Cryptocurrencies have grown in popularity in recent years. Because while the real estate market is busy and prices are shooting through the roof, cryptocurrencies offer great potential for investors. Savvy traders and speculators are making bets that target highly volatile assets. If you choose the right time for buying and selling, high profits are possible. However, trading with cryptocurrency needs to be learned. If you don’t have the right approach, the predicted risk can materialize as a reality. In this post, let us dive into the world of cryptocurrencies and look further into what needs to be considered when trading internet money.
Read also: Investing in Crypto can be a Lucrative Decision
What is crypto trading?
The term crypto trading covers the buying and selling of cryptocurrencies. Trading in currencies such as Bitcoin, Litecoin, or Tether and changing from fiat currency to digital money is also summarized under this term. Trading is comparable to forex trading. Because the markets for cryptocurrencies do not take a break either and are open around the clock.
Bitcoin was the beginning of cryptocurrency. In the meantime, the digital money market has exploded and investors can now choose between thousands of providers. Nonetheless, it should be noted that few cryptocurrencies really last long.
Trading cryptocurrency – What do you have to consider?
For example, if you want to buy Tether, there are a few basic things to consider. First of all, you should carefully inform yourself about the different currencies. The market is affected by regular fluctuations that can have a major impact on the value of individual coins. This lack of stability is due to the principle of supply and demand. Economic, political, and social events can influence the reputation of a cryptocurrency and thus cause fluctuations.
Accordingly, it is important to keep a close eye on the movements and to look for the right moment to buy and resell the cryptocurrency. In general though, never invest more than you are willing to lose.
Cryptocurrency is usually sold on so-called crypto exchanges. These are online platforms that specialize in buying, selling, trading, and exchanging cryptocurrencies. Investors must register on the trading platforms and create their own accounts. With the help of an e-wallet, it is then possible to actively participate in market activities.
There are two different types of crypto exchanges:
- Central exchanges (CEX)
- Decentralized exchanges (DEX)
On the centralized platforms, you pay with fiat currency. In addition, it is also possible to hold CEX funds and exchange the acquired cryptocurrency for altcoins or similar tokens. Unfortunately, there is a risk here of suffering losses, caused, for example, by a hacker attack.
For this reason, decentralized crypto exchanges were created, which do without an intermediary. Privacy is the top priority on these platforms, which ensures anonymity at all times. Nevertheless, as a beginner, you should first rely on a centralized exchange.
The different order types
Before you start trading, the individual order types should be understood:
- Market Order: Buy at the market price with limited orders coming in and out on both sides of the order books. This creates the risk of slippage – too few limit orders to meet a given price.
- Limit order: depositing a bid in the order book. The last executed order determines the market price. Slippage can also occur here.
- Stop order: A stop order places a market order. The prerequisite is that the price condition is met. The stop order corresponds to the limit order but is handled like a market order.
Storage of the cryptos
The cryptocurrency can be stored on central crypto exchanges. But as already mentioned, this can be very risky under certain circumstances. It is therefore advisable to deposit the funds in a crypto account.