5 Things You Should Know Before Trading Crypto
Cryptocurrencies are one part of technology that has been gaining so much popularity. The decentralized finance system based on blockchain technology aims to give more power to people, unlike the traditional centralized banking system that is regulated. Moreover, there have been times when the value of cryptos such as bitcoins has increased, making it one of the most lucrative investment opportunities. However, they’re also prone to decrease in value depending on the market, making them volatile.
With more people embracing blockchain technology and cryptos having a chance of increasing value, there has been a rise in people who trade or buy crypto. Trading or buying and holding are the two main ways of investing in crypto. Crypto trading is the act of speculating crypto’s price movement in a contract for differences or buying and selling of cryptos in an exchange platform. And just like with buying and holding crypto, there are some things that you should know before you start trading. This article discusses some of them below:
You Can Use Trading Bots
Trading cryptocurrencies can be a real problem for beginners as they may encounter losses, especially if they’re not familiar with price movements and the risks involved. They may also get scammed by people claiming to be experts in trading. However, this doesn’t mean that experienced investors always find it easy trading crypto. Every trader can have bad days, only that the experienced ones will know how to cope with such cases.
The best thing you can do to reduce the risks of trading is to use trading bots. These robots collect data about the crypto market and use it to predict wins and losses ahead of time.
Predicting such trends in the crypto market is crucial in rebalancing your portfolio. However, not all trading bots will give you the same results. There are hundreds of crypto trading bots, both free and premium, and so you need to do your research well to ensure you’re not putting your trust in a bot that will not deliver the results you expect.
You Should Do Your Research
One of the most important things you should know is that not all traders will have the same results or view of the market. So, while you depend on the experts’ views on how the market will behave, you shouldn’t treat it as conclusive information but rather an opinion. The best way to learn about the market is to do your research. There are relevant cryptocurrency statistics that can help you learn about the market before investing; such statistics include:
- The market cap of the cryptos.
- The number of people using crypto.
- The number of coins in circulation.
Another important detail you can get through these statistics is all the types of cryptos listed on the different exchanges and their trends. With this data about crypto, you can make more informed decisions.
How To Buy Cryptocurrencies
There are two ways to get cryptocurrencies. You can either mine them or purchase them. If you choose the former, you will need to find a good mining rig and learn how to use it. If you choose the latter, you will need to find a reputable exchange and buy your currency at current market rates.
There are many things to consider when buying cryptocurrencies. This is because there are many fraud cases of people who have lost their money while trying to buy cryptos. The first thing you should know is the type of coins you’re buying. More stable coins such as bitcoins and Ethereum are listed in many exchange wallets, and you can buy directly with fiat currencies. However, other coins can only be bought using cryptocurrencies and not fiat currencies. So, you’ll first have to buy stable coins such as bitcoins and Ethereum, then exchange these coins with other cryptos.
Why You Are Investing in Cryptocurrency
There’s no denying that you can gain a lot from cryptocurrency. However, they are also highly volatile, making them a risky investment. So, the most fundamental question you should ask yourself is why you should invest in cryptocurrencies.
The most thoughtful way to do this is to list the reasons you want to invest – and then compare this against what you expect to get out of your chosen crypto asset. Most people have invested in cryptocurrencies because of the craze and lost money. Suppose your motivations don’t line up with what you reasonably expect. It might be best to hold off on buying until your expectations change or your motivation is satisfied by another investment.
Gains From Cryptocurrencies Are Taxed
The internal revenue service (IRS) treats all cryptocurrency transactions as taxable events. The taxes are due whenever you recognize a gain. This happens when you sell, trade, or dispose of your cryptos. Buying crypto isn’t a taxable event, but when you start trading, then the short-term gains will be taxed as normal income. However, if you hold your cryptos for more than a year before selling, they’ll be taxed as a long-term gain which is less than a short-term gain.
Crypto trading is a good investment and can gain you a lot of money if you study the market right. However, it’s important to note that it’s a tricky investment as you have to understand how to buy and sell, learn about the exchanges, the tax implications, and how to trade. Once you have all the information, trading will be much easier.