You may well have heard of something called Forex – the decentralised global market where all of the world’s currencies trade. It is the biggest, most liquid, and most lucrative market in the world with an average of $5 trillion being traded every single day.
But many believe that the days of fiat money are numbered and that the future of digital currencies is a force to be reckoned with.
Over the last few years, digital currencies have become an extremely lucrative investment, and as such profitable cryptocurrency trading, and those looking to get involved in it is on the up.
But knowing how to do it successfully is not quite as easy. To get the lowdown on the ins and outs, the pros and cons, and a step by step guide to success, keep reading!
Is Cryptocurrency Trading Different to Forex Trading?
The concept of trading with cryptocurrency and the idea of trading forex are similar in essence, but there are also a lot of differences that you should be aware of.
Forex is the world’s largest market and traders gauge the health of a currency and then attempt to exploit and gain from its volatility with exchange rates in other currencies, in the hope of making a profit.
The more the value of a currency varies, the more significant the profit margin, and the bigger the risk. When it comes to cryptocurrencies, the is the same in that traders exchange a cryptocurrency such as Bitcoin with another currency.
The differences it that by their very nature, cryptocurrencies tend to be rather more volatile and unpredictable than fiat currencies because of the price-driving factors and influences are very divergent from Forex.
One of the key differences between Forex and cryptocurrency trading is that fiat currencies used in Forex are regulated by central banks in their relevant countries.
When it comes to cryptocurrencies, it is an algorithm that decreases the inflation of the coin as the stock of the coin increases.
While some believe that coins like Bitcoin are immune to inflation, it may ring true for a monetary increase, but not in the case of price-level inflation.
Bitcoin is capped at 21 million coins, and once they are all distributed, and no more can be mined, it will become immune to monetary inflation or debasement.
This is clearly not the case with government regulated coins as the authorities can theoretically produce more currency at any time, which results in monetary inflation.
Other factors which affect Forex, which don’t affect cryptocurrencies, include public debt, interest rates, news and world events, political and social stability, and economic issues.
These factors can cause what is known as steep derivatives which impact currency inflation – digital currencies do not experience this in the same way that fiat currencies do.
Another factor we must consider when comparing the two methods of trading is demand. An advantage of having a centralised currency is that there will always be a demand for it.
As the government controls the currency, it will always be in demand within society and the economy. That said, altcoins demand can be determined through different things such as public adoption, emergence, and the confidence of the public in a coin holding its value.
As the public adoption of a particular coin expands, coupled with an increase in marketplaces and vendors that wish to accept the coin, its prevalence will increase.
Digital currencies have seen some negative press in recent times. However, organisations like the New York Stock Exchange and NASDAQ with blockchain, have boosted the public opinion of the reputation of alternative currencies.
One of the other main differences between the two is the volatility of each currency.
Forex’s volatility is around 1% for extreme forex couples and approximately 0.5% for lower ones. When it comes to Bitcoin, for example, its volatility is about 10% on average which means that it tends to attract high-risk traders.
Crypto trading and Forex have many similarities but also many different characteristics and as such, cryptocurrency trading requires a bit more skill and dedication to master it and become profitable indeed.
That said, having a good understanding of Forex will stand traders in good stead for descending upon the crypto trading market.
The Guide to Profitable Cryptocurrency Trading
Now you have a basic idea what cryptocurrency trading is, and how it differs from Forex, you should be about ready to get trading. To help you on your way, we have comprised an easy-to-follow step-by-step guide for you.
#1 Do a Research On the Best Currency For You
There are quite literally hundreds of cryptocurrencies out there all just waiting for you to purchase some and start trading – but you need to remember that they are not all created equally, and as such, not all will yield good returns.
It is essential to check out the selection of coins available for cryptocurrency trading and decide which is the best for you, depending on your circumstances.
The top currencies to consider are Bitcoin, Ethereum, Ripple, Litecoin, NEM, Dash, Monero, Ethereum Classic, and IOTA. All of these cryptocurrencies have a value of more than $1 per coin, not to mention Bitcoin which value is over $7,000.
As such, all of the above are worth taking a look at when it comes to deciding what to invest in for cryptocurrency trading.
#2 Get to Grips With the Risk
As we have already discussed, cryptocurrencies are a lot more volatile than any other kind of asset – be it monetary, or something like oil or gold.
As it is still a fledgling technology, cryptocurrencies present many challenges to users, traders, and investors. While there is a significant risk, this also means that should you hit the nail on the head you get a big reward – but understanding that the pendulum can swing both ways is fundamental before you dive in and start trading.
For example, over three months, Bitcoin lost 30% of its value and then increased by 139%- these things can happen in an instant, and there is often no real way of predicting them.
Remember that in the world of trading, nothing is a certainty and if you drum this into your head before you hit the trading floor, then you will be prepared for whatever the markets throw at you.
#3 Keep Up to Date With the News
Be sure to stay up to date with world news and events as these can have a significant impact on your chances of being profitable when you trade.
It is also worth keeping abreast with market news from specialist sources such as Bitcoin Magazine and CNBC as well as forums such as Reddit and Quora. Twitter can also be an excellent source of relevant information and tips that could influence the market, and therefore your decisions.
#4 Find Yourself a Good Broker
There are hundreds of brokers on the internet, all vying for your business, but picking the best one to suit you is not easy.
The best thing to do is check for reviews of favourite sites and search according to your requirements. If you are a beginner, look for brokers that offer a lot of support and information, and once you have the hang of it, you can always migrate to a new service provider.
Most of the top brokers have great apps that you can download onto your iPhone or Android device so that you can trade while you are on the go.
#5 Put Your Money Where Your Mouth Is
Once you have chosen a broker and opened your trading account, it is time to fund your account with either your credit or debit card or your currency of choice.
#6 Get Buying and Selling
When your account is funded, it is time to get buying and selling!
Assuming you know which currency you are going to trade with, you will start by purchasing x amount of it (remember you don’t have to buy full units of currency, you can buy just a fraction depending on your budget).
#7 Study Charts
You are almost good to go, now you just need to decide which way and how you are going to trade.
An excellent way to start is by studying charts that are available to you to identify any trends. If like many people, you believe that cryptocurrencies will continue to increase in value over time, the game aims to buy as many coins as you can get your hands on – at the right prices of course.
If you are feeling adventurous, you could even consider building a varied portfolio of multiple currencies to hedge your bets. Try to avoid buying and selling in big swoops and also try to avoid trading more than one or two times a week to ensure that you keep any fees down, as well as giving an opportunity to your bets to perform well.
A good tip is to keep your eye on stock charts and to read the moving averages. These averages are plotted on the charts to help provide a clearer picture of volatility, and they can also help predict the way in which a currency might be moving or trending.
You should also pay close attention to spikes in trade volume as this can imply changes in mood that may subsequently affect the market. There are lots of other methods that you can use to predict trends, but if you are a beginner, it is wise to stick to the basics until you get the hang of things.
#8 Set Yourself Some Boundaries
The key to your success is knowing when to stop and not overdoing it in the process. Before you start trading, be sure to set yourself limits as to how much you will invest, or be prepared to lose.
It is essential only to invest what you can afford to lose, as there is never any guarantee that you will see a profit or return on the money that you spend.
#9 Be Patient
If you are expecting to become a millionaire overnight, then the chances are that you will be disappointed. Trading with cryptocurrencies is all about strategy, research, patience, and of course, luck.
It is impossible to provide you with a winning formula for making your fortune with cryptocurrency trading, but by following the above information and advice, you stand a good chance of being profitable.
The key to the situation is staying focused, doing your research, trading within your means, and of course, being patient. If you are a beginner, do not rush into anything.
Instead, take your time to investigate all of the options when it comes to currencies, brokers, and strategies for trading – putting in some groundwork before you part with your hard-earned cash is one of the mot fool proof ways to see a return on your investment or an increase in profitability.
The world of profitable cryptocurrency trading is more exciting than Forex, but it does carry additional risks. Knowing the markets inside out and taking your time before jumping in at the deep end will work wonders in ensuring that you are successful in your endeavours.
Once you’re ready, try some of the best cryptocurrency trading platforms and see which one works for you the best.
Remember that like all forms of trading; luck is the number one influencer when it comes to how lucky you are, so bearing that in mind, we wish you the best of luck!