The cryptocurrency trading market has boomed over recent years, quickly becoming one of the biggest drivers of new traders into the financial world. Whether it is Bitcoin, Ethereum, Litecoin, or others, the soaring growth trends and volatile trading patterns provide cryptocurrencies with a renowned reputation.
With cryptocurrency still relatively new to the financial scene, its growth is only predicted to increase in the coming years. Since the potential investment pay-offs are so high, this form of trading is becoming increasingly popular. However, it is imperative that one understands the market before entering it in order to avoid devastating losses.
What is Cryptocurrency Trading?
One way of understanding cryptocurrency trading is by comparing it to forex trading. Forex (or foreign exchange) trading involves trading currencies. For example, the U.S. dollar could be used to purchase an option in euros, which the investor will then sell, hopefully for a profit. Cryptocurrency trading works in a similar way—the investor can purchase a particular cryptocurrency with U.S. dollars, which can then be sold for U.S. dollars.
Cryptocurrencies are very volatile and it is still a relatively small and new market, lacking many of the regulations that are imposed on other financial sectors. This means that the value of a currency can be transformed overnight, bringing with it the potential for huge profits and losses. This is why it is recommended that traders who are new to the market start slowly and build up a portfolio over time, in a similar style to dollar-cost averaging in stock investing. Using a crypto VIP signal service is a perfect risk-reduction option for both novice traders and those lacking the time for constant monitoring, as it constantly watches the market, suggesting the best times to buy and sell.
Types of Cryptocurrency
With over 1,000 different forms of cryptocurrencies on the market, it can be hard to know where to get started.
For those just starting out, it is recommended that they avoid fledgling cryptocurrencies, as they usually have more limited traditional opportunities, making it hard to find a buyer when it comes time to sell. Focusing on one or two established cryptocurrencies will help to ensure a more active market. For example, Bitcoin represents 38% of the market and Ethereum takes up 18%, making either of these a safe option.
Some other forms that are commonly traded but slightly less widely available at the exchange are:
Cryptocurrencies are generated by specialized computers with a method called mining. Since mining requires a lot of processing power in order to produce new coins, the value of these currencies, at least in part, is born in this process. In addition to this, some cryptocurrencies will only ever have a finite number of coins in existence. Bitcoin, for example, is limited to 21 million coins, 17 million of which are currently in circulation.
Cryptocurrency is one of the most exciting trading options on the market, and has been for a while now. With the potential for even the smallest cryptocurrencies to bloom overnight, it offers real potential pay-offs, and this is predicted only to grow and grow.