Bitcoin is more volatile than other currencies

Trading in cryptocurrencies

What is cryptocurrency trading?

First, let's start by clarifying what trading cryptocurrency actually means. It is more than just buying and selling various cryptocurrencies on the global market.

Trading with cryptocurrency rather refers to the practice of speculating on the price developments of cryptocurrencies with the help of a trading account. It also denotes the practice of buying and selling a variety of coins of cryptocurrencies on exchanges in an attempt to make a profit.

Cryptocurrencies trade with CFDs

CFDs or Contracts for Difference is an extremely popular form of derivatives trading that is used in shares- and bond markets has been used for decades. As derivatives, they don't actually refer to the asset (e.g. the stock or the bitcoin) itself. Rather, it is a contract between a buyer and seller that allows the trader to speculate on the price movement of an asset in it Case one Cryptocurrency.

By going "long", one assumes that a certain cryptocurrency will gain in value and one is betting on this result. If, on the other hand, you go “short”, you speculate as a trader that said cryptocurrency will lose value over a certain period of time. To trade cryptocurrency CFDs, leverage is required, which is basically a deposit (called margin). The margin level determines your profits or losses when the CFD transaction is carried out.

Buy and sell cryptocurrencies through an exchange

Unlike CFDs, buying and selling cryptocurrencies through a licensed exchange consists only of actually buying and selling the coins in question. You get ownership of the cryptocurrency that you purchased on the exchange and therefore you own it in full. As soon as you have purchased your cryptocurrencies on an exchange, it can be added to your cyber wallet.

From there you can wait until the currency appreciates in order to sell it on the stock exchange at a later date. But of course you can stick with it as a long-term investment. To successfully trade cryptocurrencies this way, you need to watch the markets carefully and gain a thorough understanding of the factors behind price fluctuations so that you have an idea of ​​when to buy or sell.

Examples of cryptocurrencies

There are many examples of popular cryptocurrencies that are worthwhile to be traded in the global market as CFDs or in other forms. We'll start with an overview of the most sought-after and most traded currencies currently on the market.

Bitcoin

Bitcoin is by far the most traded and most valuable cryptocurrency in the world. In recent years, Bitcoin has made headlines with its ups and downs and is traded on stock exchanges around the world.

Because of the way bitcoins are made up - using blockchain - there are a finite number of them: 21 million to be precise.

When all of them are “mined” from the system, there will be no more bitcoins. To make things even more interesting, the Bitcoin value goes through an automatic "halving" every four years when a certain number of blocks have been mined. This finiteness makes Bitcoin highly volatile and is therefore extremely popular among trades who operate with high stakes.

Ethereum

Ethereum is the native cryptocurrency of the Ethereum platformwho have favourited blockchain technology to create secure smart contracts. It is a decentralized cryptocurrency similar to Bitcoin and is an extremely popular asset in markets around the world.

Ethereum is generally considered to be less volatile than Bitcoin and is therefore preferred by traders who plan for the longer term. While it has real currency value, the greatest value in terms of an asset comes from the fact that it is a decentralized supercomputer that lends resources to app developers for years to come, increasing its value.

Ripple

Ripple (also called XRP) is an exchange network, created by a company called Ripple Labs that uses its own native currency to process transactions. Basically, it processes the global transactions of countless assets using its own native currency, XRP, to keep transaction costs down.

Ripple is one of the cheaper cryptocurrencies. It is generally considered not to be particularly volatile. This is mainly because there is currently a huge range of Ripple Colins available - 43,708,646,822 to be precise. It is an emerging cryptocurrency that is likely to become increasingly popular with traders in the years to come.

Litecoin

Litecoin (LTC) is an offshoot of Bitcoin that uses a different blockchain. It's faster, easier, cheaper, and can handle a larger number of transactions. In the past, Litecoin was referred to as silver and Bitcoin as gold in comparison.

Litecoin may not be that valuable, but it is nonetheless a volatile asset that is well worth owning, selling and trading. Like other currencies mentioned here, Litecoin is a decentralized electronic currency which can be easily purchased from exchanges and stored in a cyber wallet. It's volatile, high quality, and ideal for dedicated crypto traders.

How cryptocurrency trading works

Before setting up your crypto wallet and starting trading, it is important to learn more about how cryptocurrency trading actually works. While there are some similarities to trading assets like stocks, bonds, and gold, a lot of things are also unique.

First of all, you should know that before you can start trading, there are some essential items that you will need. In order to actually store the cryptocurrency that you have purchased, you need a wallet for cryptocurrencies, from which you can choose from a range. Practically every crypto exchange in the world offers its own wallet that can be used.

In addition to the wallet, you also have to create an account and join a crypto exchange. In view of the complex legal arrangements regarding cryptocurrencies in general, a somewhat lengthy verification process often has to be carried out. This takes place before you get access to an exchange and often takes at least several days. As soon as you are verified, you can calmly start buying and selling cryptocurrencies.

How to sell cryptocurrency

When you own cryptocurrencies, you can usually sell them quickly and easily, based on their current market value, on the exchange you are using. Just open your cyber wallet and select the currency you want to sell.

Often there is a clearly recognizable “Sell” button that enables you to sell this cryptocurrency for a fiat currency such as B. Exchange Euro. These euros will then be added to your wallet and you can transfer this money directly to your bank account. However, there are other ways to sell bitcoins and other currencies if you don't want to use a decentralized exchange.

You can bypass the middleman and sell your cryptocurrency directly to someone else in exchange for money. However, this is associated with its own considerable risks and is not recommended. Alternatively, attend a crypto meeting or conference in your area to find people who are looking for what you are selling.

How to Buy Cryptocurrency

If you want to buy cryptocurrencies, the first thing you need to do is make sure that you have a cyber wallet and that you are registered with a reputable cryptocurrency exchange. Once that's done, you can simply purchase the cryptocurrencies of your choice at their current market value using online exchanges.

You can usually choose from a wide variety of cryptocurrencies to complete the transaction. Some exchanges also allow you to buy one cryptocurrency with another.

These transactions are usually instantaneous, so the purchased cryptocurrency appears in your cyber wallet immediately. As soon as you have bought any cryptocurrency on an exchange, it becomes yours.

Cryptocurrency Terms That You Need To Understand

No matter which exchange you use to buy, sell and trade cryptocurrency, you are sure to come across a lot of jargon. This is especially true for traders who are looking around to find the exchanges and broker platforms that are best for them.

The terms and jargon that govern the cryptocurrency industry are often used to describe the value of different trading methods and currencies. They describe the requirements for different types of trades and the possibilities offered by different crypto platforms and services.

With this in mind, it is imperative that every aspiring trader learn the jargon if they want to move forward. Here are the most important cryptocurrency terms to understand as a trader.

Leverage

Basically a temporary loan that the trader receives from the broker. This enables traders to trade more cryptocurrencies with less capital investment. For example, a trader could invest € 1000 in Bitcoin with 10x leverage. This results in a position worth € 10,000. Leverage amounts are usually capped by regulators and can increase your profits and losses.

Margin

Basically the same as leverage; it describes the practice of entering into a trade using borrowed funds from third parties. Margin allows traders to increase their purchasing power and open new trading positions that are much larger than their “real” account balance.

pip

Pip is an acronym and stands for "percentage in point"; it is usually written in lower case on cryptocurrency exchanges. It is mostly at Forex trading called because fixed pips for cryptocurrencies cannot actually be calculated. Pip is simply the smallest possible unit that can be used to calculate the change in value between two currencies and is usually equal to one hundredth of 1%.

Lot

A lot is a "lot" of cryptocurrencies for a standardized number of units of any asset that is traded. It is used when trading a single unit of an asset would not be profitable. Exchanges determine the size of lots. They are simply a set amount of a certain asset, such as Litecoin, that you can buy and sell with every transaction on this exchange.

Spread

Price range, also known as the spread, is the difference between the purchase price and the sales price that an exchange calculates for a specific cryptocurrency. The purchase price is typically slightly above the market price, the selling price is usually slightly below the market price. The price you choose depends on the transaction you want to make.

Reasons Why You Should Trade Cryptocurrencies

Trading cryptocurrency has a number of advantages over trading assets such as stocks and bonds. Here are the main benefits associated with trading cryptocurrencies.

Totally decentralized markets

Due to their nature, cryptocurrencies are decentralized. Unlike fiat currencies, they are not tied to nations or central banks. This means that trading in most cryptocurrencies is not affected by economic problems that affect trading in other assets, such as inflation or deficits.

security

Trading on a cryptocurrency exchange tends to be a very discreet and secure process. In order to carry out a crypto transaction, you do not actually have to provide the exchange with any confidential information, such as account details. Perhaps that can take away a bit of the security concerns that prevail over other types of digital trading.

Completely limitless trading

Although the legislative landscape for trading cryptocurrencies is a patchwork and differs from country to country, there are actually no restrictions on cross-border trading in cryptocurrencies. No matter where you are, you can trade cryptocurrencies around the world smoothly and instantly.

How to Become a Successful Crypto Trader

To become a successful cryptocurrency trader, one must practice to acquire the skills that some of the best in the industry have already learned. Here are a few tips to get you started.

Demo accounts

In the world of crypto trading, practice makes perfect. Instead of trading with real money and assets straight away, you should first get a feel for trading and open a demo account with a trading app. This way one can see the prices of different currencies fluctuate in real time and learn the best ways to execute trades. Always practice with a free demo account before trading real cryptocurrencies.

Diversification

Another important tip is not to put all your eggs in one basket. It can be tempting to invest all in "flashy" assets like Bitcoin, but that also puts you at greater risk. The more diversified your crypto portfolio, the better you are protected from negative fluctuations in the market and the more you can benefit from positive trends.

The best apps for trading cryptocurrencies

Cryptocurrencies are often traded in real time with smartphones using the most popular apps for crypto trading. Here are the ones you need to know:

Coinbase

The easy-to-use app is extremely popular with beginners and has one of the highest trading volumes of any of the many exchanges around the world. As soon as you have downloaded the app and created an account, you can deposit a fiat currency, buy and store coins and withdraw the coins into your own wallet.

Binance

Binance is a relatively new, mobile app version of the world's largest exchange of the same name. The user-friendly app enables you to use the almost 400 trading pairs and sell cryptocurrencies instantly. You also have an overview of your trading history with other apps.

Changelly

This minimalist but effective trading app allows users to instantly exchange one cryptocurrency for another using a decentralized exchange. The app is great in terms of convenience as you don't have to wait for your deposit to complete a trade. A trade is simply closed with the price at which it is currently standing.

Risks when trading cryptocurrencies

However, there are a number of risks associated with trading cryptocurrencies that all traders should be aware of:

  • volatility - To put it simply: cryptocurrencies are one of the most volatile assets in the world and involve significant risks.
  • Changes in exchange rates - Different exchanges offer significant differences in exchange rates, so always looking around to find a better deal.
  • taxation - Profits from cryptocurrency are taxed more and more often. Not knowing the tax laws of where you live or stay is not an excuse and can be punished.
  • Changes in regulations - The legal situation around the world is changing with regard to cryptocurrencies. What is legal today may no longer be tomorrow.
  • Leverage - While leverage is beneficial, it is also a high risk, as the leverage you use will multiply your losses if a trade does not go well for you.
  • Hacking - Crypto wallets are the target of increasingly sophisticated cyberattacks that have led to the theft of considerable amounts of coins.

That's all a beginner needs to know about trading cryptocurrencies.

frequently asked Questions

Many platforms and exchanges for trading cryptocurrencies can charge a small commission for every trade made. In addition, some platforms charge a fee when withdrawing cryptocurrencies from the wallet. Therefore, always check the terms and conditions for trading fees.

It depends.If the holding period is longer than one year, the capital gain is tax-free. Because afterwards it is no longer considered a speculative business, but that can change again with ongoing profits.

If the exemption limit of € 600 is exceeded and the holding period is shorter than a year, all profits must be taxed. Profits must be reported on the tax return. It should be noted that in Germany, despite the name, cryptocurrencies are not legal tender, and accordingly other rules for taxation apply than for example when trading in shares. If the trade is not carried out on a commercial basis, it is considered a private sale and the tax burden corresponds to the personal income tax rate.

There are no golden rules for trading cryptocurrencies. Every seasoned trader has his own recipe for success that he swears by. The best you can do is do your own research and use the resources available to you to come up with a trading strategy.