Contents
What is a cyptocurrency?
A cyptocurrency is a currency that is digital with encryption codes that uses set techniques, which are used to regulate the generation of units of currency when verifying funds; when operating independently from a bank.
How Does Cyptocurrency Work?
First, let’s go over the basics and fundamentals of cryptocurrency, and then we will do an overview of the other properties that have made cryptocurrency what it is today.
What a new user needs to know: Cryptocurrency is roughly the equivalent of using PayPal or a Debit Card, except the numbers on the screen represent cryptocurrency instead of that of a regular currency such as the dollar. All a new user needs to do is set up a Coinbase account. (or an account with another broker)
Popular currencies to trade
- BitCoin
- Bitcoin Cash
- Ether
- Litecoin
How does one obtain or trade cryptocurrency?
Cryptocurrency can be obtained most of the same ways other types of currencies can. You can exchange goods and services for cryptocurrency, trade dollars for cryptocurrencies, or you can trade cryptocurrencies for other cryptocurrencies.
Trading is generally done through brokers and exchanges. Brokers are third parties that buy/sell cryptocurrency; exchanges are like online stock exchanges for cryptocurrency.
One can also trade cryptocurrencies directly between peers. Peer-to-peer exchanges can be mediated by a third party, or not. Please be aware that cryptocurrency prices tend to be unpredictable. One should ease into cryptocurrency investing and trading, and be ready to lose everything they put in to their investment.
Tips for Investing in Cryptocurrencies
Use an exchange, not a broker. You’ll save money on fees. Buy and sell with GDAX and not Coinbase.
When you buy/sell using an exchange, try to use limit orders and not market orders. On some exchanges like GDAX, limit orders have lower fees than market orders. On GDAX, limit orders are free as long as they don’t fill immediately. Coinbase charges for limit orders. If your exchange rewards you for using certain order types, aim to use them.
Figure out if you want to go long or short. Are you going short with every penny you have to invest, or are you going to go long with some, and short with some?
Long-term investors will pay a lower tax rate if they can hold for over a year, but as a trade-off, they will have to sit through corrections likely seeing your balance go down 50% plus on paper as often as you see it go up.
Short-term investors can avoid corrections if they are quick, but you’ll owe taxes on the profits from each trade you do along the way.
Consider laddering your buys and sells. In others words, instead of buying or selling everything in one chunk, set incremental buy and sell orders, to buy when the price goes down, and sell when the price goes up.
Remember Cryptocurrency is a 24/7 Global Market. In other words, the market never sleeps. Since you do, consider automating your investing strategy using limit orders, stops, APIs, or trading bots.
You want to be in a coin before it starts its rotation, and then laddering out as its rotation ends. It is almost impossible to spot these trends in advance, but with experience you should be able to spot them as they occur.