Introduction

The first digital asset, Bitcoin, was founded in 2009. Different projects then gave the world more and more alternatives, such as Ethereum, Litecoin, Ripple, Bitcoin Cash and others. According to Coinmarketcap, there are more than 2,000 cryptocurrencies. Active traders are spoiled for choice.

However, less active or new altcoins may have limited trading opportunities as they provide fewer buyers when it’s time to sell. Traders want to be sure of their success, so they only focus on some of the leading cryptocurrencies.

How traders define the value of different projects

Crypto coins are generated by computational alchemy, also known as mining, that requires a lot of processing power to produce new coins. The higher the hashrate is for each chain, the more transactions the chain can process. This gives rise to greater demand and value.

What is cryptocurrency trading?

Trading is an extremely complicated activity. It’s not just about Money and mathematics but also about stress, information processing, fast decisions and cool, collected actions. Warren Buffet, George Soros and Steven A. Cohen all build capital today because they understand how the market reacts to different facts. Therefore, they understand trading.

Michael Novogratz is one of the most successful Cryptocurrency traders. He made his fortune on Bitcoin, Ethereum and different ICOs. How? He understood cryptocurrency trading. In 2013, he remarked that a trader could invest in Bitcoin, come back a few years later, and see their investment greatly increased.

He was right because, at that time, Bitcoin was trading at a price of around $200 per coin. In 2017, it had reached $20,000. Even now, it’s much higher than $200. The profitability of Novogratz’s cryptocurrency investments turned out to be incredibly high.

So what does trading look like?

The main concept is almost identical to the stock or currency market. You buy/sell one asset for another, believing that the crypto you purchase will increase in value.

Cryptocurrency trading is about earning money via a Contract for Difference (CFD) trading account or simply buying and selling different coins via an exchange.

A CFD is a derivative that allows traders to profit on cryptocurrency index changes without taking any ownership of the related cryptos. You may set a “long” (buy) position if you think the cryptocurrency will grow in value and a “short” (sell) position if you think its value will drop. You have to create a deposit to begin trading.

Working with an exchange means that you first have to buy crypto on this platform, create an account, verify it and open the position. As usual, you must store your assets on the exchange wallet.

How does crypto trading work?

If you want to earn as much as possible, you must know this. We can provide the theory and explain someone’s experience, but you’ll only see the full picture through practice.

Firstly, learn some main principles:

• Cryptocurrency trading is similar to real market trading, but it isn’t a fraction of a regular stock exchange.
• It’s a 24-hour market.
• The crypto market is especially volatile.
• Secondly, you must understand the standard way of working with crypto exchanges:

• Traders send their existing coins to an account on an exchange or use a platform to buy crypto.
• They observe the prices of other assets available on the exchange.
• They select their desired trade.
• Traders then place buy/sell orders.
• The platform finds a seller/buyer to match orders.
• The exchange completes the transaction.

An exchange platform charges a fee for every trade. It’s usually around 0.1%, which is high. Why? Because daily trade volume is over $55 billion. The ‘lucky’ ones built significant capital doing this.

There’s one last fundamental thing to understand: traders don’t just use their maths skills. Experienced traders know that such an enormous market needs more to earn money. Therefore, they use many different programmes to choose the right asset for the right time. This may involve software to help analyse the market.

Financial engineering is the use of innovative technologies to analyse more statistics in a shorter time. It helps invest in the best fields or currencies.

How to buy and trade cryptocurrency

You’re almost ready to start earning money. But if you want to get something, you have to give something. This rule applies to crypto trading, too. You should send fiat money (or crypto from your wallet) to the exchange.

• Create an account on an exchange.
• Verify it.
• If your budget consists of fiat currency, you need to create a payment channel.
• Verify your identity (if necessary). Usually, exchanges ask for this information because of anti-money-laundering (AML) policies. The other reason is security: they combat trading bots.
• Deposit funds.

So how do you trade cryptocurrency?

Short-term trading is about buying an asset to sell soon after. Usually, beginners think that it’s after a few minutes or hours. This can be anything from seconds to a few months. You may buy a specific crypto because you think its value will grow shortly.

Pros

The main benefit is an excellent chance to make a high profit in a very (even extremely) short period of time. Why? Because the cryptocurrency index may triple overnight or within several hours. The fiat currency market can’t provide such opportunities because prices usually only change about 1% during a day.

You can always find a buyer or a seller. People often turn to short-term trading with big projects such as Monero, Ethereum or Dash. These cryptocurrencies have significant demand, so you won’t have to wait for each trade.

Cons

Volatility is the biggest problem in the crypto world. If you perform short-term trades, you’ll need to spend a lot of time analysing the market before trading. Because of that, you could lose all your money in just one second.

You must have a good grip on your psychological condition. Short-term trading means that you can’t always win.

Long-term trading is about HODLing. You may not know this word if you’re new to trading.

HODL means ‘hold on for dear life.’ It’s not in the dictionary but describes the whole long-term trading market’s belief that, even if there’s enormous volatility, the index will rise over the long term.

Pros

First, you don’t have to make a significant technical analysis with complex trading charts. The recipe is straightforward: you buy and wait. Check the price once a day and sell crypto at the most appropriate time.

Second, you don’t need a big budget. You can buy small amounts and let them grow over a few years. Many people bought Bitcoin for $0.35 and forgot about it. In 5 years, they had a profit of over 60,000x their initial investment.

Cons

You may lose a good chance for short-term trading. Sometimes, prices rise very quickly, only to fall over a few days. However, if you have enough time and knowledge, you can combine long-term and short-term trading.

With long-term trading, you don’t spend much time on market analysis. That’s why you may miss some news which could influence the price.

Five Common Crypto Mistakes and How to Avoid Them

Becoming engrossed in the excitement generated by attention-grabbing news headlines is incredibly effortless. Unfortunately, making mistakes when it comes to cryptocurrency investments is very widespread. We’ve compiled a list of some of the most common mistakes below to help you avoid them.

Buying for the Sake of Low Prices

One common mistake people make when investing in cryptocurrency is buying solely based on low prices. Understanding that low prices do not equate to is crucial. For instance, a cryptocurrency with fewer users might have a low price. Moreover, there are instances where developers abandon a project, and the cryptocurrency’s security becomes compromised due to a lack of updates.

Going “all-in”

Another mistake to avoid when investing in cryptocurrency is going “all-in,” which means investing all your capital in a single cryptocurrency or a single trade. Some trading platforms may suggest going all-in to maximise profits, but this risky approach could lead to significant losses.

A better approach to cryptocurrency investment is to use only a portion of your investment capital, such as 5%, and spread it across multiple cryptocurrencies or trades to minimise risk. Additionally, it’s crucial to maintain an emergency cash fund that’s easily accessible and never invested in the market. This fund can act as a safety net in case of unforeseen circumstances, such as market crashes or personal emergencies.

By diversifying your investments and maintaining an emergency cash fund, you can protect your capital and minimise risks while investing in cryptocurrency.

Thinking Crypto Is an Easy Way to Make Money

It’s a common misconception that investing in cryptocurrency is an easy way to make money. However, the truth is that making money through trading any financial asset, whether it’s stocks, shares, commodities like gold and silver, or cryptocurrency, is a challenging task.

It’s a common misconception that investing in cryptocurrency is an easy way to make money. However, the truth is that making money through trading any financial asset, whether it’s stocks, shares, commodities like gold and silver, or cryptocurrency, is a challenging task.

Therefore, it’s crucial to approach cryptocurrency investment with a realistic mindset and be prepared to put in the effort to gain the necessary knowledge and skills to succeed in this field.

Forgetting Your Crypto Keyphrase

This can be a critical mistake when it comes to cryptocurrency storage. If you’re using a hardware wallet to store your cryptocurrency offline, your keyphrase is the key to your digital assets. Losing or forgetting your keyphrase is akin to misplacing the keys to a bank vault, as it could permanently lose access to your cryptocurrency.

Without the keyphrase, you won’t be able to retrieve or transfer your digital assets, and they’ll be lost forever. Therefore, keeping your keyphrase safe and secure is crucial, preferably in a physical location that only you can access.

If you forget or misplace your keyphrase, some hardware wallets have a recovery option that allows you to restore your access using a seed phrase. However, this is not always the case, and it’s better to be safe than sorry by keeping your keyphrase in a secure location.

Falling for Crypto Scams

Being aware of potential crypto scams is crucial, as falling for them can result in significant financial losses. There are several types of scams in the crypto world, and we outline some of the most common ones below.

Cloud multiplier scams involve fraudsters contacting potential victims via email or text, promising an investment opportunity that doubles or triples their bitcoin if they send it to a specific digital wallet. Viewing free money offers sceptically is essential, as they are often too good to be true.

Pump-and-dump scams involve criminals artificially inflating or deflating the price of small or unknown cryptocurrencies. They promote the currency on social media, wait for the price to increase, sell all their coins, and cause the price to crash, leading to significant losses for investors.

Malicious wallet software is another common scam to watch out for. Dodgy or unknown wallets on Google Play or the App Store can contain malicious code that can steal crypto funds. Sticking to reputable crypto wallets like Ledger, Trezor, Exodus, or MetaMask is best.

Fake coins are another risk in the crypto world. With so many cryptocurrencies available, it can be challenging to distinguish between genuine and fake ones. Investing in fake coins can result in identity theft and significant financial losses. Therefore, conducting thorough research using multiple sources is essential before investing in any new cryptocurrency.

Conclusion

Cryptocurrency trading offers both opportunities and risks. While it’s possible to make profits through short-term or long-term strategies, it’s not a guaranteed easy way to earn money. Avoid common mistakes like investing solely based on low prices, going all-in on a single cryptocurrency, and falling for scams. Keep your crypto keyphrase safe to prevent losing access to your assets. Remember that success in cryptocurrency trading requires realistic expectations, continuous learning, and cautious decision-making.

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