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Practical Tips on How to Trade Cryptocurrencies
The rise in the rates of several cryptocurrencies for the last few years has made them a desirable mode of trade among investors. Many traders and investors are viewing it as a lucrative opportunity to increase their wealth. The volatility associated with cryptocurrencies offer big returns, but the losses can be even bigger if trading is not done the right way.
Tips on cryptocurrencies trade:
The growing popularity of cryptocurrencies has added many new dimensions to digital currencies. Below are some of the sides to digital currencies:
- You can trade or invest in it using a cryptocurrency exchange.
- You can use the coins for transactions anywhere cryptocurrencies are accepted. The Auto Coin Cars are one such example that enables people to sell or buy a car for sale using cryptocurrencies.
- You can break out a GPU (graphics processing unit) and a software to mine coins
With that being said, this post is focused on the trade of cryptocurrencies because you will need to be set up for trading even if you want to do other things with digital coins. Despite the rapid growth and extensive use of cryptocurrencies, people still do not quite understand how to trade in cryptocurrencies successfully.
In this article, we explain crypto trading in detail and share practical tips on how to succeed in the world of digital currencies.
Choose a cryptocurrency wallet and an exchange:
To start crypto trading, you will need to choose a cryptocurrency wallet and a cryptocurrency exchange to trade on. A cryptocurrency wallet is simply a place where you can store encrypted passwords that represent the ownership of the digital coins. It is roughly an equivalent of saving money in a bank account.
A cryptocurrency exchange is similar to a stock exchange or currency exchange that allows people to trade one cryptocurrency for another cryptocurrency or a fiat currency like the US dollar. Just like a stock trade requires a bank account and access to the stock exchange, crypto trade requires a wallet and cryptocurrency exchange.
Understand cryptocurrency exchanges:
Cryptocurrency trading is different from trading stocks, so it is crucial to understand how each trading website and the program works. It is advised to make a mock account on any crypto trading site to learn and practice how it works before you place a trade. It also needs to be kept in mind that unlike fiat currencies, the crypto trading takes hours to settle. Therefore, be patient and do not expect your trade or purchase to complete right away.
Understand the digital coins:
Before you commit to trade in cryptocurrencies, it is vital to educate yourself about the different cryptocurrencies and the way they work. Unlike conventional currencies, the rules of crypto trading are different, and one must have a deeper understanding of them all to make a fortune.
As Warren Buffet advises, “Never invest in a business you cannot understand,” a trader needs to get a sense of things before stepping into the crypto space. Like other commodities and currencies, the trading rates of cryptocurrencies depend on market demand and supply. Whenever there is an increase in demand, the rate of a cryptocurrency rises, and vice versa.
Hence, it is essential to know how currency has fared in the recent past so that you know its price stability, appreciation and depreciation rate, and the possible reasons prior to making a decision.
Analyze the risk:
Cryptocurrencies are known for their volatile nature which makes their trade a high risk-high gain venture. Trading in cryptocurrencies can either make or break your wallet. It is evident from the surge in Bitcoin rates which was trading at around $900 at the start of 2017 and reached a staggering $20,000 per Bitcoin at the end of the year.
A few days later, the surge was followed by a 30 percent drop in rates which sent Bitcoin’s price below $11,000. Today, it fares at around $8,367 per BTCs.
The wild price swings indicate that though the chances of profits are enormous, the losses can equally be huge if not more. Also, the prices of cryptocurrencies are susceptible to many factors, including government regulations, bugs in the system, and hacks which can have terrible consequences for traders and investors. This demands a complete analysis of the financial environment and the inherent risks before trading in cryptocurrencies.
Never risk more than you can afford to lose:
Many brokers attract crypto customers in a way where they present the cryptocurrency exchange as a place that offers easy and huge money. This is only partially true because the attribution of volatility brings significant risks in cryptocurrency trade. There is also a possibility that a trader may lose more than s/he puts in. A prudent way, therefore, will be to trade with as many coins as you can afford to lose.
However, the good news is that the crypto market ultimately balances itself out. This means that the period of losses may be bad, but they are balanced by a better period of gains. You only need to wait for the right moment.
Buy low, sell high:
Buying and selling at the right time is a golden principle that holds for any trade and investment. The adage seems simple, but it is tough to execute and implement it. There is no rule vis a vis the market propensity to overshoot upside and downside; however, a good way is to look at the price trend of the last few months and its trading pattern.
Once you analyze and understand a coin’s behavior, you can predict the next bullish cycle. The best option is to choose a coin at a steady price and avoid investing at a time when the bubble is peaked or falling.
The Bottom Line:
Cryptocurrency trading can be lucrative if you’re well equipped with the necessary knowledge about the market and understand the currency in which you trade. It is essential to analyze the risks and approach crypto trading with an open mind. Once you improve your trading strategies and knowledge, you’re in a better position to understand the volatility of a coin and put it to your advantage.