Before moving forward in this “exciting career” of cryptos, it is important to have an absolute understanding of how these assets and their technologies work.
Just as with stocks and other markets, this trade can become complex, due to the variety of associated elements; it likewise requires study and understanding. For example, BTC was launched more than 12 years ago as the first crypto-asset, and has remained at the forefront in terms of economic size and positioning. However, a whole industry of other assets have sprouted that can be traded and profited from. All other cryptocurrencies that are not BTC are called “alternatives”, among which Ether (ETH) stands out.
There are many different approaches on how to trade cryptocurrencies. To start trading these assets, it is important to handle a number of knowledge and terms. It is also essential to know the commitment to be made (level of tolerance for mistakes), as well as the regulation that may apply in each country and the decisions that need to be made.
Fundamentals of the activity
Bitcoin’s value is determined second by second, day by day by a market that never sleeps. As a standalone digital asset whose value is determined by an open market, it presents unique challenges around intense oscillation that most currencies do not face. Therefore, it is important for newcomers to have some knowledge of how cryptoasset markets work so that they can safely navigate the markets, even intermittently, and get the most value from their participation in the crypto-economy.
Bitcoin trading can vary in scale and complexity, from a simple transaction, such as cashing out to a fiat currency like the U.S. dollar, to using a variety of trading pairs to profitably ride the market in order to grow one’s investment portfolio. Of course, as a trade increases in size and complexity, so does the trader’s risk exposure.
What do trades consist of?
A trade consists of a buyer and a seller. Since there are two opposing sides in a trade (the one who gives and the one who buys), someone is committed to gain more than the other. In that sense, trading is basically a “win-lose” game. Having a basic understanding of how this particular market works can significantly help you reduce potential losses as well as hone in on potential rewards.
So what are orders?
By agreeing on a transaction amount, the transaction is established (through an exchange) and the market valuation for the asset is created. In its largest segment, buyers tend to set orders at a lower value than suppliers. This creates the two sides of an order book.
When there are more buy orders than sell orders, the price tends to rise, as there is more demand for the asset. Conversely, when there are more people selling than buying, the price goes down. In many trading interfaces, buys and sells are represented in different colors. This is to give the trader a quick indication of the state of the market at any given time.
Setting management “long” means buying an asset and profiting from its upward movement. Conversely, going “short” essentially means giving it up (with the purpose of buying it back if the stock falls below the amount at which it was given up, making some profit on this difference).
How to study the market context?
While it is true that, for the most novice it may seem like a confusing system that only an expert could understand, the reality is that it all boils down to a simple exchange (“someone sells and someone buys”). The totality of active orders only represents a “snapshot” of the sector at a specific instant, however, to understand it requires relentless management to evaluate and reveal certain patterns, or trends, over time, which the trader can decide to act upon. Generally, there are only two propensities to study: bearish and bullish.