Cryptocurrency is a phrase that you may have been hearing with increasing regularity in recent years, along with stories of how traders have made vast sums of money by speculating in this market. But what exactly is a cryptocurrency, and how is it traded?
Cryptocurrency refers to virtual currencies that are underpinned by blockchain technology. These currencies are decentralized, which is a key reason for their popularity – they cannot be controlled by any government – and they’re encrypted, which means that they have a very high level of security. Cryptocurrencies are stored digitally and are transferred via a global network of computers.
Let’s move on to the blockchain, the technology that fundamentally supports cryptos. Blockchain is used to record crypto transactions and to track ownership and data. It is an entirely transparent system with differing algorithms. Blockchain acts as a virtual ledger for crypto – entries cannot be amended once made, so it’s a vital way that crypto trades and transactions are stored and kept secure.
There are now believed to be over 5,000 different cryptocurrencies, of which bitcoin (first introduced in 2009) was the first, and this number is constantly increasing.
How to Trade Crypto
Cryptocurrency trading is defined as the buying and selling of different virtual coins and exchanging one virtual coin for another. The two main ways to trade on the crypto market are to buy and sell using an exchange and to trade a Contract for Difference (CFD), which involves speculating on market price movements.
Trading on an exchange means that you will own any assets that you buy – so to do this, traders must open an account with the exchange and store their assets in a crypto wallet until the point at which they want to trade. This will help to keep these assets safe and secure.
If you choose to use a CFD account to trade crypto, then it’s important to be aware that you will never own the assets you’re trading in, as you will be trading derivative contracts based on the speculation of market price movements. A CFD is therefore defined as a leverage instrument.
What Can Affect Trading on the Crypto Market?
Crypto trading and associated price points are fundamentally affected by supply and demand; the media, and local and international events in the wider world, play a vital role in this. Changes in the business world are significant, too: for example, if a large, well-known company publicly announces that they’ll be using crypto, then there will largely be an upswing in the number of crypto trades made immediately following this news.
It’s also important to bear in mind the nature of regulations and taxes that can affect crypto trading and market movements. For instance, crypto assets are treated as property in the US and taxed as such; due to this, investors and brokers are subject to stringent regulations. Meanwhile, other countries have imposed a total ban on crypto trading.
So, it’s vital to make sure that you know the tax regulations and legal status concerning crypto trading in the country in which you’re based.
Before Trading in Crypto
Before making any trades, it’s essential to get a Trading Plan in place that’ll help you to understand your investment goals, manage risk, and track your progress. As part of this process, be really honest and transparent about your reasons for wanting to trade in this market. Is it to make a certain return or to diversify your portfolio? If, as part of this plan, you want to own the assets you’ll be trading in, then using an exchange is the best course of action for you.
Crypto can be a confusing concept to get your head around. Before trading, it’s vital to learn as much as you can about these virtual currencies and the market you’ll be speculating in. There are plenty of online courses available that can give you the knowledge you need to get started. By the end of a course, you should feel comfortable with the terminology, be able to use charts and analyze the different currencies effectively, and open deals.
As part of your Trading Plan, you should also consider the trading strategy you will be using. Buying when the price is low and selling when it’s higher is obviously one of the fundamental ways to make successful trades, but there are many complexities to crypto trading that need to be understood.
Keeping a trading journal is a great idea to help you keep track of your trades and their outcomes and can be very useful in developing your strategy.
How To Get Started Trading Crypto
When you’re ready, it’s time to choose a trading platform. Ensure that the platform is legitimate, reliable, and secure. It’s also a great idea to find a platform that is easy to use, offers excellent customer support, and features demo accounts so that you can practice before trading for real to get an idea of how things will work in practice and the trading conditions.
Next, look for a regulated broker if you want to trade crypto CFDs. Do your research thoroughly to ensure that any broker you’re considering is legitimate and is operating under the jurisdiction of a well-respected financial overseer. If part of your Trading Plan is to diversify your portfolio, then at this point, you may also want to find out if the broker specializes in other areas of investment to be able to assist you with this, too.
If you’ll be trading using an exchange and therefore own the assets you will be trading in; then you’ll need to create a crypto wallet. Traders can choose from mobile, paper, software, or hardware wallets – they’re a vital part of keeping your funds safe.
Tips for Successful Crypto Trading
First and foremost, the ability to be disciplined and self-controlled is vital. It can be easy to let emotions sway your trading, which can lead to errors and subsequent losses – or speculating with more capital than you can afford to risk. Concentrate on acting with consistency and being guided by your head rather than influenced by emotions.
Have a risk management plan in place – this should form part of your overall Trading Plan. This should include the maximum daily loss you are willing to sustain and the amount of capital you’re prepared to risk with each trade, for example. This plan will help you to minimize your losses and stay in control.
Always bear in mind the volatility of the crypto markets – they are extremely susceptible to economic uncertainties, for instance, the media and general trends. Learning as much as you can about the factors that can affect these markets is crucial to helping you navigate these movements.
What Are the Risks of Crypto Trading?
There is always the risk when trading crypto that you could sustain losses, and this should be carefully taken into account before opening a trading account. A risk management strategy can help to protect you from incurring losses you can’t afford, but it can’t totally mitigate the risks associated with trading in crypto.
The other major hazard of crypto trading is falling victim to a fraud or scam – unfortunately, scammers in this arena are prevalent, largely due to the often grey area of the regulatory status of virtual currencies.
The most common crypto con that is deployed is called the ‘rug pull’ scam. These tend to follow the same pattern: the scam organization will set up a high-profile campaign on the internet via forums and social media platforms, advertising an opportunity to invest in crypto that offers spectacular returns and seems, on the surface, completely legit.
Investors are pulled into the scam, and, as a result, the value of the crypto might even go up – and then, suddenly and with no warning, the website or platform will disappear, and the organization vanishes, taking all of the investors’ money with it.
Another widespread crypto scam is known as the ‘initial coin offer.’ This fraud entails the scammers offering what seems like a great opportunity for people to invest in a new, start-up cryptocurrency using an active crypto, such as bitcoin. But, of course, the scammers have no intention of launching a new crypto and simply disappear with the (often very substantial) funds put in by their backers.
What to Do If You’ve Been the Victim of a Crypto Scam?
If you’ve fallen foul of a crypto scam like one of the above, you are likely to be feeling angry, distressed, vulnerable, and as if there is no chance to get your lost funds back.
However, there may be recourse available. As soon as possible, it’s recommended that you get in touch with a reputable, professional company that can help you, such as Worldwide Recovery, which specializes in getting back money for their clients that have been stolen by financial scammers.
Making contact at your earliest convenience with a professional chargeback company is a good idea to get the support you may need at this time and set the wheels in motion to reclaim your scammed investment.