The past few years have seen explosive growth in the popularity of cryptocurrency. Bitcoin, Ethereum, and thousands of other digital currencies are all fighting for headlines as we continue to explore the many potential uses of the blockchain technology on which they are based. Blockchain's versatility has us excited for the future, but it's cryptocurrency's appeal as an investment opportunity that has us excited today. It seems that everywhere you turn there are stories of Bitcoin millionaires, and it has many of us wondering exactly how to trade cryptocurrency.
"I think that the future of currency is digital, and Bitcoin has a good shot at being the currency of the future." -Adam Draper
There has been a wide fluctuation in the prices of digital currencies in recent years, and where there's price fluctuation, there's money to be made. But it's not as simple as that, unfortunately, and many have lost money due to poor understanding of this volatile market. Potential investors should acknowledge that this is not the same as trading stocks or other assets, and there is quite a bit to learn for even seasoned economists. Here is a brief outline highlighting what you need to know before diving in.
What Is Cryptocurrency?
The answer to this question can become incredibly complicated very quickly, so we'll try to keep it simple. Basically, cryptocurrency is “digital money” that exists within a particular software platform. Like regular paper currency, it can be broken up into small units and transferred between two parties to pay for goods and services. Cryptocurrency uses encryption to secure these payments and prevent counterfeiting, with the added benefit of potentially allowing for anonymous transactions. All of this happens outside of the traditional central bank system.
Also, just like regular paper currency, digital currency has a limited supply. This means that as usage and demand rise and fall, the price of digital currency will rise and fall accordingly. As with foreign currencies, the price of cryptocurrency is often expressed using major world currencies like the Euro or U.S. dollar as a base (i.e. you might hear something like “Bitcoin is at $10,000” when the value of one Bitcoin is equivalent to $10,000 USD).
Bitcoin was the first cryptocurrency to gain international fame as a legitimate form of digital money, and thousands of other digital currencies have since emerged to stake their claim. Among these thousands, there's an incredible variety in terms of how they're intended to be used, and this variety makes it a fascinating space for investors. There are, for example, cryptocurrencies that are designed to be used in a specific geographic region or industry or to solve unique market inefficiencies. In this sense, traders can invest in the sectors and solutions they deem most relevant.
The Basics On How To Trade Cryptocurrency
In some ways, trading cryptocurrencies is similar to trading stocks. Investors purchase and sell these digital currencies from various exchanges that are authorized to match buyers and sellers, like a much smaller version of the NASDAQ or New York Stock Exchange. Registered users can buy and sell various cryptocurrencies for one another in search of profits and charge a small fee for each transaction.
As with stocks, traders can think of these as either short or long-term investments. Once they learn how to trade cryptocurrency, day traders may take advantage of news announcements or chart configurations, while long-term holders can wait for desired market conditions before selling for profit.
To get started, first research the various online cryptocurrency exchanges to determine which suits your needs. This is perhaps the most important step while you're researching how to trade cryptocurrency. Some exchanges are limited to users in certain countries or have highly restrictive registration processes. Not all cryptocurrencies are available to trade on all exchanges, so make sure you choose an exchange that offers trading in those currencies that interest you.
It's also important to note that only certain exchanges allow you to purchase cryptocurrency with standard fiat currency such as Euros or US dollars.
Many will require that you make an initial deposit in a base cryptocurrency such as Bitcoin or Ethereum to open your account and begin trading.
While you're researching exchanges, be sure to read customer reviews from other users. This is still a new industry, and some exchanges have proven better than others when it comes to important issues like order compliance and customer service. Note that it can take up to several months for some exchanges to process your registration and actually open your account for trading.
Once you've registered with an exchange and have funds available to trade, it's time to log in and buy some digital currency. Each exchange is set up a little differently, but they all share similar features. There are charts and real-time prices for each cryptocurrency on offer, allowing you to do basic analysis and make trades when the price is right.
After buying your digital currency, you can either leave it in your account on the exchange or move it to a separate “wallet”. There are many varieties of these, both on- and offline. You can think of this as an extra layer of security against hacking or online theft.
If you later wish to sell your cryptocurrency, log back in to the exchange where your currency is held, and follow its basic instructions for selling (it's usually nothing more than a few mouse clicks). You may sell it in exchange for other cryptocurrencies, and some exchanges allow you to sell it for fiat currency. If you moved your digital currency to a separate wallet, simply add the extra step of transferring it from your wallet back into your account on the exchange where you want to sell it. Sounds complicated, but it's actually quite simple once you've done it.
10 Things Beginners Need To Know
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1. It's Not a Walk in the Park
2. It's Risky
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3. Use Learning Resources
4. Start with Other Currencies
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5. Develop a Formula
6. Stay Up to Date
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7. Utilize Apps
8. Learn about Orders
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9. Keep It Safe
10. Have an Exit Strategy
Conclusion
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Learning how to trade cryptocurrency is a smart idea for any modern investor. Digital currencies are here to stay, and they will only grow in popularity as we find new ways to safely use them. Technology is improving minute by minute, and structural advancements will allow cryptocurrencies to be used in ways we can't currently conceive. This means there's a huge opportunity for investors who do their homework and invest wisely.
Featured Image: Image by WorldSpectrum from Pixabay
