Step By Step Cryptocurrency Trading Guide
A Step By Step Cryptocurrency Trading Guide that will teach you the different aspects and considerations to take when buying your first cryptocurrency. Thus, the knowledge you obtain in this guide will be helpful during your journey into the cryptocurrency world and increase your assets. Buying and selling in the cryptocurrency market may seem difficult to someone who has no experience in this field. However, this Cryptocurrency Trading Guide contains important terms and information you will need when starting to trade cryptocurrencies.
It is crucial to know that trading is not a complex action; however, making a profit from these actions can be a challenge. Hence, the reason you must improve your analytical skills, increase your knowledge, and invest only with money you can afford to lose. In addition, you must always do your research to ensure that you take informed actions to improve your success rate and reduce scams.
What are the benefits of investing in the cryptocurrency market?
There are many benefits to investing in cryptocurrency, 8 of which we will describe to you::
- Easy transactions
In crypto markets, you must pay various costs, such as brokerage fees, commission fees, office paperwork, and more. However, in crypto trades, intermediaries are removed, and transactions are made peer-to-peer (P2P), which increases network security and transparency of trades.
- Asset transfer
Cryptocurrency, like fiat currency, is a medium of exchange used to transfer ownership of an asset from person to person. For example, person A can purchase a vehicle from person B by paying with Bitcoin (BTC) or another pre-agreed cryptocurrency. The process takes place in blockchain and helps you perform trades quickly and safely.
- Confidentiality of trades
The best part about investing in cryptocurrencies is that each trade you make is unique to other trades. Therefore, you can disclose and share only part of the information you want with the other party to the trade. Financial history and personal identity are part of it, and traders’ privacy is protected.
- Low-cost trade
In banking trades, you have to pay a fee for all transactions. So, if you have multiple transactions, you will face many trades at the end of the month. However, in cryptocurrencies, miners receive the transaction confirmation fee from the network, and the trader does not pay for the transaction. Only if the trader wishes to have his trade approved by the miners ahead of schedule in the transaction confirmation queue must he pay a fee to the miner.
- Easy access to assets
The Internet allows users to move cryptocurrencies quickly and securely. Therefore, all people who access the Internet can use various blockchain services. However, this easy access to the cryptocurrency market and investments does not mean you should rush into it. Any action into any blockchain service (Cryptocurrency, NFTs, Play-To-Earn, etc.) must be the result of a well-informed decision.
- Preservation of property ownership
If you invest in the cryptocurrency market, you will be the sole owner of your assets.
- High security
Before you click on the Buy or Sell button, remember that It is impossible to request a return or break a transaction that entered the blockchain. Cryptography, consensus, and decentralization principles make blockchain technology immutable and secure. Each new block of information connects to all the previous blocks in a way that it’s nearly impossible to tamper with the chain. In addition, all transactions in a block get validated and agreed on by a consensus mechanism (authorized users), guaranteeing that each transaction is true and accurate. Hence, there is no point of failure, and a user can’t change transaction records.
- Decentralization
Blockchain technology is a database of transaction records. The decentralized blockchain means that only the two parties to the trade, the sender and the receiver, are involved in the transaction process, so no third party controls your trades.
Trader or Investor, which one are you?
Who is a cryptocurrency investor?
Usually, cryptocurrency investors buy and keep the cryptocurrency for long periods. In the cryptocurrency world, keeping cryptocurrency for a long time is also known as HODL, which stands for “hold on for dear life.” Investors are called “HODLers.” Regardless of market ups and downs, HODLers profit from the rise in price and usually make a good profit. The use of fundamental analysis helps the investor make decisions.
Who is a cryptocurrency trader?
The cryptocurrency trader does not keep his trades open for a long time. Meaning the trader tries to make a profit by taking short-term positions. Technical analysis is very useful for this group of cryptocurrency market participants.
What you need to know before entering the market
The cryptocurrency market is a relatively new financial market that started with the advent of Bitcoin in 2009. Cryptocurrencies are virtual, meaning they only exist electronically. Thus, you cannot touch, hold, or see their physical form. If you buy a cryptocurrency like Bitcoin, you will not receive a physical coin because it only exists in a virtual state. Therefore, there is no physical coin in the market, and your electronic wallet information shows your virtual assets. In the above case, you will see the Bitcoin balance of your account in your electronic wallet.
- Market analysis
To buy a cryptocurrency, you must first analyze the prices through charts and tables. Therefore, to make a good profit in the cryptocurrency market, you need to master two types of analysis.
- Technical analysis
To perform technical analysis, you predict the future price of crypto using a series of templates and tools and implement it on a price chart. However, given the past of cryptocurrencies, you can guess their future, which will help you make a profit.
- Fundamental analysis
Typically new blockchain projects such as cryptocurrencies come with a whitepaper that describes their primary purposes and objectives. You can do a fundamental analysis by reading the whitepaper and learning about crypto. Usually, those who want to invest long-term should pay special attention to fundamental analysis.
What are the different types of crypto
When you first start in cryptocurrency trading you are faced with 100s of different types of cryptos. It can be overwhelming so in the next few sections you will look at various types of cryptos.
What is Bitcoin?
Bitcoin and other cryptocurrencies are lines of computer cryptocurrencies with monetary value. These currencies are a form of digital currency created by complex mathematical calculations.
What are Altcoins?
Bitcoin, the world’s first digital currency, is also known as the king of cryptocurrencies. Other cryptocurrencies other than Bitcoin are called Altcoins. In other words, any cryptocurrency other than Bitcoin is Altcoin. Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH), Litecoin (LTC), Cardano (ADA), Aave (AVEE), Stellar (XLM), and Curve (CRV) are among the Altcoins.
What is a Stablecoin?
Stablecoin refers to cryptocurrency, which has a backing, a country’s Fiat currency, gold, or even a company stock. Tether, for example, with the symbol UDST, is a very popular Stablecoin backed by the US dollar. Stablecoin is always worth one US dollar. DAI, USDT, TUSD, USDN, and USDC are among the Stablecoins.
What is a token, and what does it do?
A token in a blockchain ecosystem refers to any asset exchanging and transmitting digitally between individuals. Tokens are created on the blockchain and will have different categories and use based on their properties.
Today, Ethereum hosts most tokens with a variety of unique features. Therefore, another feature in defining a token is a dedicated blockchain, which is also different from a coin.
A coin can be considered a token, but not every token can be viewed as a coin. For example, anyone or any company can generate its token in the Ethereum blockchain. But these tokens are not worth the coins, and their utility as a payment medium can be limited to decentralized applications (dApps). Different methods of using tokens are:
- As a payment method between the two parties to the contract who agreed to pay by the token.
- Ownership of digital assets (property, products, stocks, etc.)
- Accounting for digital operations
- Reward participants in a network
- Ensure network security
- Create entries for additional services
- Provide an enhanced user experience
How to choose the best crypto
There are thousands of cryptocurrencies, and this list continues to grow day by day. Therefore, reviewing all cryptocurrencies takes a long time and is unnecessary. Thus, it would be best you focus on cryptocurrencies with high trading volume, and ranked high would save you a lot of time.
You can identify large and well-known cryptocurrencies if you visit the CoinmarketCap website, for example. There, you can view the cryptocurrencies listed based on the size of the crypto market in question.
source: https://coinmarketcap.com/ Retrieved: February 08, 2022
As you can see, Bitcoin, Ethereum, Tether, BNB, and USD Coin are the top 5 cryptocurrencies in the market, respectively. However, this order can change. You can see the current price and all the required information on this website.
How to make money from cryptocurrencies
The world of cryptocurrencies is full of attractive monetization opportunities and profits. This market is just one of the small and fledgling branches of the big world of financial markets and is still in its infancy. Several thousand different projects, hundreds of thousands of developers, and millions of users and investors worldwide are working in this attractive field.
Ways to make money from cryptocurrencies are very diverse, and we need to increase our knowledge of the capabilities of this field to have a share of this lucrative market.
- The first method – buying and holding
The first and most common way to make money from cryptocurrencies is Buy & Hold for the long term. Most of the major investors in this market buy currencies and keep them for a long time with the aim that such coins will become more valuable in the future and their owners will make a good profit.
- Trading
Trading in the crypto world means buying and selling cryptocurrencies to profit from their price fluctuations. The trader is a vast and tortuous world, yet attractive and money-making, albeit for experienced people.
- Staking
In the staking method, users can help maintain network security and profit by depositing in a network that operates according to the Proof of Stake (PoS) algorithm. The concept of staking is complicated, but the takeaway should be that you will earn cryptocurrency as a reward.
You receive rewards while staking your cryptocurrency, which comes from your participation in the “consensus mechanism” allowed by the project. This mechanism called Proof of Stake (POS) is a way to ensure that all transactions are verified and secured without the need of a bank or payment processor in the middle.
- Provide liquidity on DeFi platforms
Many decentralized financial platforms (within DeFi) operate on liquidity pools and provide various services to users. Participating in the liquidity of these pools is one way to earn money from cryptocurrencies.
The year 2020 is known as the year of DeFi Debt. Ethereum Smart contracts features and the ability to write tokens on this blockchain resulted in the launch of multiple projects. Lending Platforms, Decentralized Exchanges (DEXs), Stablecoins, Yield Farming, etc., were introduced in the field of DeFi. Each introduced new potentials in the infinite field of cryptocurrencies and blockchain technology to users.
- Arbitrage
In arbitrage, traders look for cryptocurrencies with different prices in different markets. You can gain from arbitrage trading by buying in the cheap market and selling in the expensive market. Arbitrage is a unique trading method in which a particular asset is traded on different platforms at different prices to make a profit.
- Mining
The process of validating another person’s transaction by a computer and then adding it to a long, public list called a blockchain that includes other transactions is called “mining.”
Mining is how transactions between users are approved and added to the blockchain public domain. The mining process is also responsible for introducing new coins into the existing stream, enabling cryptocurrencies to operate as a decentralized Peer-to-Peer (P2P) network without needing a central authority.
- Airdrop
Another way is to participate in Airdrop or free token distribution and receive free currency. Many start-up projects use this method to promote and increase their users. By studying the goals and examining the project team, one can predict the future of that network. If the project progresses, the price of the relevant crypto will increase, and the AirDrop participants will benefit well.
What you need to buy cryptocurrency
Valid wallets and exchanges are two things that every person needs to buy a cryptocurrency and should know about them. In the following, we will discuss the mentioned cases in detail.
Wallet
Choosing a reputable wallet for your assets is the first step to getting started in this market. You have a bank account for your Fiat currency assets. A cryptocurrency wallet works like a bank account, and you will need it to send, receive and hold the cryptocurrencies you have bought. You can create one of the different wallets according to your capital.
- Hardware wallet
These wallets are hardware tools that are similar to a standard flash drive. If you have many assets and want to make a long-term investment, a hardware wallet is the best choice for you, although these wallets are relatively expensive. Hardware wallets Ledger and Trezor are two well-known hardware wallets.
- Paper wallet
Paper wallets allow you to print public and private keys that function as your account number in your bank account. And the printed paper acts as your wallet. Because paper storage is not easy, using this type of wallet is not highly recommended. Here are a few wallets:
- BitAddress.org Paper wallet is for sending, receiving, and storing coins.
- Myetherwallet.com is also a paper wallet for storing Ethereum and sending and receiving it.
- LiteAddress.org is a paper wallet designed to store, send, and receive LightCoins.
- Desktop wallet
Desktop wallets are computer programs that you can download from reputable sources. Most desktop wallets are free. If you do not have much capital, software wallets are also suitable. Exodus, Coinomi, and Atomic are among the most crucial desktop wallets.
- Mobile wallet
Mobile wallets are applications that still need to come from reputable sources. Trust Wallet and Matamask wallets are among the most well-known mobile wallets offered in Android and iOS versions.
- Online wallet
Because they run on the cloud, online wallets allow you to access them on any system and from anywhere. However, online wallets have been a target for hackers.
Choose a wallet according to your purpose and investment needs. Do not select any wallet; get one from a reputable source. Blockchain.com is one of the platforms where you can use your online wallet.
Remember that each wallet supports a group of cryptocurrencies. Therefore, you should ensure that your wallet supports the cryptocurrency you have purchased before transferring from the exchange to your wallet.
More about wallets here.
Exchange
What does an exchange do?
Fiat and cryptocurrencies can be bought, sold, and converted in exchanges by any user.
However, these platforms will charge you a fee for the services they provide. Thus, it would be best to consider these costs before trading any cryptocurrency.
Each exchange usually lists a series of cryptocurrencies, listing more currencies over time. Listing cryptocurrency in an exchange means that they have the cryptocurrency in question. Thus if the exchange does not list Bitcoin, you cannot trade Bitcoin from that exchange.
Centralized vs. decentralized exchange
- Centralized exchange
A centralized exchange is an online trading platform and the most common type of exchange for buying and selling cryptocurrencies. A centralized exchange means a reputable person or intermediary handles assets, performs trades, and monitor users’ portfolio. Binance, for example, is a centralized exchange.
- Decentralized exchange
In a decentralized cryptocurrency exchange, individuals can trade Peer to Peer (P2P) without intermediaries and without the need to open an account with an exchange. The operation of this exchange is decentralized, and there is no controlling authority. Uniswap, 1inch, and Sushi are examples of a decentralized exchange.
The difference between centralized and decentralized exchange
In the following, we will express the most important differences between these two exchanges:
- Status of property rights
The most crucial difference between centralized and decentralized exchange can be considered the status of property rights. Because in centralized exchanges, cryptocurrencies are owned by the exchange since they have the private keys. On the other hand, in decentralized exchanges, users’ assets are not held by the exchange since the user owns the private keys.
- Liquidity
One of the most important concerns associated with decentralized exchanges is low liquidity. It will be challenging for you to buy or sell cryptocurrencies during a quick market turn if you use an Exchange with low liquidity. Therefore, using Exchanges with high liquidity would be prudent.
- Security
Given that users’ private keys are not in a decentralized exchange, the possibility of losing their assets reduces significantly. However, hackers can find other loopholes derived from decentralized exchanges’ security weaknesses, leading to the loss of your assets if you provide liquidity and farming.
- Commission
A certain percentage coming from a commission or fee charged by a centralized Exchange will impact your transaction. In contrast, in decentralized exchanges, the value of the transaction does not affect the amount received by the exchange, and a tiny percentage is deducted in each affordable transaction.
- Legislation
Decentralized exchanges, unlike centralized exchanges, are not regulated by lawmakers. However, some governments are currently trying to implement laws in decentralized exchanges similar to centralized exchanges. Given that there are still virtually no exchanges that are 100 percent decentralized, there is a chance that the government will intervene in them.
Important points when choosing an exchange
Things to consider when choosing an exchange:
- Duration of exchange activity (history)
- The volume of daily transactions in the exchange
- The number of trades
- Exchange user feedback
- Check the cryptocurrencies listed in the exchange
Cryptocurrency buying steps
You are the “market maker” if you initiate a buy or sell transaction in an Exchange. Whereas if you take the other side of the initiated transaction then you are the “market taker.” You can deposit money to your exchange account and buy cryptocurrency in various ways, such as transferring money from a bank or vice versa; by selling crypto, you can receive Fiat money and transfer the received money to your bank account.
The steps to buying cryptocurrency from an exchange are summarized as follows:
- Define your business plan and select one of the reputable exchanges based on it
- Connect to a secure Internet network. (Do not use WIFI in public centers)
- Create an account in the desired exchange.
- Follow the steps of personal authentication, including identification documents, bank account, address, contact number, and any other piece of information requested by the exchange.
- Deposit some Fiat currency (USD) to your account through your bank account
- Specify the type and amount of cryptocurrency
- Register your order in one of the markets or Stop Limit sections.
- Finally, it is better to keep a part of the bought crypto in the exchange wallet for minor trades and save the rest in one of the valid cryptocurrency wallets.
Do’s and Don’ts in trading and investing in cryptocurrencies
There are many ups and downs to investing in the cryptocurrency market. You can lose a lot of money without learning and using cryptocurrency training courses. When trading or investing, be sure to consider the following points:
Do’s in trading
- Manage your risk.
- Diversify your capital.
- Take research seriously before trading.
- Have a clear strategy.
- Control Bitcoin movements.
- Plan for your budget.
- Take a long-term view.
Don’ts in trading
- Do not seek guarantees.
- Do not invest without a plan.
- Do not buy crypto without research.
- Do not trade without stopping loss.
- Do not be greedy.
- Do not trade emotionally.
Scams in the cryptocurrencies market
The cryptocurrencies market is a global financial market in which people from all over the world with different levels of information are active. However, this freedom has led profiteers and fraudsters to squander their capital and make huge profits out of the public ignorance of the market.
The best way to avoid scams is to increase your information, use reputable sources to access the platform and tools you need, and not share your information with another person or organization.
Final Thoughts
Hopefully this Step by Step Cryptocurrency Trading Guide has giving you enough information to get you started in cryptocurrency trading. Of course, do not stop here, continue to learn more about cryptocurrency trading and many other exciting subjects. Look around bochica.info for more guides.
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