How to trade cryptocurrency in 2021 — Everything you need to know
Cryptocurrencies have emerged as a hot commodity in recent years. It has attracted many individuals to invest and earn substantial returns. Despite the government backing, this asset class garnered massive popularity in recent years. The proposition of the handsome returns on investment in a shorter duration has propelled the newbie investors to jump on the bandwagon. To begin, let us have an idea of what cryptocurrency is.
What are cryptocurrencies?
Cryptocurrencies are digital assets that serve as investments and for online purchases. Cryptography secures cryptocurrencies, which help the assets to refrain from counterfeiting and double-spending. Interestingly, the cryptocurrency does not exist physically, indicating that the cryptocurrency is not tangible.
Unlike the conventional currency, no authority is backing to sustain the value of the cryptocurrency. Instead, the power lies in the hands of the users to determine the value while trading on the internet. Moreover, each cryptocurrency coin has unique programming or code attached to it. It makes it impossible to copy the codes while they are easy to be tracked or identified.
What are the different types of cryptocurrencies available in 2021?
There are different types of cryptocurrencies available, out of which the most popular one is Bitcoin. It is the most notable cryptocurrency. It is a lesser-known fact that there are more than 8000 coins available in the market. Some of them are Litecoin, Ethereum, Chainlink, Mooncoin, Dogecoin, etc.
At the moment, Bitcoin is the most stable coin. Being the pioneer in cryptocurrency, initially, it was below one dollar. Over the years, owing to the massive popularity and word-of-mouth, it picked up the momentum and has now exceeded the market cap of $1 trillion. Moreover, other options are available for the investors to explore, as per their needs, security, and accessibility.
In recent times, there exists a blend of Islamic finance and cryptocurrency to create a coin, which is Shariah-compliant. The Caizcoin is acclaimed as the contemporary finance option as per Islamic principles. It attracts investors owing to its security and extensive features.
How does cryptocurrency works?
There is no central authority such as the government that regulates the operations and value of the cryptocurrency. Instead, there is the chain of computers that runs the show. These are exchanged from peer-to-peer on the internet without any intermediaries. It makes it decentralized, which means no government or bank manages the making. Besides, there is no control over the value or the mode of exchange. The cryptography secures the cryptocurrencies, indicating that it only permits the sender and designated receiver of the message to view the contents.
How do you store the cryptocurrency?
The wallet stores the cryptocurrencies, which are only accessible using a private key. The key serves as the super-secure password, helping the crypto owner access its currency. The crypto wallet plays the role of storing the private keys that give access to the users to send and receive the cryptocurrencies, such as Bitcoin and Ethereum. The blockchain network store the coins. Further, the private key allows authorizing the coin transfer to someone else’s wallets. Various types of cryptocurrencies are available, distinguishing in security, reliability, and accessibility.
Also Read: 20 Benefits of Cryptocurrency in 2021
How to buy cryptocurrency?
Like the conventional stock market, the crypto market has exchanges or brokers serving as the facilitators. They charge a nominal fee or commission for each of the transactions made. While some offer rewards for accomplishing a milestone, others offer a joining bonus. These policies vary as per the exchanges. Every country has its specific mediums, which facilitate the process. Users need to sign up with the credentials, log in to the website or download the app and buy cryptocurrency. These exchanges offer the users the advantage of monitoring the fluctuating value and cryptocurrency trading.
The crypto exchanges work on the business model of attracting investors for owning the cryptocurrency. It occurs when the users deposit the crypto to sell, with new users plunging into the exchange to buy it. The users can purchase cryptocurrency fractionally as well. For example, if someone is interested in purchasing Bitcoin, one does not need to buy a complete Bitcoin for ownership. Instead, can give buy fraction of Bitcoin, as little as 0.00000001 BTC. It applies to all the cryptocurrencies for trading.
How to trade cryptocurrency in 6 easy steps?
One of the most asked queries is how to trade cryptocurrency. Here are the six easy steps for any investors to buy and sell the cryptocurrency:
Selecting the correct crypto exchange: There are no crypto regulations in many countries. It leads to a lack of fixed structure or uniformity in the speculation of the cryptocurrency. However, one can choose the local exchanges available within the country.
Opening a Trading Account: The next step is to open the trading account at the crypto exchange of choice. It is similar to a bank account. In terms of registration, one needs to verify the credentials as per the services. It also includes the amount you are planning to invest, along with available trading options. Further, one will require to share the KYC (Know Your Customer) data. In terms of KYC data, one would need to share copies of the identity card, along with other personal data. Moreover, the crypto exchanges operate round the clock 24/7, unlike other conventional models.
Funding your account: The next step is to transfer some of the amounts to the crypto trading account. One can transfer the funds online from their bank account to the crypto account, which will require linking both accounts. Further, as per the regulations, there is a waiting time before the purchase.
Investing in digital assets by buying cryptocurrency: Following the transfer of money from the bank account, one needs to decide on the coins intended to purchase. Some of the notable coins are Bitcoin, besides there are some altcoins such as Ethereum, Cardano, Binance, XRP, Dogecoin, etc.
Storing the cryptocurrency: The significant step after purchasing the cryptocurrency is storage. There are no formal institutions that hold or back the crypto exchange. Neither have they carried any insurance policy along as well. There is an uncertainty of hacking as well. Thereby, any investor should store the codes to the account and make the assets secure. The experts recommend storing the purchased coins in the crypto wallet.
Choosing a Strategy: The last steps involve devising a well-thought strategy, such as Elliot Wave Theory. This theory intends to increase profitability by focusing on the psychology behind the market sentiment. Therefore, it acts well for speculative assets such as cryptocurrencies. It is advisable to get the opinions of the crypto experts, which can prove beneficial for the expansion of the investment. Experts recommend starting with small investments and researching the market rather than blindly following a piece of advice or jumping on the bandwagon.
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Tips for trading in cryptocurrencies in 2021
While trading in cryptocurrencies, it is significant to understand risk management. There is a need to set limits on the investment in a particular digital currency. Investors get tempted while trading in cryptocurrency and end up making hefty losses. Therefore it is essential to understand that crypto trading is a high-risk affair, and there is a loss probability.
While trading in crypto, one needs to diversify its portfolio. A famous quote states: Do not put all eggs in one basket. It applies perfectly to crypto. It is vital to spread the investment across digital currencies. It helps to abstain from being over-exposed to the risks. It is essential as market prices tend to get volatile on many occasions.
It is significant for the traders to avoid panic selling. There are situations where the prices rise and fall dramatically regularly. As a result, novice traders dupe into panic situations by selling haphazardly. It is vital to understand that cryptocurrencies are a long-term project, and these are not going anywhere. The experts claimed leaving the money for months and years can yield high profits.
You can also read: How to read crypto charts — Everything you need to know
One of the profitable tips for trading in cryptocurrency is to automate purchases. It is where one can take advantage of the pound-cost average. Many cryptocurrencies exchanges, such as Gemini and Coinbase, allow the users to set up recurring buys. It happens when the investors inform the platform to purchase a fixed amount of preferred cryptocurrency every month. This assists in alleviating the stress to take out time to buy at the lowest price and sells at the highest price. It is something even professionals struggle to maintain.
In 2021, trading bots serve as a notable tool in a few circumstances. But it is not prudent for beginners, as often they are scams in disguise. If there is an algorithm, one should time their trading to perfection, and everyone would be using it.
Conclusively, one must remember that this trading market is in its infancy and evolving every day. Though the crypto market is long-term, it is still a speculative market. Investing in this market requires risk-taking abilities. Therefore, it is significant to comprehend the process of crypto trading. Moreover, one must do their homework before investing in particular digital assets. It gives you the best chances of succeeding in the market.
Frequently Asked Questions
- Is cryptocurrency trading 24/7?
Since cryptocurrencies are decentralized mediums and are not dependent on any banking hours, crypto trading is round the clock. However, few online exchanges serve for a limited time.
- Is cryptocurrency trading still profitable?
At the moment, it is uncertain to predict the profitability of cryptocurrencies. The long-term trend seems towards upward progression, but it is still possible to lose large amounts of money through short-term fluctuations in the highly volatile market.
- Has Covid impacted the valuation of coins in the same way as fiat currencies?
Initially, the global lockdown caused by COVID-19 caused Bitcoin valuation against the dollars to plunge. However, in the second quarter of 2020, it began to bounce back to the pre-pandemic price, while the US dollar index tends to get more volatile.
- How many cryptocurrencies are there?
As per CoinMarketCap, the crypto tracking website, there are over 8000 altcoins tokens. But, most of the brokerages and exchanges have numbered cryptocurrencies. These based themselves on-demand generated in the particular digital currency, thus limiting the number.
- How long one should hold the cryptocurrency?
Crypto trading is not a panic buying or selling. This type of investment expects to increase its value over time. It is an investment that needs to be maintained for a minimum of 6 months to 1 year. In some cases, long-term crypto investors plan to sustain the account, for many years.
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