A Beginner’s Guide To Digital Currency Trading


Cryptocurrencies have only become mainstream in the last decade, so many of us lack the same understanding that we have of traditional currencies. When you want to trade with these digital currencies, it pays to know what you’re doing. You can lose money if you don’t, so read on for our short beginner’s guide on digital currency trading.

We cover what cryptocurrencies are, how they work, how their worth is decided, how you buy and sell them, and then finish with the inherent risks to trading. Digital currencies are traded by brokers and exchanges, click here to see one in action.

Explaining Digital Currencies

First, let’s make sure we all understand what digital currencies are and how they work. They’re better known as cryptocurrencies and they are digital representations of value, which can then be stored or traded through electronic means. They are cryptographically secured, which just means that the data is protected from third parties, adding much-needed security to the currencies as they are traded.

They’re also not centralized, relying on peer-to-peer interactions instead. Trades are transparent on the blockchain, a secure and unchangeable data storage system open to public viewing, while the individual details of each trader are anonymized for everybody’s protection.

Digital Currency Value

Since they are digital assets, there typically isn’t a real-world asset that they’re based on. This means that the value is driven by pure supply and demand, only worth what the trading public agrees that they are worth through transactions. Because of this, they’re unpredictable and hard to value properly. The cryptocurrency market is more volatile than others, which presents more risk but also the possibility of dizzying gains if you hold the right assets.

While cryptocurrencies can be valuable, they’re not legal tender in many countries. This means you may need to pay tax on transactions involving them. Some of the most popular ones, like Bitcoin, are accepted by some private companies in exchange for goods and services.

Bitcoin is the largest digital currency in existence, worth five figures per coin (in USD value). There are thousands more out there, ranging from being worth fractions of cents to four figures. The top five digital currencies make up approximately 80% of the market. This means that most crypto coins are worth tiny amounts. There’s still money to be made, however, as some buy up those cryptocurrencies and hope they’ll advance in one decimal place over time, multiplying their investment.

Trading Digital Currencies

While a lot of modern technology is used to create and transfer cryptocurrencies, trading them has been made easy for the average person. Many stock-trading apps have started to offer crypto trading, like eToro, so seasoned retail traders can join the cryptocurrency action. Most other platforms are dedicated to cryptocurrencies, like Binance, Coinbase, and Coinswitch.

You buy cryptocurrency by creating an account on your chosen platform, putting some money into it, and then using that money to buy the cryptocurrency. You may have to use digital currencies to buy others, for some of the more obscure ones. You can store the currency in your account or you can get a digital wallet to store them long-term.

Selling is as easy as placing the cryptocurrency back in your exchange account and then clicking sell, hopefully when the value has increased and you’ve made some profit! Trades are facilitated through your broker or exchange.

The Risks Of Digital Currency

Trading digital currency comes with added risk. Many compare the current cryptocurrency market to the Wild West because of its lack of regulation, and it’s harder to regulate due to the nature of blockchain and the international trades that happen on it.

They aren’t just risky because of volatility, which can be a great thing if you’re on the right end of it, but they’re also ripe for scams. Since they’re traded anonymously, it’s possible to do something called a rug pull. This is where the team behind a cryptocurrency disappears, disables the ability to sell the currency, or acts disingenuously until nobody wants to buy the assets that you’re left holding.

When choosing a cryptocurrency, you should first educate yourself on what it is and what it wants to do. Many have underlying technologies and goals in mind, which are detailed in their white paper. Read them and make sure there’s an active user community behind the asset with a communicative development team. You should then take a look at its price movements to determine if it’ll get better or worse.

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