2021 was a year of change, especially for fund managers. Many institutional investors have taken an interest in crypto-currencies, following their safe haven nature. However, they were not the only ones, as beginners were also affected by this craze. In this universe, one wonders whether to invest in crypto-currencies in the short or long term?
Understand how cryptocurrency works
For the first time in May 2021, the Bitcoin price fell below $34,000. This decline in value is due to new restrictions imposed by China. However, after this incident, the cryptocurrency continues to prevail among investors.
A crypto-currency is a virtual currency characterized by the absence of physical supports. It is not legal tender in any country in the world. It operates independently from banks and governments. Its value is not indexed either to traditional currencies or to the price of gold. It is not regulated by financial institutions or by a central body. However, cryptocurrency can be traded or exchanged like any fiat currency or physical currency. You need some special tools that you can find easily. For example if you want to do ethereum trading, you can click here!
Despite their independence, cryptocurrency transactions are transparent and secure. Blockchain technology is the basis that guarantees their confidentiality and authenticity at the level of the public domain. Before investing in cryptocurrencies and engaging in trading, it is important to understand their characteristics and applications. Cryptocurrencies with a large market capitalization remain in the minority for the time being.
How cryptocurrency investing works
Cryptocurrencies are not issued by a central authority. Their markets are fully decentralized. These virtual currencies are transited from a network of computers. Investors can sell and buy them on a sort of virtual stock exchange. Cryptocurrencies are spread on dedicated wallets.
Crypto-currencies do not come in physical form. It is only a digital proof stored on the blockchain. If an investor wants to sell some of his virtual currencies, he sends it to the buyer’s wallet. The transaction is complete when the sold units are added and verified to the blockchain through the mining process. New cryptocurrency tokens are created as a result of this process.
What is Blockchain?
Blockchain is the digital ledger that serves as the transmission and storage of data in the field of cryptocurrency. It shows the transaction history for each unit of virtual currency. It contains traces of its change of ownership. Transactions in blocks are recorded in chronological order by the blockchain. In order to avoid a breach due to human and computer errors, the blockchain uses very powerful security devices.
Blockchain files are accessible to everyone. However, they are not stored in one place, but are accessible across millions of computers. It is for this reason that these blocks of chains resist change while remaining transparent. Even though the chain blocks are accessible through any computer, they remain linked by cryptography. Their mathematical and computer formulas make it possible to avoid any attempt at falsification. In the event of a fraud attempt, the connection between the blocks is cut. Computers can easily identify sources of tampering.
Cryptocurrency trading, how does it work?
Trading is one of the quick ways if you want to invest in virtual currencies. It consists of trading the movements of a cryptocurrency on a CFD account or buying or selling a virtual currency directly on an exchange platform. Thanks to CFDs, you do not need to have an underlying virtual currency. Your role is to trade the price movements of cryptocurrencies. All you have to do is speculate on the value of a cryptocurrency:
if you think its value will go up, you’ll buy it. You are then positioning yourself on a long investment;
if, on the other hand, you believe that its price will fall, your position should be short. You then opt for the sale.
CFDs are leveraged instruments. In order to benefit from full exposure to the markets, you need to tie up some of your capital. Your gains and losses will then be calculated based on your total position. Note, however, that while leverage increases gains, it also amplifies losses.
How is the buying and selling of cryptocurrencies on exchanges carried out?
When you invest in cryptocurrency from an exchange, you are directly buying virtual currency. To be able to trade them, you need an account. This form of digital currency trading requires the entire position to be locked up. Your tokens are then kept in your wallet until they are resold.
The exchange platforms are different from each other, particularly in terms of their operation. It is therefore important to familiarize yourself with their technology in order to get the information you need. Some of them impose deposit limits while others draw operating fees that are too high.
The Importance of Cryptocurrency Day Trading
Day trading is an investment technique in the field of cryptocurrency. It is highly developed in the United States. The day trader then goes back and forth in order to have a liquid portfolio during closing hours. This aggressive technique consists in making small capital gains thanks to a powerful leverage effect. The investor then multiplies transactions to increase his return.
Before practicing day trading, the investor must have significant liquidity and volatility. The amount of liquidity is defined by the number of trades made on a security during a day. The choice of broker also plays a very big role in day trading. A high brokerage fee on the small variation will not be profitable for your investment. But beyond the cost, the quality of the broker’s service is also a premium.
What to remember about investing in cryptocurrency?
Cryptocurrency is the new investment trend of the moment. The most seasoned already know how to juggle the different tools in order to easily increase their performance. Beginners, on the other hand, have questions about the best ways to invest in cryptocurrency. CFDs are leveraged financial products.
These complex instruments allow you to bet an amount far greater than your capital. This opportunity opens you up to substantial financial gains, but can also expose you to the risk of greater losses. This is why it is imperative for you to master how CFDs work before venturing into them.