It’s 2022 and you’re still not sure how to trade cryptocurrency? If not, this is your chance to find out before it’s too late. Read on to learn about cryptocurrencies, the most fascinating type of asset in the world, and learn how to start trading cryptocurrency in 2022 with confidence.
What is digital currency?
Cryptocurrency, a combination of the words ‘cryptographic’ and ‘currency’, or ‘crypto’ for short, is a type of digital asset that has revolutionized the global finance industry. After the launch of Bitcoin, the first ever digital currency, in 2009, it has greatly increased the popularity of both cryptocurrency trading and the development of new digital currencies. In fact, after just 13 years, the total value of the entire cryptocurrency market is over $89 billion and there are now over 10,000 different cryptocurrencies or ‘coins’ in the market.
Although each currency carries some unique features, all currencies have one basic thing in common: they run on a technology called ‘blockchain’. Blockchain refers to a digital record of all transactions (and other information, depending on the digital currency) for a given currency. Blockchain is stored on a decentralized computer network. Decentralization refers to a type of ownership arrangement in which ownership is divided equally across each node (in this case, the computer) in the network, as opposed to centralization, in which a single node owns most or all of the ownership. This means that a copy of the blockchain is stored on every computer in its network and, more importantly, that the currency is not regulated by a central institution, such as a bank or government. You might think, “That is risky. I am happy and trust my bank, so why should I care about cryptocurrency?” The answer is simple: because digital currencies provide their users with many attractive benefits.
What are the advantages of using digital currencies?
First, decentralization avoids most if not all of the costs imposed by banks, making transactions cheaper when using cryptocurrencies. This makes a huge difference to international transfers, which can be very expensive when done through banks.
Second, by allowing things like a supply limit, fixed inflation rate, and loan contracts to be programmed into their own code, blockchain technology automates economic regulation and replaces most banking jobs. Thus, blockchain makes economic regulation more transparent, objective, and effective compared to centralized regulation.
Third, digital currencies provide more security than banks, since blockchain technology is highly encrypted, confidential, and decentralized.
Have we sparked your interest in cryptocurrency trading? Keep reading to find out the practical differences between trading cryptocurrency and other assets to determine if cryptocurrency trading is right for you.
Trade digital currencies in comparison to other assets
So, how is cryptocurrency trading different from other assets?
The main difference is that digital currencies are more volatile than any other type of asset. It is common for a digital currency to fluctuate by up to 10% in a single day. On the one hand, higher volatility carries higher risks. On the other hand, higher volatility allows faster profit taking due to faster price movements. Moreover, unlike other markets, the cryptocurrency market is open for trading 24 hours a day, 365 days a year. As a result, cryptocurrency trading offers much higher profit potential but also carries higher risks compared to other assets.
In terms of technical analysis , trading cryptocurrencies is similar to other assets, so if you already have some experience using technical analysis tools, you don’t have to learn any new theory. However, there is a difference in fundamental analysis: cryptocurrencies are more sensitive to market sentiment and more influenced by social media, especially statements made by cryptocurrency celebrities.
Are you now ready to begin your cryptocurrency trading adventure? Read on to find out the best way to trade cryptocurrency in 2022
How to trade cryptocurrencies in 2022
1. Open an account with a cryptocurrency broker
To start trading cryptocurrencies, the first step is to open an account with a cryptocurrency broker, which allows traders to exchange cryptocurrencies into other assets and vice versa at rates set by the broker.
You can open a digital account here at FBS, on the web and on mobile. The FBS Crypto account offers more than 100 trading instruments: coins, currency pairs, and fiat currency pairs. Moreover, FBS offers excellent conditions for cryptocurrency trading: low spreads, fixed leverage of 1:5, as well as deposits and withdrawals in both fiat (traditional) and cryptocurrencies.
To start using your account, you will first need to verify your identity with a passport or ID card. This helps us prevent fraud and resolve disputes so you can enjoy trading without worry. Once your identity is verified, you will be ready to deposit funds into your account. With an FBS Crypto account , you can make a deposit using a credit card, a broker like Skrill and Neteller, or a digital wallet. If you are not yet ready to invest real money in cryptocurrency, you can always open an FBS Crypto Demo account and practice trading cryptocurrency with virtual money.
2. Choose a trading platform
Once you open an account with a digital broker, you will need to choose a trading platform. A trading platform is a type of software, whose users can buy and sell digital currencies, follow live price charts, receive trading signals, and use technical analysis tools.
The trading platforms you can choose from depend on your cryptocurrency broker. FBS Crypto account is available on MetaTrader5 and our FBS Trader trading platform. FBS Trader is more user friendly and therefore recommended if you are just starting out in cryptocurrency trading. MetaTrader5 contains more advanced technical analysis tools and is therefore suitable for more experienced traders.
3. Create a trading plan
The next step is to create a reliable trading plan to ensure you get off to a successful start in cryptocurrency trading. First, choose the digital currencies you want to trade. For traders, the main differences between different cryptocurrencies are their volatility and popularity. For example, Tether, which is designed to be highly pegged (to move in a similar way) to the US dollar, is much less volatile than Bitcoin, which tends to swing wildly. Moreover, the more popular currencies than others, such as Bitcoin and Ethereum, have higher liquidity (they are actively traded) and are widely accepted on cryptocurrency exchanges.
Another major difference is that some currencies have a limited supply, such as Bitcoin, with a supply limit of 21 million units. Meanwhile, other coins, such as Ethereum, have an unlimited supply but a fixed inflation rate instead. For traders, the difference between limited and unlimited supply is that coins with limited supply tend to increase in value as demand grows over time, as supply cannot adjust to keep up with demand. However, currencies with limited supply also tend to be more volatile and therefore riskier to trade. Therefore, your attitude to risk is also important in determining which cryptocurrencies to trade.
Once you have chosen some currencies to trade, keep in mind that the difference in volatility between cryptocurrencies and other types of assets is much greater than the difference between coins. Therefore, to keep the high volatility of digital currencies under control, your trading plan should follow the principles of risk management . Most importantly, you must set a stop loss or take profit for every trade you make.
Next, choose some trading strategies . A trading strategy is a set of principles that help traders decide when to buy or sell an asset and can be based on either technical or fundamental analysis. To maximize trading success, we recommend using a combination of strategies that cover both types of analysis. Keep in mind that if you are trading with FBS, you can always learn more about trading strategies in the educational section , which is available on the web and mobile.
4. Complete your first trade
Once you have created a solid trading plan, you are finally ready to make your first cryptocurrency trade. To do this, open your trading platform and select the instrument you wish to trade. You will then see the current buying and selling prices. You can then choose your deal size and whether you want to buy or sell. After placing your trade, keep track of your current profit or loss. To close your position, place an equivalent order in the opposite direction.
That’s it, you have now successfully completed your first cryptocurrency transaction! We hope you found this guide useful and are now more prepared for your journey into the world of cryptocurrency.