Investigating Cryptocurrency Trading
Cryptocurrency is still growing rapidly around the world, even though Bitcoin came out in 2009.
The fluctuations within these currencies is nonetheless dramatic, with their values shifting all time and in large quantities. For an asset, this makes trading on cryptocurrency very exciting and filled with earning potential.
In order to trade on cryptocurrency however, there are certain steps to follow to get started and set up. Once in the mix, it is largely up to the trader how they plan to build their experience and portfolio.
Cryptocurrency trading is a constant endeavour that one must keep working at and growing understanding for to properly capitalise on.
Cryptocurrency is a very unique asset to trade on in the marketplace.
Briefly, let us discuss what exactly this line of assets are that make up cryptocurrency trading South Africa and the world over. Crypto is a completely digital currency and like other currencies around the globe, is affected by many different factors. Being digital, it is even more volatile than standard currency assets and likely why this interest in it for trading has grown.
Crypto is formed through the process of blockchain, whereby it is ‘mined’ to produce individual coins of the particular currency. Essentially, think of blockchain as a giant, complex code and in order to get these coins, a lot of processing power must be tasked with deciphering this code. Once this has happened, each of the mined coins are a part of an interconnected system.
This makes each cryptocurrency a part of a larger community, with all the knowledge of the entire network attached. It also allows monitoring the value and actions that occur within the network very possible. For trading cryptocurrency, this helps because everyone can follow along with these changes in value and assemble their own particular strategies to predict the direction.
Importantly, cryptocurrency is a decentralised asset and is therefore not controlled by a specific entity like normal currencies are with their particular government. This means that there are several factors that play a large role in the values of these assets.
(RVL) It is very useful to be aware of these aspects and how much they might affect these values.
Factors Affecting Crypto Value
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Such a volatile asset is affected by many different aspects from around the world.
Before discussing how does cryptocurrency trading work, let us take the time to look at some of the notable factors that affect the values of these unique digital assets. Understanding what causes shifts in the value of an asset only serves to improve results when it comes to working the market.
- Global Events. As one of the more impactful factors on most assets in the market, current events around the globe are always threatening to shift the values around. Whenever something dramatic happens that could cause a ripple through the marketplace, it generally does. As the prices of some assets shift, they often put pressure on others to do the same. Crypto is extremely susceptible to events such as these because they are completely digital and have nothing to directly pin their value onto. Things like elections, sporting and music events and country economies can all constitute, creating changes in the market in often surprising ways. Keeping up with current affairs is a very useful tool in the traders’ handbook.
- Competition. There are many different types of cryptocurrencies available at the moment and, while bitcoin still tops the lot, each of them are directly competing with each other. This competition causes notable shifts in the market values of each of the currencies, with one crypto’s popularity usually indicating a fall for a different one.
- Regulations. Another surprisingly impactful factor that affects those who trade cryptocurrency is the various regulations surrounding this type of asset. Even though crypto has been around for a while now, there are still many regulatory bodies that have blocked or slowed it progress. When one of these regulations’ lifts, it can cause the values to soar, if more are imposed the reverse is true.
- Amount Available. This is a factor many people might neglect to consider because of the digital nature of these assets. Even cryptocurrency has a limitation on how many individual units can be created. Once all the coins for a particular crypto have been mined from the blockchain network then no more of these can be produced. As we know, a shortage of supply creates an increase in demand.
There are even more factors to consider when looking at the impacts to the value of cryptocurrency.
How Crypto Trading Works
Cryptocurrency traditionally operates as a derivative on most broker platforms.
We’ve considered what crypto really is and looked at some of the factors that determine its value but now let us look at what bitcoin trading and the like even look like. For those traders familiar with how the Forex markets work, the crypto market will seem very similar. However, instead of currency pairs, users will be able to trade on the specific values of these assets.
For the most part, this works through CFD trading. This is called a contract for difference and essentially means that traders are dealing with derivatives of these crypto assets instead of the asset itself. So, instead of actually buying and selling these assets, a trader would be setting up a contract with the cryptocurrency trading platforms South Africa and beyond, based on the value of the asset.
If a trader enters the market at a certain price and expects the value to increase they can then acquire this position, by ‘buying’ it, and if the value of the underlying asset does increase then they can ‘sell’ it back to the broker at the value it is now worth. Making a profit with the difference between the new price and the old price when it was bought.
This is similar to options trading which works off the same mechanic. What this means for the traders learning how to trade bitcoin and others, is that they are tasked primarily with predicting the direction the asset will be moving. If it moves in the same direction as the prediction, buying is an increase and selling a decrease, then a profit is made, determined by the differing values.
It is important to note that with derivative trading there is no actual change of ownership of the asset. This is just trading on the value of the asset through the broker, but with real profits and losses involved. Traders are not trying to buy cryptocurrency, rather negotiate terms on the value of it.
Most trading platforms do very well to demonstrate this situation to the users and allow them to tailor make their experience. The layout and simple design of these brokers allows the actual trading process to be very streamlined and straightforward.
Understanding the rules of how cryptocurrency trading works can give a significant leg up on the market.
Picking an Online Broker
A good online broker plays a big part in a traders’ experience with the market.
One of the most important decisions for traders to make is which bitcoin trading app to use for their cryptocurrency trading platforms South Africa and beyond. For this, it is important to understand what is on offer and how they affect the potential earnings when dealing with crypto assets. Let us run through a list of the possible factors to keep an eye out for.
Variety. This is perhaps an obvious aspect to crypto traders South Africa, but the variety of crypto assets available at the chosen broker is an important factor. This dictates the amount of choice that users will have and how complex they can build their strategies around it. It is also useful to observe as many cryptocurrencies and their changes in the marketplace to see how they affect the others.
Low Deposits. This is an aspect most traders will have an interest in but especially newer ones. The entrance costs for trading and the lowest available investment options plays a role in how and how much one can trade. The cheaper it is to start investing, the more options users have to add variety and build strategic plans to create the most value out of it.
Demo. A free demo is often attached to most top brokers that trade cryptocurrency South Africa and elsewhere, because of how useful it is to the process. Similar to the low deposits, this allows users to run through multiple instances of each trade, carefully constructing the perfect approach to their investing. The more practice, the better one gets at a thing and this definitely applies to trading as well.
Applications. This one may not be as important, particularly to some, but the ability to have the broker application on the phone or tablet is very handy. We are all busy with other things and having access to the marketplace on the mobile is too useful to overlook. It also opens up the option for shorter term trades and multiples of these, with specific focus on the length of each of them.
Support. An often-underrated aspect of crypto brokers, the available support can be the determining factor behind a successful trader and a failing one. A good bitcoin trading South Africa oriented system has access to supporting features and staff that can help guide and even fix problems that may be encountered over the course of things. Even better support teams can provide trading advice and more to help users on their way.
Tools. This is a more obscure and ignored part of many brokers but can also definitely affect the possibilities of users in the marketplace. There is a significant amount of deduction and calculation involved with trading and the more tools around to do just this, the better these calculations will be. Whether it is in the form of charts, tables, graphing tools or more, there are a lot of things that can make working with the marketplace easier.
Payment Services. Finally, it is useful to know which preferences traders might have to certain online payment systems. Different brokers will allow for different services here and for peace of mind and ease of use, it is important that they have the one that users feel the most comfortable operating through. This is the method that will be handling deposits and withdrawals which is a big factor and some platforms even allow deposits and investments with bitcoin.
The key to successful trading is through tried and tested strategy
We are now familiar with this type of trading and what it entails. To properly take advantage of this there are several aspects to focus on while moving forward. Most of these revolve around developing a strategic approach to trading, gearing you up for the marketplace.
The first step is to do your research. Investigate thoroughly the assets you are going to be dealing with and how they have behaved the past. Utilise the driving forces behind crypto that we discussed earlier and develop an intuition towards how the values will change because of this. Follow live news, use indicators and signals to help stay on track and monitor impending changes.
Another important tool to help in this process is to compare similar assets and see how they respond differently in the marketplace. When very similar assets start to differ, this can tell you that there may be a response to this change in the near future. Either from the one making the change or the one lagging behind. When you are more familiar with both you can capture these discrepancies.
We have mentioned the demo account option before. Take advantage of these as much as possible. It is a great way of testing out strategies and learning to react in fast-paced and high-pressure situations.
There is obviously more pressure when real money is on the line so prepare for this and develop a skill for staying as calm as possible during these intense moments. The calmer you are, especially with day trading and similar quick trades, the more likely you will consider your choices more rationally and make the correct decisions in the most critical of moments.
Finally, there is no better way to learn and develop strategy than to just trade. The more familiar you are with the whole process, the more likely you can react in time to make the biggest profits.
The more practice, the more learnt and the greater the chance of success.