What are Cryptocurrencies

Cryptocurrencies are a new type of security based on an encrypted digital asset used to facilitate monetary transactions outside of and independently of normal banking systems.

Crypto trading involves a crypto exchange or network that allows you to transfer your fiat or regular money (dollars) into a digital currency. Currently, most traders can only go long or buy crypto and cannot short crypto unless they are trading futures.

Though Bitcoin (BTC) was the first cryptocurrency and is the most popular, several new coins have now entered the mainstream. These are known as “alt coins” and include markets like Ripple (XRP), Ethereum (ETH), and LiteCoin (LTC). But there are many others available to trade out there, and the safety or viability of many of the smaller coins can be a risk. Like any investment, know the specifics of what you are trading.

Generally, your cryptocurrency needs to be stored in a digital wallet in order for you to store, send, and receive cryptocurrency. A digital wallet is simply a software program that lets you view balances and make transactions.

Your digital currency and account numbers are stored in your wallet as a public address that also appears on the blockchain specific to each coin. Simply put, a blockchain is a database that is shared over a network with many, many copies, providing a secure digital record of all transactions.

Why Trade Cryptocurrencies

New Opportunities – Cryptocurrency trading is still relatively new, and new coins are becoming mainstream every day. With all this newness comes unpredictable swings in both volatility and price, which can create opportunities for both big gains and big losses.

24/7 Trading – Unlike most other trading markets, cryptocurrency trading is a constant 24/7. This results in fewer and smaller price gaps that can adversely affect your positions, and surprise news events can be traded as they happen.

No Pattern Day Trading Rule – Traders with accounts less than $25,000 can take solace in the fact that there is no pattern day trading rule.

Volatility – Traders can only make money in the markets if there is movement. Crypto currencies on average are much more volatile than traditional markets

What You Need to Know About Trading Cryptocurrencies

Many crypto exchanges and new coins trade and operate in unregulated environments, which offer few protections or remedies for the consumer if something goes wrong. Therefore, it is critical to choose a crypto trading firm that operates in a regulated environment, with a strong financial position, and a trusted brand.

In order to trade cryptocurrency, you do not have to buy into all the hype that crypto is the answer to the world’s problems or that it will protect you from a monetary system collapse. Cryptocurrency, like any financial instrument, may be a suitable way to diversify your trading and take advantage of short-term or long-term trading price opportunities.

Experienced crypto traders always have a plan before entering a trade. This plan includes how much of a coin or coins to buy or sell, how much risk they are willing to take or how much money they are willing to lose on a single trade.

Understanding the cryptocurrency you are looking to trade is key. What is the basis for the coin? What is the market cap? Has there recently been good or bad news, is any news expected? Always do a Google search and learn as much as you can before hitting that buy or sell button.

Finally, cryptocurrency, Bitcoin only, can also be traded in the futures markets on the Chicago Mercantile Exchange (CME). With Bitcoin futures you can trade both long and short, which may offer opportunities to hedge your position or speculate short.

To learn more about cryptocurrency trading, visit our Resources Page.