In the cryptocurrency market, you face many opportunities to invest in cryptocurrency or buy or sell cryptocurrency. If you want to buy cryptocurrency to invest or pay with it, you need to be familiar with the trading process. Below is an introduction to introduce you to the most important things you need to know before you start investing in and trading cryptocurrency.
Cryptocurrency brokers / exchanges
The virtual cryptocurrency market offers you options to buy or sell currency through cryptocurrency exchanges that can be done through cryptocurrency exchanges or brokers. Cryptocurrency exchanges are platforms that have been established and even specifically dedicated to cryptocurrency trading. Through them you can make crypto purchases with FIAT currencies, such as the dollar, the euro or even the Polish zloty. A key advantage of exchanges is the ability to trade directly between cryptocurrency coins.
In turn, the broker provides a platform on which futures (CFDs) can be bought. In this case, you do not own a cryptocurrency, but speculate on the price. An interesting difference with the exchanges is the fact that you can speculate on increases as well as decreases, the so-called ”long and short positions”. In addition, the exchange also offers the possibility of hedging.
How can you buy or sell cryptocurrency?
The cryptocurrency market is expanding almost every day with new projects. More than 8,000 coins are listed on coinmarketcap.com alone. However, the exchanges do not support all of them. Each of them allows you to trade the tokens of your choice, among which there are always the most popular ones like Bitcoin (BTC) and Ether (ETH).
The transactions are based on the spot market, that is, immediate settlement of the price. When you buy or sell cryptocurrencies, you can trade at the current price, or place an order at a specific price through an order book.
Order book works in a very simple way. If you are interested in buying cryptocurrencies, but you are not satisfied with the current price, a buy order can be placed. When the purchase price coincides with the sale price, our order will be activated and the expected cryptocurrency will be purchased.
So-called ”leveraged trades” are becoming more common in crypto. They allow you to achieve higher returns, with relatively lower price movements. The easiest way to illustrate their operation is with an example.
Imagine you have $10,000 and Bitcoin (BTC) is currently worth the same. You want to play with a leverage of 3x. This means that you take out an automatic loan on the exchange that increases the value of your portfolio three times. That is, you borrow $20,000 against your initial deposit. When the price of Bitcoin increases by 10% (to $11,000) and you close your transaction at this value, returning the borrowed $20,000, you will receive the $3,000 profit. Of course, this example does not take into account any additional transaction fees.
However, be aware of the unique risks associated with leverage. In the event that the initial value of Bitcoin drops by 30% in the example above, your position will be automatically closed and the money irretrievably lost.
Risks of trading with cryptocurrencies
In addition to the risks of trading with leverage described above, in the cryptocurrency market you also have to deal with other factors that can expose you to losses. Cryptocurrencies are characterized by much lower liquidity than the traditional market. This means that you can observe very large price movements here, in short periods of time. No matter how beneficial the upward movements are for your portfolio, the dynamic downward movements can cause a large loss or force you to make unfavorable decisions.
Another risk factor is the so-called Scams, that is, fictitious projects that serve only to generate income. Such projects often disappear from the market at the least expected moments with all the capital invested in them. You should also remember not to keep the purchased coins on the exchange, but to transfer them to a safe place. One such place could be a hardware wallet, for example.
You can easily protect yourself against most losses. Careful analysis of projects can protect you from scams. Good homework can also help you stay calm during violent price movements. Skills to perform technical analysis are valuable in this regard.
Technical analysis of cryptocurrency
This is nothing more than the ability to navigate the price chart by reading it correctly and seeing the patterns. Knowledge of the basic principles of the market allows us to predict the direction and range of price movements with a high degree of certainty. With the right technical analysis you can make high profits on the market and become an excellent investor.