Cryptocurrency has continued to gain popularity over the decade globally. Since the breakout and massive price increase of Bitcoin, many organizations, brands, individuals and even countries have developed an interest. Since then, many digital coins have emerged and grown popular and have also been accepted as a mode of payment in some areas.
Cryptocurrencies are digital currencies in form of coins. Crypto trading system operates using the peer-to-peer technology and are created using the blockchain network for maximum security. These currencies are different from the fiat currencies created and issued by the government. The difference between these two currencies is that the cryptocurrency is not tangible. Rather, they comprise data and bytes.
Cryptocurrency does not have a regulating body that oversees its circulation in the economy. Unlike the central bank of a country that has the power to regulate and monitor the flow of fiat currencies, cryptocurrency relies on the peer-to-peer technology that makes use of cryptography and charts.
Although it is not recognized as a legal tender, crypto has had a significant impact on the global economy. Crypto has shown the great potential of turning around the financial landscape of the global economy and this makes it very useful and difficult to overlook. The blockchain technology which constitutes the foundation of crypto has paved way for new investments and the crypto trader have utilized this opportunity to make profits.
What is Crypto Trading?
Crypto trading is the act of placing a trade in a position toward the price direction of a digital currency against the US dollar or against another crypto coin. This implies that a coin is paired against the dollar or against cryptocurrency depending on the popular demand at the moment. An example of a crypto pair is the BTC/USD. This pair means that the Bitcoin is being traded against the US dollar and traded in the crypto network.
Just as forex or stock are traded using the Over-the-counter method, cryptocurrencies can be traded using the Contract for difference(CFD) method. This trading style gives room for great flexibility, allows the trader to have leverage and also gives room for the trader to take long positions as well as short positions.
Blockchain networks are irreversible, distributed accounts that help in managing assets and recording transactions freely. It is a technical structure that allows applications to gain access to smart contract services. Smart contract service is basically a network that initiates transactions and is distributed to each peer node and subsequently records the transaction on their copy of the ledger.
The transactions carried out which include the orders placed, the payment methods and the account of the end user can be tracked using the blockchain network. The blockchain network depends on a decentralized network of end users to approve and document the transactions carried out.
The blockchain network is unique because of its fast mode of delivering transactions straight to the receiver, thereby obsoleting the need for one or two intermediaries. The blockchain network is very consistent and has a 24-hour, seven days a week service delivery. It is a secured network and has stood out as a preferred choice by traders.
Types of Cryptocurrencies
There are hundreds of cryptocurrencies that are currently available globally. We will be looking at a few of these cryptocurrencies. They include;
- Bitcoin (BTC): Currently the most popular crypto coin globally, Bitcoin was first introduced in the year 2008. It became the first ever cryptocurrency introduced globally. Today, bitcoin has become the most valuable coin and also the most traded coin.
- Ethereum (ETH): Ethereum was introduced in the year 2013. It was first proposed by Vitalik Buterin as a means to fast-track transactions. It was built on the original Bitcoin blockchain network and has since grown to become one of the most popular digital crypto coins globally.
- Litecoin (LTC): Litecoin was created to deliver a fast means of verification of transactions just like bitcoin. It was created in October 2011. Recently, litecoin experienced a major setback when it lost millions in the market.
- Ripple Coin (XRP): The ripple coin is designed to fast-track transactions. It is built on the ripple digital network and was first launched in the year 2012. The ripple coin was co-founded by Chris Larsen and Jed McCaleb.
Crypto Trading Strategy
Having understood what cryptocurrency is and the various types of cryptocurrency, it is important to know the strategy you can utilize when trading crypto. Some of these strategies include;
- Day Trading: This crypto trading strategy involves placing a trade and exiting the trade on the same day. Successful day traders bank on technical indicators which help them to know when exactly to make an entry and exit on a particular trade. The day trader tries to limit his trade within a day while he carefully analyzes price fluctuations so as not to incur a serious loss.
- Range Trading: In range trading, the trader relies on experienced analysts who study the market and predict the support and resistance levels in a day. They do this by studying the candle movement over the past hour or day or week.
The resistance level is a point at which the price of a coin might rise to. The resistance price is always above the current price of that particular crypto coin. The support level on the other hand refers to the level below which a coin’s price is not supposed to fall, hence it is always lower than the current price of that particular coin.
- Scalp Trading: Scalp trading strategy refers to an act of using a high trading volume to take a profit. A lot of risks are involved when using this strategy but using an appropriate margin would help you avoid incurring a great loss. The scalp trader takes small profits at every price change and builds his portfolio with these small profits.
- High-Frequency Trading: This form of trading involves the use of algorithms and trading bots. These bots help the trader to make a quick entry and exit from an asset. This form of trading is especially peculiar with advanced traders who have strong mathematical knowledge and computer science.
With these strategies in mind, you can make an informed decision and choose a strategy style that suits you. Remember to always do your personal research on a project before you invest your capital.