Quiz
How to trade crypto currencies
How to trade crypto currencies
ERIC HUFFMAN, benzinga.comSince its electronic inception in 2009, cryptocurrency – whether its Bitcoin, Ethereum, Litecoin, and others – has grown from a largely-unnoticed blip on a computer screen to a worldwide phenomenon, making and breaking fortunes through its often-volatile trading patterns and soaring growth trends.
Types of Cryptocurrency
Collectively known as altcoins, there are now over 1,000 types of cryptocurrencies in existence, including the granddaddy of today’s cryptocurrency trading market, bitcoin. Active altcoin traders are spoiled for choice.
However, less active or fledgling cryptocurrencies may have limited trading opportunities, which could mean fewer buyers when it’s time to sell. Beginning traders who don’t wish to be overwhelmed by options can consider focusing their initial trading on some of the leading types of cryptocurrencies to help ensure trading into an active market:
Bitcoin (BTC)
Ethereum (ETH)
Bitcoin currently represents 38% of the market and Ethereum represents 18% of the market, which makes these two cryptocurrencies the overall bulk of the market. Ethereum launched in mid-2015, giving an indication of how quickly things can change in cryptocurrency markets.
Other cryptocurrencies are actively traded but may be less commonly available at exchanges:
Litecoin (LTC)
Zcash (ZEC)
Dash (DASH)
Ripple (XRP)
Monero (XMR)
Cryptocurrencies are generated by specialized computers through a computational alchemy called mining. Its relative rarity due to the processing power required to produce new coins is part of what gives a cryptocurrency its value. Additionally, some cryptocurrencies have a limit on the number of coins that can ever exist, also called a finite supply.
What is Cryptocurrency Trading?
In many ways, cryptocurrency trading can be compared to forex trading; the markets in various fiat currencies from all over the world are traded against each other. In Forex trading, U.S. dollars can be used to purchase a position or option in euros, Swiss francs, or any other currency, and then sold again at the time of the investor’s choosing, booking either a profit or a loss on the trade.
Cryptocurrency Exchanges and Brokers
To trade in cryptocurrency directly as opposed to investing in a fund, you have two choices: use an exchange or use a Forex broker. With an exchange, you are buying and selling bitcoins or altcoins directly.
With a Forex broker, you are buying a CFD (Contract for Difference). As the name suggests, a CFD does not give you ownership of the digital asset, the cryptocurrency. For this reason, and for portability, many cryptocurrency traders prefer exchanges — and sometimes utilize more than one exchange.
How do You Make a Profit on a Trade?
Much like stock market investing, gains or losses on cryptocurrency are on paper — or its digital equivalent — until an exchange event or sale takes place.
Trading volatility
Cryptocurrencies can be among the most volatile of investments if you watch the short term price action. Fortunes can be made or lost in the often-significant up and down swings of even the most established cryptocurrencies. If you’re an active stocks day trader, you’ll find many of the same technical indicators in cryptocurrencies, although often amplified.
Cryptocurrency Risks
Warren Buffett contrasts cryptocurrencies to owning stocks, suggesting cryptocurrencies have no intrinsic value beyond their relative rarity due to difficulty in mining and finite amounts, such as with Bitcoin which is limited to 21 million coins.
However, the same can be said of many other assets in which we place value. If enough people think a thing is worth money, it’s worth money — at least for a while. Governmental
risks can be a concern. It’s hard to imagine that governments won’t regulate a currency or try to squash one that can’t be easily regulated.
The SEC has already taken a stance, labeling cryptocurrencies as securities while claiming the trading platforms are potentially acting illegally and should fall under SEC regulation. While not illegal (yet), cryptocurrencies have been seized by authorities in relation to other criminal charges.
Cryptocurrency failure rate
Despite the headlines, cryptocurrencies have a high failure rate. Nearly half of 2017’s Initial Coin Offerings (ICOs) failed. These currencies never got off the ground or failed after fundraising. Another large group disappeared without a peep, bringing the expanded failure rate to nearly 60%. The next big thing could easily be the next big black hole.
Moderating Risks
Similar to diversification in other investment types, risk can be managed by diversifying a cryptocurrency portfolio. Going “all in” on one currency can be ultra-risky. Due to the volatility of cryptocurrencies, beginning traders might also want to start slowly and build a position over time, similar to dollar cost averaging in stock investing. Many traders also only trade with a fraction of their available funds or holdings.
Keeping some of your money out of harm’s way might limit gains, but it also limits losses, allowing you to continue trading — and perhaps you’re wiser from the experience. Note: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Go To Source
DISCLAIMER
For information purposes only; not intended as financial advice