Most people have heard of cryptocurrency right now. After success stories of Bitcoin, Ether, and Dogecoin came to light, countless people wondered what it would have been like to have invested early like those that became millionaires overnight. Of course, hindsight is 20/20 and these things can be incredibly difficult, if not impossible to predict. But the success of cryptocurrencies has led many towards wanting to invest themselves in the hopes of catching the next big success story. While the chances of this happening again are probably much lower due to the popularity of crypto trading, it’s not impossible as new crypto currencies are created each day. So, the question is, could cryptocurrency trading be right for you? And how can you get started?
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What Is Cryptocurrency?
First of all, we need to get a solid, basic understanding of what these currencies are. While there are lots of variations of cryptocurrencies, created by different groups, the one prime similarity they share is that they are decentralised, which means they’re not under the control of any one group or individual like fiat currencies are. For reference, fiat currencies are government-issued money like the U.S. dollar and the euro, and these are regulated by governments themselves. Cryptocurrency operates on something called blockchain technology which is very hard to alter or hack and therefore is a really secure way for people to trade that currency between each other without the aid of a middleman like a bank. These currencies are not restricted by international borders either and this makes them globally valuable.
How To Get Started
First things first, you’ll need to decide on a currency to invest in. Actually, it would be wise to choose a few different ones to invest in as this, similar to stock trading, expands your portfolio, providing you with many more opportunities for success. It’s the old adage of “don’t put all of your eggs in one basket”, and this speaks volumes for trading. Spread out your investments and create a sort of financial safety net. Once you’ve chosen a currency to invest in, you’ll want to find a reputable trading platform to make use of, and then it’s time to do some extensive research, especially if you’ve never traded before. Ideally, you’ll choose a platform that also offers a great quality demo account so you can practice trading without risking real money. This both helps you get to grips with the process of trading, as well as giving you hands-on experience with the marketplace. Once you’re confident in how everything works, it’s time to begin investing properly. No matter what, you’ll be learning as you go, and the best way to learn is to do. But stay cautious and be aware that there are certain risks.
Things To Be Wary Of
The volatility of the crypto market means that making actual purchases can be incredibly unwise from a financial and investing point of view. If you were to purchase an item using Bitcoin for example, and then the value of the currency skyrocketed again, you’ve then lost a huge amount of money, whereas if you’d just purchased the item with USD you’d still get to benefit from the increased value of your saved Bitcoins. This sort of defeats the entire purpose of what Bitcoin was meant for and is one of the reasons why you should probably stick to investing in these coins for now. Another thing to be careful of is the tax you’ll have to pay on both gains and losses. It’s important that you confer with an experienced legal team that has strong knowledge of the cryptocurrency phenomenon, like Hodge Bakshi. They can advice you on what you need to be paying due to tax regulations on cryptocurrency in the UK. Avoid getting caught out due to ignorance of these regulations and you won’t experience any nasty surprised further down the line.
Crypto Trading Vs. Stock Trading
There are a number of similarities as well as differences between these two markets and it’s worth going over them to better help you to decide on which would be best for you. First of all, the similarities. The tools for making these trades are very similar, as trading platforms for both stock and crypto have the same needs and goals. When it comes to traders that use technical analysis, which will be explained later on, they’ll use the exact same methods of analysing markets for both stock and crypto. This involves a lot of studying graphs and making trades based on these analyses and predictions. Both use the same method of denoting value, even though cryptocurrencies are their own currency, people still value their worth against fiat currencies. The main difference, however, lies in the volatile nature of crypto trading. It’s a relatively new marketplace and this still sends traders into panics during price swings. Although, in a way, these drastic deviations in value are becoming normalised in the marketplace, making these swings far less concerning than if the stock market experienced the same.
Benefits Of Trading Cryptocurrencies
One of the other differences is actually one of the great benefits of trading cryptocurrencies. The stock market opens and closes at a set time each day, whereas the crypto market is open 24/7, every day of the year. This has led many to use automated systems to keep on top of trades when they’re absent, as there’s technically no rest period where traders can retire and gather their thoughts, ready for another day of trading. You could also say that the aforementioned volatility is a plus too, depending on your general outlook. This volatility has led to some huge windfalls and could potentially lead to more if things stay positive with cryptocurrencies. Another bonus, and quite a big draw for many traders, is that you can do so fully anonymously. Due to the blockchain’s structure, trades can be traced and verified as legitimate, meaning that traders have no need to submit personal data at all if you don’t want to.
Managing Trading Risks
A smart trader is one that understands the risks and how to negate the impact of these risks on their trades. One of the main talking points when it comes to crypto trading is that they’re risky investments but that’s not much different to trading stocks and shares either. There are risks everywhere, especially in finance and investment, but it’s all about identifying those risks and preventing them or at least shielding yourself if things do go wrong. When it comes to crypto, the risks range from legalities, such as new laws and regulations being implemented, hitting the value of those currencies hard, to the entire market taking a nosedive and crashing, ruining millions of investments. Ultimately, you should never invest what you can’t afford to lose, so keep these risks in mind when putting your money into crypto.
Expanding Your Portfolio
As mentioned earlier, investing in multiple different currencies is a wise choice, and works well towards managing risk. If you split your investments between Bitcoin and Ether for example, and the value of Ether plummeted, you’d be able to fall back on your Bitcoin investment and vice versa. Although, it’s worth noting that when it comes to cryptocurrencies, the value of most coins tends to be based partly on the success of Bitcoin at the moment. This may change as other coins gain popularity, but currently Bitcoin is the most well-known and reputable cryptocurrency and therefore traders see it as the backbone of the market.