Trading in Crypto

You may understand how cryptocurrencies function, but this will not be of much help to you if you do not understand the market of cryptos.

Crypto market trends

Much like any trading market, the crypto market is highly dependent on the whims of those investing. Crypto markets can be affected by the run-of-the-mill causes such as economic news, as well as political news. However, crypto being an entirely digital currency and finding its early support entirely online, online forums can also affect the market. One study by the University of Notre Dame and the Pacific Northwest National Laboratory attempted to measure this effect. They covered the activity of Reddit forums from 2015-2018 and found that the intensity of discussion on there had a significant effect on crypto prices. The more they discussed cryptos, the more the prices rose. The less the intense the conversation was, the more the prices dropped. This shows that the medium in which cryptos are discussed is not on more traditional platforms, but mostly online.

The safety considerations on cryptocurrency also have a significant effect on their value. Cryptocurrencies are still in their very early days which means they are still exempt from a lot of regulations. Additionally, factors like the possibility of hacking, system breakdowns, and anonymity all have an effect on investor trust. All of these factors have made it a possibly risky market to invest in as is, making it a volatile market. On the other hand, some early investors see some great advantageous safety features, which promise a bright future for the market. The main one here being the use of blockchain technologies, which ensure all transactions made will be accounted for and legitimate.

Crypto trading conditions

If you decide to start trading, you will need to examine the terms and conditions under which you trade. You can first of all trade under leverage, which can allow you to trade for very low sums of money. This can usually allow you to trade at a ratio of around 1:100, meaning you need only invest a hundredth of the overall investment. Due to the volatility of Cryptos, these contracts are rare as of now.

Brokers dealing with your investments will need some compensation for their services. This can be done in one out of two ways. They either take a commission (percentage of the profits), or the trade will more commonly have a spread. The spread is the difference in the price that a broker is willing to initialize a trade for you, compared to when they conclude it. Brokers will set these prices slightly differently from the actual value of an asset, to ensure compensation for themselves.

If you want to ensure yourself on the reliability of a broker, many financial regulators enforce brokers to follow guidelines. Many of these exist, but the ones you come across often may be the FCA, the SEC, and the ASIC. They all may focus on different areas of the trading world. Before committing to a broker then, you should investigate who their regulator is. Are they appropriate for the sort of trading you intend to commit to? Are they themselves trustworthy?

So, when you are deciding on a trade you should consider the leverage ratio offered to you, the spread, and who regulates your trading partner.

Trading Instruments

A financial instrument refers to the asset on which you are relying on for trading. If you make an exchange using cryptocurrencies, however, you may have to look a bit further for brokers willing to help.

The first of these trades, which is quite likely to allow the use of cryptocurrencies, is trading in cryptocurrencies themselves. It is a growing market but is, as we said, highly volatile. New cryptocurrencies are released all the time, and over 1600 of them currently exist on the market. This means you have a great range of options available to you as a trader.

Forex trading

Following this, you can consider forex trading. Not all the currency pairs usually available to you are present in the crypto world. This means you may have to do a bit more investigation before you can find the right currency pair for you. Since this is the largest market for trading in general, there still are plenty of opportunities available to you.

Stock trading

Stock trading follows this, which will allow you to buy a share of a company’s assets for investment. Considering the huge number of cryptocurrencies currently available, there are plentiful opportunities for you to invest. It is, as we said, a market that is booming and investing in the companies behind them could allow for great possibilities.

Commodity trading

Another option available to you is trading in commodities. Many blockchain networks have started to allow trading on real-life commodities. The most common of these is Ethereum, which allows for trading in a whole range of assets. Ethereum allows for representation of assets in a digitised form, after which they can be traded like any regular asset. These assets could include precious metals, energy, livestock, and agricultural commodities.

CFDs

A CFD is the final option available to you. In a CFD you make what is essentially a bet on the valuation of an underlying asset. You can establish this contract on whether you think the price will rise or fall. You do not need to own the asset yourself to benefit from its price fluctuations. The advantage here is that you are guaranteed to be able to finish your transaction if the price reaches a level you want it to.

Social Trading

Social trading is a form of trading that has arisen through the capabilities of the internet. It allows traders to follow the activities of professional traders. You can examine the biographies and past histories of said traders’ performance. This is a great way for new traders to learn recommended practices. It is best used as a form of analysis, however, to learn why traders act as they do. Following this, you should be able to develop your own strategies and not just follow the newest trends mindlessly.

Crypto Wallets

The final consideration for you, and maybe the most important, is where you should keep your cryptos. Since they do not have any physical form, the currencies cannot be stored in banks. You can then, keep your profits in one of several types of crypto wallets.

The first of these crypto wallets is a desktop wallet, which is stored on software on the desktop. A mobile wallet is similar, except that it stores your data on a mobile phone. An online wallet is stored completely online on a central database. A paper wallet means you keep all your past receipts of your transactions, so you keep count of your overall balance. The final variety is a hardware wallet, which involves keeping your balance on hardware almost completely disconnected from a central server.

All these wallets have their risks. Those relying on hardware may get damaged. Paper wallets are hard to keep track of and can also be damaged if not treated carefully. Online wallets cannot be damaged but may get hacked into.

When trading in crypto, you will have to keep in mind several factors. This includes how you deal with brokers, which area of trading you focus on, who you should follow, and where to keep your profits. They are all aspects that can have significant effects on your performance as a trader.