Cryptocurrencies are digital currencies that are stored in electronic wallets. A cryptocurrency can be used as a medium of exchange. It can also be used as a trading instrument. Read on to find out how to trade cryptocurrencies.
What are cryptocurrencies?
Some of the most well-known cryptocurrencies are Bitcoin, Ethereum, Ripple, Dogecoin, Litecoin, and Cardano. Here are some fun facts about cryptocurrencies and how they work:
1 – Cryptocurrencies are decentralised.
2 – Cryptocurrencies are processed by a distributed network of computers.
3 – Cryptocurrency holders can make transactions without revealing their identities.
4 – Cryptocurrencies can only be moved by someone with a private key.
5 – Cryptocurrency transactions, once included on the blockchain, cannot be changed.
What are the different types of cryptocurrencies?
The different types of cryptocurrencies include;
1 – Bitcoin. This was launched in 2009 by Satoshi Nakamoto and is the most valuable and popular among cryptocurrencies. The number of bitcoins is limited to 21 million bitcoins.
2 – Altcoins. These are cryptocurrencies that are different from Bitcoin. Some of the most well-known altcoins include Litecoin, Dogecoin, Cardano, and Ethereum.
3 – Tokens. These are dependent on other cryptocurrencies and are built on the blockchain of other cryptocurrencies. For example, the Basic Attention Token (BAT) relies on Ethereum.
Why trade cryptocurrencies?
Cryptocurrencies have gained popularity over the past few years. This means that not only are there now more cryptocurrencies available to trade, but also more people who want to trade them.
Here are some of the reasons why many people choose to trade cryptocurrencies.
1 – The market is open 24/7. This means that you can trade cryptocurrencies whenever you want.
2 – It is highly volatile. This means that there are plenty of opportunities to make a profit.
3 – It is easily accessible. As long as you have an internet connection, you can open an account and trade.
4 – It diversifies your portfolio. It gives you a viable alternative to investing in stocks, forex, and other assets,
How to Trade Cryptocurrencies?
Trading cryptocurrencies can be done in the following ways;
1 – Trading through an exchange.
A crypto exchange is where you can buy or sell cryptocurrencies in exchange using other assets such as fiat money. Some of the most popular crypto exchanges are Coinbase and Binance. Here, you open an exchange account and when you buy a cryptocurrency, you own a part of that cryptocurrency. Store the amount you own in your digital wallet until the time you’re ready to sell the cryptocurrency. You may sell it for profit if it increases in value.
2 – Trading using Contracts for Difference (CFDs).
CFDs will enable you to speculate on the price movement of cryptocurrencies without owning the underlying assets. Go long if you think its price will rise and go short if you think its price will fall. Here, you buy 5 contracts of ethereum at a market price of $2000 expecting the price will rise. When the price rises to $2608, you close your position at $2600 considering the spread. Since the price has risen by $600, the profit will be $600*5=$3000. Borrowing from the above example, let’s assume you bought at $2000 but the price dropped to $1408. You sell the ethereum at a loss at $1400 while considering the spread. The price moved against you by $600. Therefore, your loss is $600*5=$3000.
Is Crypto Trading Profitable?
When you browse the internet, you’ll see stories of people who made profits from investing in cryptocurrencies. Especially the early investors. The volatility experienced in cryptocurrencies as mentioned earlier presents opportunities for individuals and institutions to profit from the rapid changes in prices. However, it is important to note that this volatility can work against you also. If you buy or sell a cryptocurrency and the price goes against your position, you could incur losses.
Conclusion
Cryptocurrencies have both advantages and disadvantages. Compared to other assets such as stocks, cryptocurrencies are relatively new to the market. Is investing in cryptocurrencies for you?
Want to keep reading? Check our our education section for more articles.
