If you are new to cryptocurrencies and want to invest in cryptocurrency then you are at the right place. In this guide, we will tell you how does cryptocurrency trading works, what are cryptocurrency wallets and what are cryptocurrency exchanges. After reading this guide, you will have enough information to get started with cryptocurrency. If you don’t have any idea of cryptocurrencies then make sure to read our “What is Cryptocurrency for Dummies” guide where we explained the Cryptocurrency in simple words.
How does Cryptocurrency Trading Work?
Cryptocurrency trading is similar to normal trading in many aspects but there are also other aspects where cryptocurrency trading is completely different from conventional trading. In this section, we will explain how cryptocurrency trading works and how you can effectively manage your coins to get the maximum profits.
Cryptocurrencies are highly volatile, they have the ability to make your thousands of dollars profit within a few hours but you can also lose more than half of your investment’s value in hours. So if you want to have the good profits then you need to understand the basic factors which affect the value of cryptocurrencies.
Following are the two main factors which affect the overall value of cryptocurrencies.
- Supply & Demand, if there is the demand for particular cryptocurrency in the market, its price will increase. Similarly, if the demand of a particular cryptocurrency isn’t high then its value will go down.
- Market News is a 2nd most important factor. As cryptocurrencies are highly volatile so the investors have very little trust and they don’t want to lose in their investment so whenever there is any major news against any particular cryptocurrency, the investors of that particular usually sell that cryptocurrency which results in sudden overflow of cryptocurrency in the market and as a result its value decreases.
So the question is how you can effectively manage your cryptocurrency so that you could earn good profits. The only way is that you should get the hands-on experience of different cryptocurrencies. Start with analyzing the value charts of different cryptocurrencies which will help you to understand the different trends of particular cryptocurrencies.
You can also take the services of professionals or alternatively you can join the public forums where you can read the analysis of different experts to find the most suitable cryptocurrency.
Like regular fiat currencies, cryptocurrencies also have online exchanges from where you can buy the cryptocurrencies. Unlike regular exchanges, cryptocurrency exchanges work 24/7 and you can easily buy and sell your cryptocurrencies. However, only a few cryptocurrencies allow you to buy the cryptocurrency directly with your fiat currency and normally you can buy the bitcoin first and then buy the other cryptocurrencies with the bitcoin.
We will also suggest you to only take the services of popular cryptocurrency exchanges like Coinbase, Bittrex, Binance, and Bitfinex etc. as they are regulated and trusted.
Creating accounts on these cryptocurrency exchanges are also very easy and you can verify your account by providing the personal credentials.
When you buy the cryptocurrencies from the online exchange, make sure to transfer them to your cryptocurrency wallets as it will help you to make them secure. Cryptocurrency exchanges are prone to hacker attacks and you could lose your cryptocurrencies. There are different types of wallets available in the market which offer different unique features and security. Following are the main types of cryptocurrency wallets.
- Desktop Wallets are the wallets which can be downloaded to your computer. Desktop wallets are usually one of the more secure wallets but they can be compromised as your computer is connected to the internet.
- Mobile Wallets are mobile application based wallets. Mobile wallets are easy to use and you can take the wallet anywhere you want but mobile wallets can also be compromised.
- Web Wallets are online wallets where you can store your cryptocurrencies. However, Web Wallets are secure as companies use state of the art security protocols to keep the wallets save but they are also prone to hacks and also phishing attempts.
- Hardware wallet is physical wallets which comes with many security features which make them the most secure wallets. A good hardware wallet will cost you around $100 but it will guarantee the protection of your cryptocurrencies. If you want the best possible security without any compromise then hardware wallet is the one you should go for.
- Paper wallets are also physical wallets where you write down the private key of your cryptocurrencies on a paper. However, paper wallets are difficult to manage and if someone gets access to a paper wallet, you could potentially lose all of your coins.
General Tips for Cryptocurrency Trading
Cryptocurrency Trading can be very profitable and very risky at the same time.
In this section, we will share some tips which we have learned over the years.
- Don’t put all the eggs in one basket, this advice is very common yet very useful in trading. Cryptocurrency investment is ultra-high risk investment and if things don’t go according to your expectations, you could lose all your money. So only invest that money which you can afford to lose. Don’t put all of your savings in crypto investment.
- Diversify your portfolio, it is a good practice to have diversity in your portfolio. If you are investing your money in cryptocurrency then make sure to invest the major part of your investment in more stable cryptocurrencies like Bitcoin, Litecoin, Ethereum and other stable coins.
- Always do your own research, cryptocurrencies are highly volatile and their value constantly changes depending on the scenarios. So it is a good practice to do the research on a personal level before investing your money. If you are at any cryptocurrency forum, take a look at what people are saying and then make your own decision. As you start investing in different cryptocurrencies, you will learn to analyze the value pattern of different cryptocurrencies which will help you in the long term.
- As you will get experience in crypto trading, you will notice the dips and bull runs in the value patterns of different cryptocurrencies. Bull runs are the period when the value of a cryptocurrency tremendously grow and dips are the period when the value of cryptocurrency correct itself. Buy the cryptocurrency during the dips as you will get the cryptocurrency at a good value and there is a good chance that you will earn good profit.
Cryptocurrencies are relatively still new and that is the main reason why they are so volatile but the experts say as the cryptocurrencies will get old, the volatility factor will also reduce to a great extent.
Let us know what you think about the future of cryptocurrencies in the comment section below.
Also, keep an eye on our website for upcoming useful guides.