Cryptocurrencies are one of the hottest trading/investment instruments right now, but they can also be quite dangerous if you don't know how to trade them properly. Bitcoin, Litecoin, Monero and Ethereum are several good examples of popular cryptocurrencies, but there are plenty of other cryptos out there too, and each one offers great opportunities if you know how to trade them correctly. So if you're interested in trading crypto for the first time then here's what you need to know.

 What is the Most Important Thing That You Should Know About Trading Cryptocurrencies? 

The Answer: Volatility. The cryptocurrency market is generally very volatile, and this is particularly true in 2018. Prices are just as likely to go up as they are to go down, and so trading at this point in time is a lot like gambling, especially if you don't know what you're doing. 

Volatility refers to sudden changes in the price of a financial instrument. For example, if Bitcoin's price appreciates by 10% in two hours of trading but loses 12% in the next three hours then Bitcoin = in this particular period - can be said to be very volatile. This may be an extreme example, but this sort of scenario happens all the time in the crypto markets, and you should prepare accordingly if you want to trade.

Now, It's true that there's a lot of money to be made in the cryptocurrency market, but the opposite is also true. You can lose thousands of dollars in a few minutes of trading if you make the wrong call, and this is true for all cryptocurrencies, and not just the minor ones. So if you have no experience trading financial instruments, you should probably avoid crypto trading until you have developed your system and your instincts to the point that you can minimize your losses. 

How Do You Pick The Right Crypto? 

Crypto trading does not require you to study blockchain technology or any of the technical aspects of cryptocurrencies. What matters is the value and popularity of the crypto you're investing in, and whether or not it actually offers returns on investment. 

For example, if you want a crypto that that has long term value, look at its market capitalization. Bitcoin and Ethereum have market caps of over $100 billion each. These cryptos may lose value every now and then but their long term trajectory is up because their market caps are constantly growing. 

Another factor that you should consider is "transactions per second," since that's a good indicator of how many people are using it for actual purchases every second. For example, a crypto that claims to have a million transactions per second clearly has a lot of users, and is likely to gain value over time. 

Finally, you should learn to read and understand charts. Technical analysis or the study of chart patterns will help you anticipate the long and short term trend of different types of cryptocurrencies, which in turn will help you pick the right time to buy or sell your cryptocurrencies. 

How Does Cryptocurrency Trading Work? 

Crypto trading is no different from trading other types of financial instruments. You buy a certain amount of cryptos then wait for it to rise (or fall - if you're shorting) in value then take profit once it reaches your target price. 

Before you can start, though, you will need to get acquainted with the crypto-exchange market as well as the various brokerage firms that will facilitate your transactions. You will also need learn about the how crypto traders operate, how they behave and how they formulate their trading plans.

This is why you should never trade cryptos (or any other financial instruments) without a trading or investment plan. Without a plan, you will not be able to respond dispassionately to sudden changes in the crypto market, which means that you will not be able to manage your risk, limit your losses or maximize your profits. A crypto trading plan will also allow you to understand how long you should hold a particular crypto and when you should sell it. 

Finally, you should be aware of miscellaneous factors, like trading fees, rules for leveraging and account maintenance. Once you have all these issues taken care of, and you understand how crypto-trading works, you can start trading crypto-coins

Published by Lucy Jones