Crypto trading is a market where traders exchange one cryptocurrency with another or indeed for a fiat currency. They buy and sell coins and exchange their fiat money into crypto money. Since crypto trading is relatively new, you can compare it with Forex trading where fiat currencies are exchanged with each other. Hence, allot of forex brokers offer crypto trading. Read more...
There are many crypto currencies that can be acquired only if you use a major currency like Bitcoin or Ethereum. This is why if you want to contribute to the initial coin networks or want to use blockchain, you’ll need to perform some trades.
One good part about this trading is that you don’t need to be a miner to get involved in the market. Mining needs a lot of time, technical knowledge, energy, and computing power. Not everyone has it. Luckily, you don’t need all that to be a crypto trader.
There are several crypto exchanges and you can buy your coins from this place. You can buy crypto using your fiat currency. Crypto exchanges can be centralised or decentralised.
A centralised exchange will store your funds and allow you to exchange one currency with another. Some popular exchanges are Coinbase and Binance. It’s important to select reputed providers that follow high security standards.
On the other hand, a decentralised exchange is used to remove the middleman and make the trading totally P2P. You can trade with your peers without any middle entities. Some major exchanges are Waves, IDEX, and Bitshares. These exchanges offer more privacy and help you protect your identity. These platforms have smart contracts and you retain all of your cash with your personal wallet, but if you lose your private keys, your funds will be lost forever.
Cryptocurrency Trading brokers
As explained earlier, cryptocurrency trading brokers can either be centralised or decentralised. While most new investors opt for centralised brokers because of their ease of use, experts sometimes prefer decentralised systems as they offer better privacy. If you have already tried a centralised system, you can visit a decentralised broker to see how it works.
Since these brokers or exchanges are places of huge money operations, they are often targeted by hackers. And there have been cases when hackers successfully stole money from these places. You don’t want to go to an exchange where there are no security measures in place. Choose a place that takes your security seriously.
Pros and Cons of Cryptocurrency Trading
Cryptocurrency being one of the most volatile financial instruments in the current times have made many investors rich. But crypto currency trading comes with a set of risks. While some traders made huge unprecedented profits, crypto has also made some investors go bankrupt. In a passage of 10 years and mostly from 2011, it has made the risky investors live their best time ever, but through a rollercoaster ride. There is a huge difference of opinion among the investors about whether to trade in cryptocurrency or not. Here are both the sides of the opinion according to individual insights of the investors.
Advantages
Cryptocurrency is a newbie in the financial market. Being a new financial instrument, no one can track its record to predict the future. But the huge trading volumes indicate the growing interest of the investors in it. Also, many corporations around theworld along with national banks have approved the trading as legal. This shows the positive future of the crypto as a secure trading platform.
Often mistaken as a bubble, but it is a revolution in trading. Cryptocurrency offers a big financial promise and the investors who have recognised its potential in the early stages have derived the most profits. Some experts even predict that cryptocurrency might replace gold as a financial instrument in the coming times.
Wise investors are going to make huge profits. If you can invest and withdraw your investment at the correct time in the crypto market, you can make profits that are larger than those offered by other financial markets.
Financial institutions are recognizing it as a legal tender. Cryptocurrency holders can make online payments with crypto which provides the ground for making it legal. And with the growing number of such people, financial institutes are recognizing it as well. The people who bought Bitcoin a few years back have reaped huge profits and will probably continue to do so in the future.
DISADVANTAGES
Insufficient information for the investors. Since there is not a lot of data and trends available on this financial instrument, trading it is way difficult as you cannot do technical or fundamental analysis. You only have to rely on the market movements at present.
No financial Regulators. Unlike every other financial market, the cryptocurrency market has no regulator to make rules and implement it for trading. This increases the risk of losing money.
This is a market for the risk takers not for the risk-averse investors, at least as of now. Financial experts are slowly becoming positive towards the virtual currency, but have their own conditions laid down. If the investors have an eye and insight for trading crypto, there is provision for big profits.
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Characteristics in the cryptocurrency market
The revolution brought by cryptocurrency market and blockchain technology can only be understood with the clarity of its key characteristics which are as follows.
Decentralized trading. There are innumerable types and number of coins mined by blockchain technology. The whole process is not controlled centrally by any government or financial regulator.
Security is a concern. Online wallets keep your virtual money safe most of the time. But when you link them to cryptocurrency exchanges, the risk of getting hacked is increased. You have online addresses, details of transactions, and other confidential data in your wallet which might get hacked.
Cryptocurrency mining. Mining is done when a transaction is committed to the existing blockchain. This creates new units of the given currency. This is like digging out gold in real life, which is why it’s called mining. Mining needs high computing power to solve complex transactions. Once a transaction is completed and validated, it is added to the blockchain.
No alteration once transacted. It is next to impossible to alter any transaction made in cryptocurrency. Once the transaction enters the public ledger and the other nodes approve it on the network, it is irreversible.
No need to declare your identity. Since it is virtual trading and all the transactions are done through the public ledger, the users and investors need not disclose their identities. The whole system of blockchain ensures complete security of your identity.
Highly volatile market. The cryptocurrency market is known for huge swings in value. This makes many investors doubt its real value. This in turn greatly increases the possibility of losses. While there have been investors who have made millions from Bitcoin, there is no doubt about the risks involved, especially with the new currencies.
A lot of options cause confusion. Bitcoin has become hit in a short period, which has resulted in the emergence of new coins. And with a large number of coins, investors are in a dilemma over which coins to invest in. Since it’s always best to invest in a currency when it’s in its nascent stage, investors are looking for new currencies. But it’s very hard to tell whether a new currency will perform well with time or not.
Cryptocurrency Risks and final Thoughts
Intimidating threats to security. There is no centrally monitoring body to authorize crypto trading. The irreversible transactions and irrecoverable passwords of Bitcoin wallets make it a nightmare for the investors of Bitcoin. On top of that, there is always a risk of cybercrime.
Since you need to buy crypto currency with fiat money, you’ll need to link your bank account or credit card to the exchange to buy the coins. This will open you up to the risk of hacking. Since the crypto market deals with big money, there are hackers lurking around in the corners and it’s very important to be safe.
Decentralization. Because it’s not linked to any government or financial regulatory body, the cryptocurrency domain lacks regulation. Individual investors face a great risk in trading due to this reason. On top of that, cryptocurrencies are not backed by any underlying physical assets.
Registration for the crypto transaction. There are so many businesses and individuals who use cryptocurrency to make transactions. Since there is no jurisdiction related to crypto, the legal status of these transactions is not clear. And since crypto transactions are not regulated, it can lead to scams and other problems. New traders can be lured by fishy platforms that are just out there to get their money. Traders should make sure that they invest in only reliable exchanges. They should also keep their money in trusted wallets.
Final thoughts
With the passage of time, cryptocurrencies are getting immense acceptance among various industries. There are many people who mine coins to gain a sizeable income. There are many cryptocurrencies in the market. While Bitcoin is considered the king of all cryptocurrency, there are also some other popular coins like Ethereum, Ripple, Monero, and Litecoin etc. If you want to trade in these currencies, make sure you understand the pros and cons before you invest.