In the early days of blockchain, Bitcoin and other cryptocurrencies were only offered for trading on a limited number of exchanges, making it difficult for new investors to enter the space. Today, that’s all changed. There are now a wide variety of platforms for users to trade cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and more!
What is crypto trading?
Crypto trading involves buying and selling digital tokens with the goal of turning a profit. The idea is to buy the tokens at a low price and sell them at a high price. For instance, if you buy 10 tokens at $1 each ($10 total), and sell them for $2 each ($20 total), you’ve just doubled your money and made $10 profit. Unlike traditional markets, cryptocurrency markets are open 24/7 and available everywhere in the world. The value of each crypto is tied to the blockchain network it resides on, and moves based on supply and demand for that particular network. Each token has its own supply dynamics, and demand is influenced by news, hype or even the utility of the token itself.
Types of crypto trading
Cryptocurrencies are known to be volatile, offering high-risk, high-reward opportunities to traders and investors. Some people invest purely based on fundamentals, such as the team behind the project, the industry they’re trying to disrupt, or a ground-breaking product. Others use technical analysis, which is the study of historical market data, including price, volume and other mathematical indicators.
On top of fundamental and technical analysis, every trader needs to decide how often they want to trade. There’s day trading, which involves buying and selling within the same day, or even multiple times a day. There’s swing trading, which is when you extend your entry and exit points to anything longer than a day (weeks, months, etc.). And then you have long-term investing, a strategy which might have you buying a crypto and not selling it until years down the road. A preferred way for many traders to invest over longer periods is through dollar cost averaging, or setting up automatic, recurring buys for a specific asset.
All of these are viable trading strategies, but it’s up to you to decide which is the best for you and your lifestyle. What is your bankroll? Do you have time to sit at the computer for hours each day making trades, or would you rather only check in once in a while? The best traders are the ones who are honest with themselves about what they’re capable of and what type of day-to-day experience they’d like in an ideal scenario.
Diversifying your portfolio
Portfolio diversity is the practice of spreading out your investments across multiple different assets in order to limit your exposure to one particular asset (in this case cryptocurrency), thus lowering your overall risk.
There are different philosophies around diversification for you to consider with your portfolio. Warren Buffett, one of the most successful investors of all time, once said: “diversification may preserve wealth, but concentration builds wealth.” In other words, to spread your funds across different investments will lower your risk, protect your assets, and help you to keep the money you have, but if you want to hit a homerun, the better strategy might be to put most or all of your eggs in one basket and hope you’ve picked a winner.
Both strategies have their positives and negatives. With diversification, you have a lower probability of going to zero, but also a lower chance of making multiples on your entire account. On the other hand, concentration is a much riskier strategy, and one wrong decision could take out everything you own. Similar to deciding a trading strategy, diversification vs. concentration requires you to acknowledge where you are in your life, what your goals are, and what you can afford to lose.
How Cryptocurrency Exchanges Work
Cryptocurrency exchanges allow you to sign up for free and set up a software wallet on a website or app. Whatever crypto you buy and sell are held by the exchange in an account that only you can access and control. Once you’ve verified your identity and connected your bank account, you can start depositing funds and buy whatever cryptocurrencies are available on that particular exchange. On Uphold, the sign up process is quick and easy, and there are hundreds of tokens for you to choose from.
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