factors into consideration when buying and selling cryptocurrency. If you’re new to investing, you may want to consider purchasing a cryptocurrency trading course.
Asia Forex Mentor is a popular choice that can teach you how to invest in foreign currency along with other items — including cryptocurrency. The One Core Program has been featured by several financial information sites, and it is a favorite of Benzinga. Check out a review of the platform, consider signing up, and change your approach to trading.
If you’re an experienced trader, you may already have a strategy you use to trade stocks. Stock trading strategies are also commonly used for cryptocurrencies. A personal favorite trading strategy that many traders use is Elliott Wave Theory. Elliott Wave Theory focuses on the psychology behind the market sentiment, so it works particularly well for speculative assets like cryptocurrencies.
Step 5: Store your cryptocurrency.
If you’re actively trading your cryptocurrency, you’ll have to store your funds on the exchange to have access to them. If you’re buying your cryptocurrency to hold for the mid to long term, then you should get a cryptocurrency wallet.
Cryptocurrency wallets come as software wallets or hardware wallets. Both are secure, but hardware wallets offer the best security, as they store your crypto on a physical device, offline. Ledger is a great hardware wallet brand many investors trust to store their crypto assets on. If you’re looking for a software wallet, there are several options on iOS, Google Chrome, and Android that is free to use.
How to Buy Cryptocurrency like Bitcoin
- Make a decision on where to buy crypto or bitcoin. Cryptocurrency exchanges like Coinbase and a few traditional brokers like Robinhood can get you started investing in bitcoin.
- Prioritize how to store your cryptocurrency. Are you going to keep your bitcoin in a hot wallet or a cold wallet?
- Make your purchase. Figure out how much you want to invest in bitcoin.
- Manage your investment. Determine your long-term plan for this asset.
What moves cryptocurrency markets?
Cryptocurrency markets move according to supply and demand. However, as they are decentralized, they tend to remain free from many of the economic and political concerns that affect traditional currencies. While there is still a lot of uncertainty surrounding cryptocurrencies, the following factors can have a significant impact on their prices:
- Supply: the total number of coins and the rate at which they are released, destroyed, or lost
- Market capitalization: the value of all the coins in existence and how users perceive this to be developing
- Press: the way the cryptocurrency is portrayed in the media and how much coverage it is getting
- Integration: the extent to which the cryptocurrency easily integrates into existing infrastructure such as e-commerce payment systems
- Key events: major events such as regulatory updates, security breaches, and economic setbacks
Best Cryptocurrency Trading Platforms, Apps, and Cryptocurrency Investment Companies
There are a ton of options when it comes to cryptocurrency trading platforms, apps, and cryptocurrency investment companies. For new investors, Bitcoininvestmentrex and Coinbase are great options. Coinbase has a free cryptocurrency conversion feature where you can trade your crypto for any other token supported by Coinbase, while Bitcoininvestmentrex offers a 10% discount on fees for new investors.
Other crypto trading platforms that are solid options for intermediate traders are eToro, Binance, and Gemini. Robinhood also supports certain cryptos but the platform only supports trading for 5 altcoins.
The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.