This is what would-be investors should know about cryptocurrencies and crypto trading.
Cryptocurrencies have been altering the financial market for a few years now. More and more would-be investors, who were skeptical at the beginning, are now considering investing in digital currencies like Bitcoin, Ethereum, Ripple or Shiba Inu. But beginners should not have their rose-colored glasses on. It’s important to educate yourself on cryptocurrencies and on trading issues. This is what you definitely need to know before placing your first investment in cryptocurrencies.
What Is Cryptocurrency?
In order to understand why some cryptocurrencies have been skyrocketing since their launch, you need to understand what a cryptocurrency is. Digital currencies are connected to databases that are organized decentrally – the so-called blockchains. Every blockchain consists of and for a certain project. Investors support the blockchain and its project. The better a cryptocurrency and a blockchain technology perform, the more lucrative it is for investors.
Blockchain technology is said to be able to alter public life in the future by simplifying the processing and transfer of data. That’s why experts predict a bright future for digital currencies and their blockchains.
In Which Crypto Should You Invest?
The first investment is the hardest one, of course, as it can be a challenge to choose the right coin and trading platform. But if you´re well-prepared, demystifying Bitcoin and other famous cryptocurrencies isn’t hard.
Some investors claim that it’s best to invest in well-established coins like Bitcoin, Litecoin and Ethereum. Others claim that you make the highest profits when purchasing modern meme coins like Dogecoin and Shiba Inu. Others believe that NFTs connected to video games – like Axie Unlimited – have the highest potential. It’s up to you to decide whether to bet on the safest card or on the most exciting one. Do make sure, though, to spread your capital on various assets so as to reduce the risk of loss.
What Crypto Trading Strategies Are There?
When investing in cryptocurrencies, it’s smart to leave personal fears and gut feelings aside. That’s why every investor should find a trading strategy to follow when it comes to buying and selling digital coins or tokens. These are the most common strategies that are easy enough to learn for beginners:
Day trading is very popular with investors nowadays, and works well for crypto investments. As the digital currencies are very volatile, they sometimes underlie big fluctuations within a day. Day trading means buying and selling a certain asset within a day so as to exploit short-term fluctuations.
Hedging: Investors, who want to cancel out the risk of loss, can forego purchasing crypto coins and invest in CFDs instead. Doing so, the cryptocurrency acts as an underlying asset, and the investor bets on a future price. Hedging can be highly lucrative, but takes a lot of preparation, education and practice.
Hodling: Yes, the word is based on a typo, but is commonly used in the trading business, and means that investors hold their assets as long as possible in the prospect of stable growth that pays out in the long-run.
Trend Trading: Trend trading is possibly the most flexible trading strategy, as purchases and sales are based on how a specific asset is performing. Within trend trading, there are various subtypes, but they all have one thing in common: You have a close eye on the market and buy coins when their price is about to rise. Do you expect their price to fall, you get rid of them.
What Are the Risks of Cryptocurrency?
As mentioned before, cryptocurrencies are very prone to fluctuations. That means, it’s not only possible, but also likely to lose money with some investments. But losses only become a real thing, if you decide to sell the asset in a rush of panic.
Another thing you should have in mind is that the crypto market is not as well-regulated as the stock market, because digital currencies are not legally considered currencies. There have also been some cyber attacks on crypto markets.