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A Beginner's Guide to Trading Cryptocurrencies

It is essential to do your research before you start investing in cryptocurrencies.
    LONDON, ENGLAND, February 07, 2018 /24-7PressRelease/ -- Cryptocurrency trading is becoming more and more popular and many investors are jumping on the cryptocurrency bandwagon. However, it is essential to understand that trading cryptocurrencies is not necessarily a 'Get rich quick scheme'. Before you start investing in cryptocurrencies, it is important to do your research. Read our guide and find out all you need to know about trading cryptocurrencies.

What are cryptocurrencies?

Cryptocurrency is a digital or virtual currency that uses cryptographic techniques to secure transactions and control the creation of additional units of the currency. Cryptocurrencies are a digital asset and exist only in an electronic form.

What are the most common cryptocurrencies?

The most common cryptocurrencies are Bitcoin, Ethereum, Ripple, Litecoin, Dash, Monero, and Zcash.

Bitcoin was the first cryptocurrency created and is the most commonly traded. It was developed in 2009. Ethereum was launched in 2015 and it ranks as the second most popular cryptocurrency in the marketplace. Ripple was created in 2012. Ripple behaves like a cryptocurrency and a digital payment network for financial transactions. Litecoin is a similar cryptocurrency to Bitcoin, but quicker and more efficient in processing more transactions at a time. Dash (originally launched as XCoin and then Darkcoin) is built upon Bitcoin's core code with the addition of new features such as privacy and quick transactions. Monero was launched in 2014 and is a cryptocurrency that focuses on privacy and decentralization. It is open-source and accessible to everyone. Zcash was launched in 2016 and provides enhanced privacy compared to other cryptocurrencies like Bitcoin.

What is the blockchain?

The blockchain is a decentralised, digital technology of all cryptocurrency transactions. It is constantly growing as the most recent transactions are recorded and added in chronological order. The first blockchain was developed in 2008 with bitcoin.

Any blockchain will work with a digital currency, also called a token. Transactions between network users are grouped into blocks. Each block is validated by the ledger keepers of the network, known as 'miners', according to techniques that depends on the type of blockchain.

When the block is validated, it is to the chain of blocks and the transaction can be seen by the receiver as well as the whole network. The validation process takes some time depending on the type of blockchain.

How do I get cryptocurrencies?

Buying

Buying cryptocurrencies is all done digitally. You have to create an account on an online exchange that allows you to buy and sell cryptocurrencies. Then you will need to upload some documents to confirm your identity. You can pay with credit or debit cards as well as wire transfers.

You can get the most common cryptocurrencies such as Bitcoin, Ethereum and Litecoin from Coinbase, Kraken and Gemini exchanges. If you want to exchange Bitcoin or Ethereum for the less well-known coins like Ripple, you can transfer your Bitcoin or Ethereum to exchanges like Bittrex, Poloniex or Livecoin.

In addition to these, the major cryptocurrencies can often be traded as CFDs from online forex and CFD brokers. You get the same exposure to the value of the cryptocurrency with CFD trading, but without actually owning it. The advantage of this is that you can trade cryptocurrencies with a broker that you already know and trust, in a familiar environment.

Mining

Cryptocurrency mining involves adding transactions to the blockchain, securing and verifying transactions, and also releasing new currency. When a transaction block is created, the miners process it and take information from it and apply a mathematical formula to it to generate a code.

Miners do not just use transactions that are in a block to generate the code. Additional data is also required for this process. One of these data types is the code of the previous block stored in the blockchain. Each new block then holds the code of the previous block and creates an electronic version of a wax seal. This code confirms that this block, as well as all those that follow, are legitimate.

The reward for mining a block is 12.5 Bitcoins per block.

How can I buy cryptocurrencies?

There are two ways of buying cryptocurrencies: exchanges and P2P.

Exchanges

Most exchanges don't charge you anything to register an account. The more details you provide about yourself the higher your maximum deposit will be and more transactions will be allowed.

You will require a balance in your account in order to exchange your currency for any cryptocurrency available on the site.

There is no limit or fee to hold your cryptocurrency, so you can keep it for life and sell whenever you want. Also, all cryptocurrencies can be split into fractions so you can exchange half the market value of a bitcoin for approximately 0.5 bitcoin.

Even though there are costs for each exchange of money on exchange platforms, they are minimal compared to banking fees.

P2P (Peer-to-peer)

P2P transactions take place online where both parties agree to trade X amount of cryptocurrencies against X amount of currency. This can be done via Paypal, cash deposits to bank accounts or wire transfers.

There are risks with this method as you may get nothing in return for your money.

What is a wallet?

A cryptocurrency wallet is a software program that is used to store, send, receive and keep a record of the balances of cryptocurrencies. Wallets also interact with different blockchains to complete transactions, and store the private and public keys needed to make these transactions.

Trading cryptocurrencies

Trading cryptocurrencies is similar to trading stocks or forex as it works on the same principle of buying low and selling high.

Difference between investing and trading

Investing in any cryptocurrency is quite similar to trading cryptocurrencies. Investing is long-term whereas trading is buying the currency when the price is low and selling it when the price is high in order to make quick profits.

What are the advantages of trading cryptocurrencies?

- Cheap fees and fast exchanges. For each trade, the exchange will take a small percentage as commission for the service they are providing. The fees for transferring cryptocurrencies via wallet payments are cheaper than credit card and bank transfer fees.

- Extreme volatility. When the price of the cryptocurrency moves up, traders can make a profit. Cryptocurrencies often experience large price movements.

- Open all week. Cryptocurrencies can be traded 24/7, anytime and anywhere.

Risks of trading

There are a few risks that you need to understand before trading cryptocurrencies.

If you buy a cryptocurrency assuming that the price will rise and the price falls, you will make a loss if you sell at the lower price.

Cryptocurrency networks, blockchains, wallets and exchanges can be at risk from hackers.

There is a risk with the P2P transactions that you may receive nothing in return after you transfer your payment.

For advice on trading and how to take advantage of investment opportunities, talk to the experts at FXB Trading. Our platform makes it easy to start earning a second income with only a small investment in time and funds needed. The FXB Trading team are on hand to teach its members any aspect of trading that they are interested in, and reveal how they make their living trading the world's markets.


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