Cryptocurrency Trading is often very rewarding but it also presents risk. As a beginner in trading, understanding some basics about cryptocurrency should be very helpful. After all, you will be investing your hard earned money into the market.
Cryptocurrency trading is more popular than ever. A plethora of investors are jumping into the market, assuming they will make easy money. It’s very important to understand that cryptocurrency trading is not a get rich quick opportunity.
It certainly carries risk while it also offers a substantial return on investment.
What is cryptocurrency?
Cryptocurrencies are encrypted decentralized digital currencies that are transferred between individuals. These currencies are not tangible and exist only in electronic form. They are digital assets that exist and remain as data.
This allows a person to send money just like sending an email thus carrying less transaction times compared to using a bank. You have minimal fees, no credit cards and no middleman.
The joint bookkeeping process is called a “Blockchain.” A Blockchain is public and is distributed across the network of people that have the same coin, such as Bitcoin.
Everybody that has Bitcoin has a copy of the ledger and its transactions, which creates a community of trust. Each cryptocurrency is individually identifiable and programmable based on a very complex digital code.
While Bitcoin is not the only digital currency on the market, it is the first and most popular. It stands as the digital “gold” within the industry. The technology behind cryptocurrency holds a large part of its value by offering g a secure way to identify a transaction and a method to transfer funds.
The reality is that Bitcoin and digital currency prices rise and fall for various reasons. The media, bad press, news events, government statements, etc. can all contribute to the price fluctuation you find in cryptocurrency trading.
Our discussion on how to manage currencies can itself swing the price.
In addition to Bitcoin, there are countless other Altcoins with growing market shares and value. We should definitely take note of the hundreds of Altcoins that currently exist. They include Litecoin, Ethereum, and Bitcoin Cash just to name a few.
Cryptocurrency trading has become a global phenomenon and is exploding.
In 2009, Satoshi Nakamot discovered how to build a decentralized coin and cash system without a central unit. As such, Bitcoin was introduced to the world as the first digital currency of its kind.
The “blockchain” is the master ledger that records and stores all the transactions and mining activity, trades, and purchases. At the same time, it requires validation of ownership.
Technically, a transaction is not finalized until it is added to the blockchain. which then becomes irreversible. During the time between transactions, the units are not available for use by either side. This prevents double spending, fraud and duplication.
Each user has a “wallet” with specific information that confirms them as the owners of a specific cryptocurrency. The wallet allows you to send and receive coins and acts as a personal ledger of transactions.
Wallets are built to be secure but you should consider adding additional measures and passwords. The wallets can be stored on a cloud or an internal hard drive.
“Miners” act as the “record keepers” for the cryptocurrency communities. Through technical methods they create new coins and verify the blockchains.
As a crypto trader, you must do your research on the cryptocurrencies you choose to invest in. Do not put your money into something that you don’t have confidence in.
There are many reasons why digital currencies are gaining popularity and momentum around the world. They have a finite supply that has been identified and source codes outline the exact number that can exist.
The benefits of cryptocurrencies are different from those of traditional currencies. Governments cannot intervene while banks cannot freeze your account. Due to a limit on the amount, cryptocurrencies are finite commodities. In time, their value normally goes up.
Privacy and anonymity is key to the ownership of these coins which are qualities that people appreciate. It is more and more difficult to identify accounts of users. Generally, transactions are less costly than the traditional methods of using banks.
Cryptocurrency is changing the financial world as certain concerns are being addressed. Users of these coins need to remain aware of the limitations and volatility heading into the future.
How To Trade Cryptocurrency?
From there it is as simple as filling out a form and waiting for the transaction to process (once your information is verified with the exchange you pick).
Simply stated to become involved in cryptocurrency trading you need:
- A cryptocurrency wallet (or two).
- A cryptocurrency exchange (or two) to trade on.
A wallet will allow you to store the encrypted passwords that represent the coins. It’s just like keeping money in a bank account.
The exchange is like a stock exchange where you can execute trading crptocurrencies and fiat currencies like the US dollar.
Cryptocurrency Exchanges and How To Use Them?
Cryptocurrency exchanges are websites where you can buy, sell or exchange crypto for other digital currency or traditional currency like US dollars or Euros. Simply, this is exactly where cryptocurrency trading takes place.
For those that want to trade professionally and have access to unique trading tools, you will need to use an exchange that requires you to verify your ID when you open an account.
If you want to make an occasional and straightforward trade, there are platforms that do not require an account.
Today there are a host of platforms to choose from. Beware that not all exchanges are created equally. Some popular exchanges are:
- Coinbase: Backed by trusted investors and used by millions of customers globally, Coinbase is one of the most popular and well-known trading platforms in the world. The Coinbase platform makes it easy to securely buy, store and trade digital currency.
- Kraken: Founded in 2011, Kraken is the largest Bitcoin exchange in Euro volume and liquidity and is a partner in the first cryptocurrency bank. Kraken lets you buy and sell Bitcoins and trade between Bitcoins and Euros, US Dollars, Canadian Dollars, British Pounds and Japanese Yen.
- Poloniex: Founded in 2014, Poloniex is one of the world’s leading cryptocurrency exchanges. The exchange offers a secure trading environment with more than 100 different Bitcoin/ cryptocurrency pairings with unique tools and data analysis for advanced traders.As one of the most popular trading platforms with the highest trading volumes, users will always be able to close a trade position, a huge benefit in cryptocurrency trading.
- Bittrex: Supports established and emerging currencies. This landscape is in constant state of expansion as brand new cryptocurrencies innovate on blockchain technology. Bittrex supports both new and established cryptocurrencies, providing you with an ever-growing selection of trading and investing opportunities.
- Gemini: Co-founded by Tyler and Cameron Winklevoss, Gemini is a fully regulated licensed US Bitcoin and Ether exchange. That means Gemini’s capital requirements and regulatory standards are similar to a bank. All US dollar deposits are held at an FDIC-insured bank. The majority of digital currency is held in cold storage
Don’t think that a cryptocurrency exchange is a part of a regular stock exchange. The mechanics, entities and specifics work in a completely different way.
Unlike fiat currencies, cryptocurrency trading occurs 24/7. Trading volume differs during the day as traders from different countries enter the market at different times. These changes tend to have a minimal impact or significance.
The crypto market can skyrocket or decline by large percentages in a matter of minutes and/or hours. It is important to realize that cryptocurrency trading puts your capital at a risk.
Still, the crypto market is probably the most welcoming, even for beginners.
You still need to understand that the markets can have spikes which could produce unfavorable outcomes.
In the end, one should always be aware that cryptocurrency trading presents a high degree of volatility.