Cryptocurrency has a relatively short history, as Bitcoin (BTC), the first decentralized digital coin, was only released in 2009. Within a decade, however, this medium of exchange has grown tremendously. Tens of thousands of cryptocurrencies have been released after BTC, and these digital coins are now considered to be a regular component of a well-balanced portfolio.
In fact, the demand for cryptocurrencies has grown considerably lately. According to a 2021 CNBC survey, 1 in 10 people have invested in cryptocurrency, and 65% of the respondents have gotten into this asset class just last year.
If you’re interested in trading cryptocurrency or investing in it to build your source of passive income, you’re not alone. Still, it’s important to do your research first before you commit a portion of your resources to buying and selling cryptocurrencies. Here are some of the pointers you should remember when trading in digital coins.
Before Making an Investment
It’s important to be fully aware of the risks and rewards of trading in cryptocurrencies before you get started. Compared to stocks and other types of assets, trading in digital coins is considered riskier, yet it also comes with greater rewards. Also, cryptocurrencies occupy a gray area in terms of asset classification, as it’s still fairly new to the scene and the laws in some places have not quite kept up with the technological advances in the financial sector. You need to determine how these assets are considered in your area so that you know how much you have to pay in taxes, if any.
Next, choose the currency you want to invest in. Study your options and choose the coin that piques your interest or shows much promise as an investment. Then, set how much money you want to spend on trading.
Before buying coins, you also need to have the right tools. If you’re buying and selling Monero (XMR), for example, you need to have a Monero wallet where you can store the coins you buy. Aside from this, you should also familiarize yourself with exchanges that specifically deal with cryptocurrencies. Functioning like the NYSE or ASX, these exchanges—which can come in the form of an application or a website—enable you to buy or sell digital coins.
Be careful when choosing crypto wallets or exchanges, though, and make sure you’ve taken a close look at your options before you make a commitment with your money. The cryptocurrency scene has exploded in popularity in the past years, so there are scammers here and there who are taking advantage of other people’s lack of experience in trading.
Buying and Selling Crypto
Now that you’ve chosen a specific cryptocurrency and set up your wallet and crypto exchange account, you’re ready to get started in trading. The first thing you need to do is buy your target coins. You can do this by heading to your preferred exchange and purchasing tokens that belong to major cryptocurrencies, such as BTC, Ethereum (ETH), or Litecoin (LTC), and exchanging these with your preferred digital coin. The tokens you buy should be stored in your chosen wallet, and these will remain there until you choose to use them or sell them to other traders.
Many people who deal with crypto are active traders, meaning they make a profit by buying low and selling high. Others hold on to their currencies for longer terms and sell their coins once they’ve met their financial goals. If you’re more of the former, you must be able to make accurate predictions about the price of the currency you have and sell your coins once the price has reached its peak. If you’re more of the latter, you should invest your money in currencies that show long-term promise and may be more in-demand in the future. It’s also possible to buy and sell using a portion of your crypto coins while saving part of it that you can sell later on once it’s time for you to cash out.
Setting Up Your Stop and Trade Plans
Just like other types of investments, cryptocurrencies should also be used to reach a financial goal. The market is quite volatile, and this can be a bane or a boon for a trader. You should decide on the signs that determine when it’s time to throw in the towel. If your coin’s value drops below a predetermined amount, you can take that as a sign that you should sell to minimize your losses.
In the same vein, you should also set goals for your investment. How much should the currency sell for you to consider that it’s the best time to cash in? Deciding on these numbers can help you make decisions in a timely manner once the value of the coins dips or rises beyond your expectations.
Buying and selling cryptocurrencies is an exhilarating process, as the price of your preferred coinage can dip and rise multiple times in a single day. Also, many cryptocurrencies receive updates from time to time, and this can affect the demand for these tokens. For many investors, this only ups the ante and makes trading in crypto much more exciting. Still, it’s a smart choice to follow your strategy over your feelings when buying and selling crypto—much like how you would when trading stocks and shares.
