Cryptocurrencies are huge right now. Most people are familiar with the likes of bitcoin, but there are new crypto offerings emerging all the time. If you had invested $100 in bitcoin back in 2011, you would be very rich by now. But whilst cryptocurrency investment can be extremely profitable, it can also be risky. Here is a quick guide to help you get started.
Investing Vs. Trading
Your first task is to decide whether you want to buy cryptocurrency and hang on to it for a while or start trading on the price. Buying cryptocurrency means you have to pay up front for however many units you want to purchase. Trading is slightly different because you leverage your position, so you only invest a small percentage of your trading position.
Trading in cryptocurrencies is often the preferred option for beginners. You only need a small sum to get started, but the potential profits are higher. There are also tax advantages to trading since you won’t be liable to capital gains tax on your profits, although this may vary according to where you live, so do check to make sure.
On the downside, trading in cryptocurrencies exposes you to higher losses. If you make a bad decision, your losses could far exceed your initial investment.
Set Up a Trading Account
To get started with trading in cryptocurrencies, you need to set up a trading account on a reputable platform such as CMTrading South Africa. Choose a trading platform that offers cryptocurrencies as an option. Because you are not actually buying and selling cryptocurrencies, you don’t need a digital wallet, so setting up a trading account is usually simple.
Research the Market
Whilst there is an element of luck in any form of online trading, the most profitable traders understand the underlying market forces and use this knowledge to educate their decision-making process. Cryptocurrency prices are influenced by a number of different factors, including government regulation, market forces, and media coverage. To be successful in cryptocurrency trading, you need to understand how these influences affect the market.
Start following cryptocurrency prices and see how news coverage and macroeconomic events shape the way prices rise and fall. Once you are familiar with how the market works and you feel confident you can predict likely price trends, it is time to start trading.
A Trading Strategy
It is always best to start off with a demo account. This gives you a chance to test out your strategies without risking any huge losses. Start small and put filters in place to ensure you close out your trading position before losses escalate. Cryptocurrencies are often extremely volatile and sharp price drops are common.
Consider specializing on one particular cryptocurrency. Bitcoin is the best known, but there are more than 1,500 different cryptocurrencies now, with more being developed all the time. The largest cryptocurrencies by market cap are Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH), and Litecoin (LTC). Choose the one that appeals to you and learn as much as you can about it.
Lastly, make sure you understand your tolerance to risk. If you are very risk averse, cryptocurrency trading might not be the best platform for you, but if you are looking for quick gains and you don’t mind exploring new technologies, this is an exciting place to begin your trading journey.