All about trading cryptocurrencies

All about trading cryptocurrencies

What are cryptocurrencies

Cryptocurrencies are virtual or digital currency that is secured by cryptography. This makes them nearly impossible to double-spend or counterfeit. Most cryptocurrencies are based on decentralised networks that are using blockchain technology, and they are distributed across a large number of computers.

One major connecting element of cryptocurrencies is that they are not issued by any central authority. This means they are theoretically immune to government manipulation or interference.

Cryptocurrencies are named thusly because they use encryption to verify transactions. This means coding is involved in transmitting and storing data between public ledgers and wallets. The aim of encryption is to provide safety and security.

The first cryptocurrency was Bitcoin, which was established in 2009. It remains the best-known cryptocurrency today, with plenty of other cryptocurrencies being launched in the years since.

Types of cryptocurrencies

Currently, there are plenty of cryptocurrencies on the market. As such, it is important traders understand the types of cryptocurrencies available, and what they are. Knowing this can help traders decide whether or not a particular currency is worth investing in. Below, we have listed out a few types of cryptocurrency categories and cryptocurrencies themselves traders will typically hear about.

  • Transactional: These tokens are designed to be used as a way to make payments. Bitcoin is the most well-known example.
  • Governance: These tokens represent voting rights or other rights on a blockchain. An example of a cryptocurrency is Uniswap.
  • Platform: These tokens typically support applications or platforms that are built to use a blockchain.
  • Utility: These utility tokens serve specific functions on their specific blockchains. An example of these would be ETH and XRP.
  • Security tokens: These tokens represent ownership of a particular asset, such as a stock. An example of this would be MS Token.

Cryptocurrency examples

Bitcoin: Founded in 2009, Bitcoin was the first cryptocurrency on the block. Right now, it is still the most commonly traded cryptocurrency. The currency was developed by Satoshi Nakamoto—a widely believed anonymous pseudonym for an individual or group of people.

Ethereum: Developed in 2015, Ethereum is a blockchain platform that has its own cryptocurrency, with the same name. It is the second most popular cryptocurrency, after Bitcoin.

Ripple: Founded in 2012, Ripple is a distributed ledger system. It is used to track various types of transactions, not just cryptocurrency. The company that is behind this has also worked with various banks and financial institutions.

Litecoin: The currency is very similar to Bitcoin. That said, it has moved more quickly to develop trending innovations, including processes to allow more transactions and faster payments.

How to start trading cryptocurrencies

Starting to trade cryptocurrencies involves several steps to ensure a smooth and informed entry into this volatile market. Below are a few steps to consider before getting started.

Research and learn

Before beginning to trade cryptocurrencies, traders must first learn about cryptocurrencies, blockchain technology, and how the crypto market operates. They should familiarise themselves with popular cryptocurrencies such as Bitcoin, Ethereum, and others.

Choose a reliable platform

Traders should pick a reputable and reliable platform to use. Usually, there are two options for traders to pick from – a brokerage firm or a cryptocurrency exchange.

Brokerage firm: These are online brokers that provide traders access to financial instruments and markets, such as Saxo broker Dubai. Most brokerage firms also offer a trading platform for traders to use. These platforms tend to have lower trading costs, but they may offer few crypto features. As such, it is important for traders to do their due diligence and research the brokerage firm before committing to working with them.

Cryptocurrency exchange: There are plenty of cryptocurrency exchanges to choose from. Each of them offers various cryptocurrencies, interest-bearing account options, wallet storage, and more. Many exchanges also charge traders asset-based fees.

When it comes to picking the right kind of platform, look for those with robust security measures, user-friendly interfaces, and a wide range of supported cryptocurrencies to choose from.

Create an account

Traders need to sign up for an account on their chosen platform, whether it is with a brokerage firm or a cryptocurrency exchange. They will also need to provide the required information and complete the necessary verification processes. This can include providing relevant documentation such as proof of identity (passport, government-issued identity card), proof of residence (utility bill), or a Tax Identification Number (TIN).

Deposit funds

Once a trader has picked and registered with a platform, the next step is to fund their account so they can start trading to their heart’s content. Most platforms allow users to buy cryptocurrencies using fiat currencies. That said, this varies depending on the platform, so make sure to read up on their guidelines before doing so.

While it is possible to purchase crypto using credit cards, this method is considered risky, and some platforms do not support this method of depositing funds. Some credit card companies also do not allow crypto transactions as well. This is because cryptocurrencies tend to be highly volatile, which makes them potentially risky assets.

Some other platforms may accept wire transfers. As always, be sure to double-check the type of deposit methods a platform supports before committing to working with them.

Understand order types

Traders should familiarise themselves with various order types, such as limit orders, market orders, and stop-loss orders. These allow traders to control the price at which they buy or sell cryptocurrencies. Stop-loss orders can also be used to manage and minimise risk when trading cryptocurrencies.

Start with small investments

Novice traders should start with a small amount of capital that they can afford to lose when they first begin trading. This is because cryptocurrency trading can be highly volatile and risky. As such, it is best that traders start conservatively until they gain enough experience and know how the market behaves.

Develop a trading plan

Traders need to develop a well-defined trading plan before they can even start trading successfully. This trading plan should outline their risk tolerance levels, trading goals, and strategies. They should also stick to their trading plan and avoid making impulsive trading decisions based on market fluctuations.

Stay informed

Trading is not a one-and-done thing. Traders should instead keep themselves updated with the latest news, market trends, and developments in the cryptocurrency space. In their spare time, they should follow reputable sources, as all these developments can affect the price quotes of cryptocurrencies. This way, traders can make better-informed trading decisions in the long term.

Manage risks

Traders should always implement risk management techniques and strategies such as setting stop-loss orders to limit potential losses on trades, especially if the market ends up moving in an unfavourable direction. They should also diversify their investments across various cryptocurrencies to spread risk and avoid keeping all their eggs in one basket.

Track your performance

Traders need to keep track of their trading performance and review their trades regularly. They should analyse their successes and failures to improve their trading strategy.

Bottom line

It is important that traders remember that cryptocurrency trading involves risks, and the market can be highly unpredictable. Only invest money you can afford to lose and consider seeking advice from experienced traders or financial advisors if you are new to the cryptocurrency market.

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