Crypto coins are ruling the financial market these days. They have earned widespread popularity due to their several advantages over fiat currency. Bill Gates once said in his interview related to virtual coins that they have immense potential and will rule the future, eliminating the paper currency. Also, you must have seen the tremendous growth bitcoin has shown since 2010. So, is cryptocurrency trading? Do they lead to profit? Why they are popular among traders. Let’s find out the complete information about these digital coins through this guide “Cryptocurrency trading, an excellent way to grab a massive amount from the financial market”.
What is cryptocurrency?
Cryptocurrencies are virtual coins. They are designed using the popular cryptography technique to create new virtual coins and process transactions. Bitcoin is a popular example of cryptocurrencies, and they carry value just because of the fact that they are entirely decentralised. In short, we can say that governments and banking institutions do not have any control over the currency. On the other hand, banks and governments can easily manipulate fiat currency.
In the cryptocurrency market, you get thousands of options known as altcoins other than bitcoin. Cryptocurrencies like Ripple and Ethereum have several advantages over the original model of Bitcoin.
Fiat Money vs Cryptocurrency
There was once a time when the entire financial world worked with the exchange of commodities or, in short, a barter system. People wishing to trade or sell their goods would be required to search for another person ready to take those items in trade for the specific items they were searching for. It is known as the double coincidence of wants. For instance, if a person wishes to trade his rice for clothing. He would be required to search for a person who is searching for rice for trading.
Fiat money solved this problem by acting as a store of value. However, at the time of creation and inception, traders involved in the barter system wondered how a worthless paper world would be more or equally valuable than their items.
The time passed, and what fiat did with the old and conventional barter system introduction of cryptocurrency did the same with fiat currency. It develops an alternative solution for the store of value that allows traders to pay for goods and other currencies. If virtual coins are liquid to fiat currencies, then fiat currencies are also liquid to each other. However, some of you may be perplexed why these virtual coins hold value. It is similar to how fiat currency holds value over barter.
What is Blockchain technology?
If you have heard about bitcoin or any other cryptocurrencies, there are huge chances that you must have heard the popular term blockchain. It is because this is the technology without which cryptocurrency is nothing. This technique makes it valuable and unique. Now, let’s understand everything with an example.
In simple terms, we can say that blockchain is a way of storing or holding all bitcoin transactions is a digital ledger that is linked to every coin. If we look at the blockchain from the digital perspective, it is a chain of algorithmic or mathematical blocks. Each block contains details of the transaction, which include amounts, times, dates and investors involved. All these blocks are collectively known as chains, which works like a publicly accessible, encrypted database.
Bitcoin ledger provides structure to the blockchain. The ledger uses cryptography to secure cryptography content from hackers and allows it to be copied to any computer. There are several other advantages of cryptography that makes it very hard to forge digital coins. The cryptocurrency market is highly risky as they are newer than fiat currencies. Thus, it makes their value hard to predict. Cryptocurrencies are suitable for those who are searching for a potentially high-profit generating and high-risk tool.
How big is the cryptocurrency market?
Two benchmark studies were conducted at the University of Cambridge. One of these was held recently in 2019. Here is the list of some results drawn:
1) There are around 139 million crypto wallets. However, only 38% or 52.8 million crypto wallets are regarded as active
2) The number of employees has shown a sharp growth of 164% between 2017 to 2018. The average number of employees per firm is 20.
3) The total percentage of providers supporting more than one coin is 84%. The service providers supporting multi-coin have surged since 2017.
Top cryptocurrencies for trading
One of the most popular cryptocurrency is Bitcoin. Traders also regard this currency as the original cryptocurrency. It was designed in the year 2009 as open sources software. No one knows the person who designed bitcoin, but people think that the person behind this was Satoshi Nakamoto (the pseudonym).
Ethereum was created in 2015, and it is a type of crypto that is open source, and the platform entirely works on blockchain technology. While tracking the ownership of virtual currency transactions, Ethereum blockchain technology also aims at running the algorithmic program of any decentralised application. This enables application developers to pay for fees, services and transactions on the Ethereum network.
After Bitcoin in the year 2011, Litecoin was launched as its alternative. It is like other digital coins and is a global payment network and open-source which is entirely decentralised. It means no financial or central body which manages them. Now, you might be thinking, what is the difference between Litecoin and Bitcoin? Here we have listed a few difference between both these digital currencies:
1) Traders find that transaction time for Litecoin is faster in comparison to Bitcoin
2) The coin limit for Litecoin is about 84 million, where for bitcoin, it is 21 million
3) Algorithms of both these coins are different for Litecoin; it is scrypt, and for bitcoin it is SHA-256
Bitcoin cash is a kind of virtual currency that was designed to improve several features of Bitcoin. It surged the size of the block. Thus, helping in proceeding with more transactions that too at a faster speed.
Strategies for trading cryptocurrency
Several profitable cryptocurrency trading strategies are as follow:
Scalping is a method used by investors to take advantage of small price shifts. They usually exit and enter a trade order during a trading day, or sometimes even an hour. The primary aim of this method is making numerous profitable small trades while dodging losses. Here, there is no need to make a high profit per trade; instead, you should entirely aim at maintaining a good win to loss ratio. Mainly, the size of losing and winning trades is similar, a tiny part of the entire trading portfolio. Thus, to earn a profit, you have to win more trades. Scalping stands in contrast to those strategies that enable traders to lose most trades and still earn capital by winning only a few big trades.
Scalper investors generally make efforts to bypass high volatility as it is highly unpredictable for them. The excellent condition for a scalper is a calm and thin market with no or little volume. A thin financial market also has massive spreads between asks and bids that allow these investors to earn profit with ease on those differences, purchasing from one side and selling to another side.
Scalping is safe in comparison to other techniques as it allows you to trade on small time frames. Thus, it is easy to exit the given trade anytime if things go against your predictions. Moreover, if you have multiple bad trades, you can always pause and take a break to chill and relax. Also, you can control how much you lose or win.
Scalping requires expertise in understanding indices and also needs discipline and patience. The scalper investor has to monitor graphs closely, standing near the investing terminal to react quickly to the market shifts. Moreover, they also compete with trading robots which also try to employ scalp opportunities. They are more efficient than manual trading as they do not get tried.
Follow the market trend
If you think that a particular price trend will continue for a given period or hard to anticipate where the market will move in the future, then following the trend is the best way to avoid losses. In this way, you trade with the market trend rather than on market swings. If the financial market is surging, try to target or open a long trader. If the financial market is declining, you are required to open short term trades. Trend followers generally begin investing once the trade is established, and they exit the trade when it reverses. It is also known as position trading.
You can employ numerous indicators to minimise risk and maximise profits, such as stop-loss orders, margin trading, and leverage. You can use various ways to short cryptocurrencies and bitcoin.
It is a better strategy that works in both conditions when the market rises or when the market declines. Also, it is best when you cannot sight the bottom and top of the crypto market.
The cryptocurrency markets are highly unpredictable. You require good skills to protect your trade against sudden market changes.
Purchase and hold assets
To neophytes, it may look unreasonable. However, a decline in security value is an excellent opportunity to purchase, mainly a massive drop. Traders will assume that it is an excellent asset, and thus, its value will again surge in the financial market. This technique has its own abbreviation, BTFD, in the cryptocurrency market.
If we look at the price of bitcoin over the past few years, we will see that they show a strong upward trend. However, there was a time when these prices were undervalued. As most sellers and purchasers are regular or normal people and not professional investors, cryptocurrency trading is susceptible to new stories and media hype. When the news is positive, traders rush to purchase overvalued digital coins. Similarly, when news negative or something happens in the market, they panic and rush to sell these digital coins at a lower value.
It is a perfect trading opportunity for those traders who have funds to purchase the undervalued digital coins. As an investor, you need good knowledge to access the financial market situation and indicators to determine the direction the market will move, and the time it will recover. Once you predict the correct entry points, you are required to hold the position during the period of uncertainty and fear. Once the market turns in favour, you can make a massive amount by selling it.
This method does not need any advanced or ultra-modern trading platforms. You are required to open a single trading position and do not need any millisecond accuracy. When you do it accurately, you will gain from the upward market trend of the cryptocurrency.
It is a long term technique. It means that you will not get quick profits. Rather, you have to wait for a certain period. It might also irritate those traders who do not have patience. Aso, this method requires a good understanding of the market conditions.
What moves the market price of Cryptocurrencies?
Situations which influence the market price of cryptocurrencies are different from the ones that affect fiat currencies.
1) Market volatility: Cryptocurrency trading is known for sudden dramatic falls and steep rises. An interesting characteristic of these digital coins is that multiple coins fall and rise in sequence.
2) Impending regulation: It is a very important factor that can make digital currency investors bearish.
3) Media attention: When a particular cryptocurrency trends in the news, it is not hard to find an influx of neophytes. It tends to accelerate a surge in value. Early investors may then join in profit-taking. Other investors fear, panic and rush to sell their assets, leading to a decline in price.
4) Idiosyncrasies of coins: Inficural digital coin is affected by some specific factors. The most popular way which leads to a rise in the value of cryptocurrency is support from the financial industry. Other factors include security problems etc., when impacting the prices on a per-coin basis.
Top brokers for trading cryptocurrency
Here is the list of top and reliable brokers for cryptocurrency trading. You can select any of them.
T1markets is one of the best financial service providers offering top-class services at affordable rates. It is a well-regulated firm authorised and licensed under the Cyprus Securities and Exchange Commission. You require a minimum deposit of just $250 to open an account with the firm.
The minimum spread and maximum leverage offered by the broker are 0.03 and 1:500, respectively. You can also avail the excellent educational resources of the broker to enhance your trading knowledge. It includes articles, tutorials, webinars, videos on demand and ebooks.
PrimeFin is a trading brand of Caps Solutions Limited, registered under the Labuan Financial Service Authority. The broker allows trading on margin. The maximum leverage offered on cryptocurrency is 1:2. Moreover, the broker provides research tools such as economic calendar, repost season calendar, latest news and trading signals to ease trading.
Brokereo is a relatively new brokerage firm, but it has attracted thousands of traders via its ultra-modern trading platforms and affordable trading charges. The platforms offered by the broker for trading are Web Trader, MetaTrader 4 and mobile applications. These platforms’ features include multiple time frames, compatible with both web and mobile, more than 60 analytical tools, regular price alerts, and several others.
How to start cryptocurrency trading
To start cryptocurrency trading, you require to follow these four simple steps, which includes:
1) Visit the broker’s site and register by providing name, last name and email id for verification.
2) As soon as you enter the OTP provided on your device on your website, it will direct you to the documentation session. Upload the required document.
- Address proof: This include bills or any other document which contains your permanent address and photo
- Identity proof: In this, you can upload your passport or your national id if you do not have a passport
- Financial and bank statements
3) Choose the cryptocurrency you wish to trade and deposit the amount of the same
4) Start trading
- Check the URL of the website properly. Do not fall under any kind of online fraud. Many frauds copy the design of the official website to trap traders.
- Keep your documents ready beforehand to save time.
Ways to enhance profit in cryptocurrency trading
You must be aware that though cryptocurrency begins as a profitable trading instrument, it can also be very risky. Here are several ways through which you can enhance your profit in cryptocurrency trading.
1) Diversify your trading portfolio:
Keeping Ripple, Bitcoin, Litecoin, Ethereum, and other digital coins helps mitigate the daily risk linked with a particular coin.
2) Reduces trading costs:
Opening various trading positions each day influences your per day ROI. To mitigate the trading cost, select a trustworthy broker that allows you to trade on low fees and does not charge a high commission on trading. T1 Markets allow commission-free trading. Along with this, the trading charges are low, and the minimum deposit is just $250.
3) Monitor trading times:
Plan and choose trading times that are harmonious with your entire trading schedule. You can trade bitcoin 24 hours a day.
4) Check regular cryptocurrency news:
Pay heed to cryptocurrency news, articles, stories to stay updated and ahead in the financial market. Set up alerts or choose the broker which provides notification and news alerts on your device.
5) Employ technical analysis:
Use robust technical analysis tools such as OBV. It will help you predict the precise exact entry and exit point. Thus, help you to find a better profit.
6) Use stop losses: Stop loss order helps you to mitigate losses. You can set a price beforehand, below which you do not wish to trade. The software will automatically close the trade when the price reaches below this level. Thus, protecting your trade from sudden market shifts. You can begin with the profit loss ratio of 2:1.
The Bottom Line
There are huge changes that cryptocurrency will completely eliminate or replace the fiat money system in future. We link in a digital era, and chances of Bitcoin, Ripple, or any other prominent digital currency to replace the method we employ for paying for services and goods is not beyond the domain of possibility. This guide has covered each topic related to cryptocurrency trading.
You can start with a demo trading account offered by the financial service provider if you are beginners. You can practice trade here with virtual cash before entering the real trading world. Moreover, it helps you to test the potential of your trading strategy and risk management techniques. We have provided you with the list of top brokers above. You can go with anyone. All of them are reliable and master in their respective field.
What is cryptocurrency?
Cryptocurrencies are virtual coins. They are designed using the popular cryptography technique to create new virtual coins and process transactions. Bitcoin is a popular example of cryptocurrencies.
What is blockchain technology?
In simple terms, we can say that blockchain is a way of storing or holding all bitcoin transactions is a digital ledger that is linked to every coin. If we look at the blockchain from the digital perspective, it is a chain of algorithmic or mathematical blocks.
What is scalping?
Scalping is a method used by investors to take advantage of small price shifts. They usually exit and enter a trade order during a trading day, or sometimes even an hour. The primary aim of this method is making numerous profitable small trades while dodging losses.
What is bitcoin?
One of the most popular cryptocurrency is Bitcoin. Traders also regard this currency as the original cryptocurrency. It was designed in the year 2009 as open sources software.
Where can I trade cryptocurrency?
You can trade cryptocurrency with a reliable firm such as T1markets, PrimeFin and Brokereo. The minimum deposit accepted by each broker is as low as $250.