Heard everybody talking about crypto trading lately and want to give it a try yourself? You’ve come to the right place to learn what cryptocurrency trading is and how it works.
Whether you’ve heard your friends or some guys on the bus talking about it or saw some flashy headlines on social media and news sites about it, you’ve done the right thing to start digging on the subject.
The crypto trading market is huge these days, worth 237.1 billion US dollars, compared to 2018, when its value was 128.78 billion. On average, in the first quarter of 2020, the market saw 753.71 Ethereum transactions and 289.98 Bitcoin transactions daily. Other popular cryptocurrencies saw less than a tenth of the volume of daily transactions of Ethereum. Moreover, crypto trading services are becoming more available day by day.
So, there’s definitely a significant potential in trading on this emerging market. But, before you start picturing billions of dollars in your account, you must learn how to trade these cryptocurrencies. So, let’s start at the beginning.
Unless you’ve been living under a rock, you’ve heard about Bitcoin, the decentralized cryptocurrency and the first of its kind. Well, apart from Bitcoin, many other cryptocurrencies are traded by investors on this market. So, instead of getting too technical, here’s the most straightforward definition of cryptocurrencies: money on software platforms.
However, don’t get this wrong, cryptocurrencies are not exactly like your local fiat currency. Actually, the fact that both currencies allow you to send money digitally is pretty much the only similarity between them.
Unlike the platforms you use to send fiat money electronically, such as PayPal or Western Union, these software services part of the crypto market doesn’t have the same severe limitations. In fact, their purpose is to make financial transactions more open and accessible for all of us no matter where in the world we are.
So, crypto trading is simply the exchange of cryptocurrencies. Like it is in the Forex market with fiat currencies, you can also buy and sell a cryptocurrency for another.
As for the crypto trading market, it is pretty unique. It is a decentralized market, meaning that it isn’t issued or backed by a central authority such as a government. Instead, this market runs across a network of computers.
Thus, unlike traditional fiat currencies, cryptocurrencies exist only as a shared digital record of ownership stored on a blockchain database. So, when users want to send cryptocurrency units to another user, they basically send it to that user’s digital wallet.
Get familiar with popular cryptocurrencies
We know what you may be thinking, “are cryptocurrencies real money?”. Well, the answer is: “Yes”.
Now, the concept of cryptocurrencies is still pretty new, so it is quite difficult for them to be widely accepted. However, take Bitcoin, for example, the first digital currency. Many sites and businesses, including major companies such as Microsoft, Starbucks, and KFC, have recently all announced that they are accepting Bitcoin as a payment method. So, step by step, more cryptocurrencies will become widely accepted.
Yet, Bitcoin is only one digital currency. If you want to start trading on the crypto market, you’ll need to familiarize yourself with all the other popular digital currencies aside from Bitcoin.
What are other popular digital currencies? Ethereum, Ripple, Litecoin, and Bitcoin Cash. So, putting the Bitcoin hype aside, let’s learn more about these other cryptocurrencies that are running close behind.
This digital currency uses a blockchain pretty similar to Bitcoin’s but has a different currency: Ether.
Compared to Bitcoin, Ethereum allows users to run decentralized blockchain applications, which are called smart contracts. These smart contracts bring some benefits on the table, including eliminating third parties in transactions, speedier transactions, transactions are encrypted and stored on a public ledger.
Ripple is synonymous with fast transactions thanks to the digital currency’s tokens called XRP. Compared with Ethereum, which’s time for processing transactions is two minutes, and for Bitcoin about an hour, Ripple processes transactions in just four seconds.
So, the currency’s core piece of identity is the ability to send money worldwide in just a few seconds.
Litecoin is pretty similar to Bitcoin, considering that both have a blockchain, public ledger, and miners who check transactions. But, compared to Bitcoin, Litecoin offers faster transaction process times, about 2.5 minutes, an abundant supply of currency, and has less complex algorithms.
Created to improve the original Bitcoin’s scalability, which impacts the transaction speed, Bitcoin Cash’s purpose is to increase each block size from 1 MB to 8 MBs. Plus, Bitcoin was created to reduce transaction fees.
Understand the psychology of trading
The reason why many traders fail in the art of trading, be it currencies or cryptocurrencies, is that they don’t know how to control their emotions while trading, particularly their FOMO.
Like it or not, there’s a lot of psychology in this game.
From the fear of missing out to fear of uncertainty, waiting for too long, being too greedy, failing, panicking, and denying the results, these are all emotions that you’ll be feeling when trading crypto.
So, our advice: if you want to master crypto trading, first learn how to master your emotions.
Take the fear of uncertainty and doubt, for instance. Let’s say that you buy Ethereum at $100, and after a week of surging, it suddenly drops hard the day after you purchased. You wait for the digital currency’s price to turn, but then you sell at $80. Why? Because you convince yourself that it’s a bear market and prices will continue to fail.
Avoid these common mistakes
Now you know what crypto market is, how it works, and the most popular traded digital currencies. But before you go out there looking for where to start, we’d like to give you some extra tips on what common mistakes you should avoid:
- Don’t focus on massive profits but rather on regular trades that bring small but sure profits
- Don’t buy a coin because the price seems to be low. When investing in a coin, you must think about its market cap not its affordability
- Don’t invest everything in only one cryptocurrency. Investments in digital currencies are unpredictable, so better diversify your portfolio.