As our lives become increasingly digitised, it seems that no facet of our existence is left untouched by the continual march and progression of technology. This is especially true when it comes to financing, money, and the world of trading and commerce.
With the advent of cryptocurrencies and digital currencies, the humble coins and notes that we stash in our wallets are finding their popularity wane rather quickly.
So, what is all the fuss about? What is a cryptocurrency and how do you trade with cryptocurrencies? Let us read on to find out more.
What Is Cryptocurrency
According to Wikipedia, a cryptocurrency is defined as:
“a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and control the creation of additional units of the currency.”
To those amongst us who are perhaps not as technically minded, in short, a cryptocurrency is a form of money or currency which is digital. Not only is it digital and purchased/mined/traded online, but it uses complex cryptographic processes to keep the transactions secure, as well as to control how new units of currency are created.
Another way of explaining them is that they are an entirely encrypted, secure, decentralised digital currency which can be transferred and passed between individuals without the mediation of a bank or other financial institution.
These currencies are not tangible and are only available in an entirely digital format, and they allow the user to transfer money, in much the same way that you would send an email.
The bookkeeping process used to track each transaction is known as the blockchain– this is completely public and is distributed across the network of every individual that has the same coin. For example, everyone that has Ether will have a real-time version of the blockchain ledger and all of the transactions that have been facilitated on it, and this helps to create what is known as a community of trust.
Examples of such currencies include Bitcoin, Ethereum, Ripple, IOTA and Litecoin although there are many, smaller cryptocurrencies out there, these are the top four on the market. Bitcoin is by far the largest and the most popular, followed by Ethereum.
What Is Cryptocurrency Trading
At the most basic level, cryptocurrency trading is the Forex (Foreign Exchange) of the cryptocurrency world. What this means is that instead of trading dollar for euros, you can trade different cryptocurrencies, e.g. Bitcoin for Ethereum, or even dollars for bitcoin. Trading in this way, and using cryptocurrencies, is a great way to get involved in the world of cryptocurrencies and to get to understand how the market works.
The great thing about cryptocurrency trading is that it doesn’t require expensive mining hardware or software to get your hands on the currency of your choice. What this means is that it is easily accessible to all, and anyone can get involved in this new and exciting way of trading.
How To Trade Cryptocurrency
Much in the same way that Forex works, the individual wishing to trade must first choose the cryptocurrency that they want to trade in. Once they have selected and purchased their currency of choice, the next step is to find an online platform that suits their needs and money of choice, as well as being reputable and trustworthy.
There is a lot of choices out there, and we will discuss various options a bit later on.
Once you have decided to start trading with cryptocurrencies, it is only a matter of minutes before you can be up and running.
Things To Watch Out While Trading Cryptocurrencies
Of course, nothing on the internet is entirely infallible, and there are a few things that you need to take into consideration when you are trading with cryptocurrencies.
Firstly, the cryptocurrency market is rather volatile and can change very quickly- take for example Bitcoin which value has gone from 1BTC=$1 to 1BTC=$3000+ and continued to fluctuate wildly as the market dictates. The thing with cryptocurrencies is that as they are not tied to any government or central authority, they can be born and then die in a snap of a finger which can cause problems for those that have invested a lot in a particular altcoin.
What entices many people to the world of cryptocurrencies, however, is that they like the idea of having money that is not directly controlled by their government, or anyone else’s. It is a statement against the establishment, and many investors and traders are getting involved with cryptocurrencies to protect themselves against the devaluation of their national currency.
As more and more businesses are starting to accept various forms of cryptocurrencies, and even some countries are beginning to recognise them, it is expected that the volatility will decrease and they will become a more widely accepted alternative to traditional currency and payment methods.
When you are trading in cryptocurrencies, it is wise to always keep your eyes on the papers and the global news. Reason being that occurrences, national events, and other things can all affect the value of what you are trading.
Whether a government makes a declaration against a cryptocurrency or the value of the dollar drops, all of these factors can either go in your favour or against, depending on how you are trading.
Keeping your eye on the ball when it comes to current events will help you mitigate disaster or unfavourable trading consequences.
The Best Cryptocurrency Trading Platforms
There are lots of cryptocurrency trading platforms out there, but be careful because not all of them are created equally. There are some who have been in the business for a long time and have amassed a solid reputation.
eToro is a multi-asset brokerage company, as well as a social trading platform that has offices based in Cyprus, Israel and the UK. Launched over a decade ago, they are one of the most prestigious and well-regulated trading platforms in the world and offer users the ability to trade online, as well as on mobile applications.
AVATrade has been in the business for a long time. As a regulated Forex broker, they are dedicated to providing their clients with tailor-made trading solutions, regardless of the trader’s prior knowledge or experience. With AvaTrade you can start trading immediately on a range of platforms and using a variety of traditional and cryptocurrencies.
Bitfinex bill themselves as the largest and most advanced cryptocurrency exchange which allows clients to trade in all of the significant cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Bcash, ETP, Ripple, NEO, Iota, Zcash, Monero, Ethereum Classic and EOS. The platform offers clients leveraged margin trading through its peer to peer funding market.
Offering leveraged cryptocurrency and Forex trading, IQ Option is one of the most respected names in the industry. Fully regulated and with lots of awards under their belts, they are an excellent option for those looking to get involved in trading in cryptocurrencies.
General Tips on Trading Cryptocurrency
The key to any trading, whether it is in Bitcoin or US Dollars, is remembering that nothing is guaranteed. No one can predict what the market will do and whether the value of a particular currency- crypto or traditional- will go up or down. The key to success is keeping your head screwed on and coming up with a good game plan.
What we mean by a game plan is having a good idea of what you will put in, what you want out of it, and sticking to your limits. It is always wise to do your research on the type of currency you wish to trade in as well as looking at its past performance to acknowledge any trends worthy of note.
You must also keep your eye on the global news as breaking incidents and developments can have a considerable impact on a range of currencies.
Before you start trading, be sure to ascertain just how much money you can afford to invest- consider it in the way of how much money can you afford to lose, because as I said, you can never guarantee the outcome. In other words, don’t bet the mortgage payment, don’t bet the kids college fund and don’t take out a loan to trade in cryptocurrencies.
One last thing is to understand the significant difference between investing and trading cryptocurrency. The former is a long-term undertaking, while the latter means sticking to the well-known currencies and knowing when to exit the game.
Keeping your head level, sticking to your limits, and staying aware of what is going on in the world, as well as the global markets are the keys to trading with cryptocurrencies.