Should You Try Cryptocurrency Trading: Yes or No?
Because cryptocurrency is such a volatile asset, many investors like trading it. Trading cryptocurrency may provide considerably greater returns than conventional investments if you can catch the market correctly.
Cryptocurrency trading often has one of two objectives: to acquire Bitcoin or to earn in USD. In a crypto bull market, it’s very simple for your portfolio’s USD worth to rise, but it’s more difficult for Bitcoin’s value to rise. To monitor the Bitcoin value of your portfolio, you may trade altcoins against Bitcoin. Remember, even if you have a voracious risk appetite when you first start out. The crypto market is highly volatile, and overnight collapses are quite normal.
By actively trading your bitcoin, you run the risk of losing it to the market. Due to the volatility of cryptocurrency values, it is very unusual for traders to lose money fast while trading cryptocurrencies. This is why many cryptocurrency enthusiasts just like to hold their Bitcoin on for dear life. Before we deep dive, you should be familiar with cryptocurrency trading meaning. The act of speculating on cryptocurrency price fluctuations via a CFD trading account, or buying and selling the underlying coins through an exchange, is known as cryptocurrency trading.
Why Should you Trade Cryptocurrencies?
When you trade cryptocurrencies, you are speculating on whether the value of your selected market will increase or decrease, without actually owning the digital asset. The following are some of the advantages of cryptocurrency trading in India:
Volatility of Cryptocurrencies
Although the cryptocurrency market is still in its infancy, it has seen considerable volatility as a result of massive short-term speculative interest.
Cryptocurrency volatility is part of what makes this market so fascinating. Rapid intraday price fluctuations may offer traders a variety of chances to go long and short, but they also come with greater risk. So, if you decide to go into the cryptocurrency market, make sure you have done your homework and established a risk management plan.
Market Hours for Cryptocurrencies
Because there is no centralized administration of the market, the cryptocurrency market is typically open for trading 24 hours a day, seven days a week. Cryptocurrency transactions occur directly between people on cryptocurrency exchanges across the globe. However, there may be periods of the outage while the market adjusts to infrastructure changes, often known as “forks.” This is how cryptocurrency trading works.
Cryptocurrency Trading: More Liquidity
The liquidity of a cryptocurrency refers to how fast and readily it may be exchanged into cash without affecting the market price. Liquidity is essential because it allows for better pricing, quicker transaction speeds, and greater technical analysis accuracy.
In general, the cryptocurrency market is considered illiquid since transactions are spread over many exchanges, resulting in very tiny trades having a large effect on market values. This contributes to the volatility of cryptocurrency markets.
Capability to Travel Long or Short Distances
When you purchase a cryptocurrency, you are buying the asset with the belief that its value will rise in the future. However, by trading on the price of a cryptocurrency, you may profit from both rising and falling markets. This is referred to as going short.
Cryptocurrency Trading: Account Opening in Less Time
When purchasing cryptocurrencies, you must do it via an exchange, which necessitates the creation of an exchange account and the storage of the coin in your own digital wallet.
What are the Risks of Cryptocurrency Trading?
The risks of trading cryptocurrencies are mostly associated with their volatility. They are high-risk and speculative, and you should be aware of the risks before you begin cryptocurrency trading in India.
Unanticipated changes in market sentiment may cause rapid and unexpected price movements. It is not unusual for the value of cryptocurrencies to plummet by hundreds, if not thousands, of dollars in a matter of seconds.
At the moment, cryptocurrencies are unregulated by both governments and central banks. They have, however, lately begun to get greater notice. For example, there is debate about whether they should be classified as a commodity or virtual money.
There is no ideal method for preventing technological faults, human error, or hacking.
Cryptocurrency trading entails extra risks such as hard forks or cessation. Before trading them, you should get acquainted with these risks. When a hard fork happens, there may be significant price fluctuation in the immediate aftermath which might not help in accurate pricing from the underlying market.
Should You Invest in Cryptocurrencies or Trade Them?
Before deciding whether to purchase or trade cryptocurrencies, you should carefully examine the differences between the two approaches.
You might be interested in buying cryptocurrencies if you want to be the only owner of the cryptocurrency. Or if you are willing to pay the entire asset value upfront. You might just want to get direct exposure to a single underlying exchange per account. Or you are willing to wait for an exchange account before buying or selling. It might be that You are unconcerned with initial limitations or maximum deposits and are willing to pay extra costs for deposits or withdrawals.
You might be interested in trading cryptocurrency if you want to speculate on the price of a cryptocurrency without really owning it. Or you want to leverage your position so that you just have to pay a portion of the initial cost. There might be a possibility that you want to profit from the tax advantages of CFD trading. Or you want to get exposure to several exchanges from a single account and want to start trading right now. Or it might be that you do not want a maximum deposit limit and do not wish to pay any deposit or withdrawal charges.
Trading Cryptocurrency vs. Stock Trading
Cryptocurrencies trading is often seen as riskier than stock trading, although this is dependent on the stocks or cryptocurrency being traded and how it is traded. Trading penny stocks or options may be just as risky, if not more so, than trading cryptocurrency.
Before you trade cryptocurrencies, you should be informed that you run the risk of losing money to the market. If you really believe in the future of cryptocurrency, investing in it for the long term may be more advantageous than attempting to time the markets.
How to Start Cryptocurrency Trading?
Here are a few recommendations to follow in order to trade intelligently and successfully without suffering huge losses in your transactions.
Cryptocurrency Trading: Begin Small
In April 2021, Bitcoin reached an all-time high of $64,863. However, if you look at its 52-week trend, you’ll see that the alternative currency was also valued at $8,900 earlier this year. It’s no surprise that bitcoin has had an enticing ROI of over 24,000 percent since its debut.
Despite being considered fundamentally stronger, Ethereum, which has an ROI of over 68,000 percent since its inception, did not do any better. Its costs have fluctuated between $1,600 and $4,300 in the past three months. Its 52-week pattern is similar to bitcoin’s, with prices ranging from $219 to $4,362.
These figures may be enticing, but remember to start small and invest just what you can afford to lose, even if you have a voracious risk appetite when you first start out. The bitcoin market is highly volatile, and overnight collapses are quite normal.
Bitcoin, which is now selling at $32,000, has dropped 15.95 percent in the past seven days. Inching closer, Ethereum is trading around $1,900, down almost 21% from last week. Such fluctuations are normal, and experts advise not investing more than 2% of your whole portfolio in cryptocurrencies. Before you get in, it’s a good idea to familiarise yourself with market volatility and dynamics.
For the journey, there’s Bitcoin and Ethereum. Every investor, regardless of risk tolerance, allocates particular portfolio allocations to blue-chip businesses in the market—firms that are reliable, big, and well-known for regularly delivering excellent returns.
Bitcoin and Ethereum are blue chips in the cryptocurrency industry. Sure, it’s tempting to buy relatively unknown cryptocurrencies that become overnight sensations at low prices and profit from their dips and rises, but because bitcoin and Ethereum dominate the cryptocurrency market, there are fewer chances of them being rigged and manipulated, as opposed to other currencies in the league.
Use Reliable Platforms
Due to ambiguous rules in the cryptocurrency sector, there is a lot of opportunities for new crypto outlets to flourish unchecked. However, with this increase has come an increase in the number of fraud and investment fraud.
Using trustworthy platforms with a strong market reputation, as well as having a cryptocurrency wallet can make it easier for you. This wallet, which may be a device or a program, will safeguard your vital information by keeping the public and private keys of your cryptocurrency transactions.
If you want to invest in cryptocurrencies for the long term and do not intend to conduct frequent transactions, a hardware wallet is a necessity since they are very safe. If you’re a regular trader, a software wallet would be ideal.
Cryptocurrency Trading: Keep an Eye on What’s Going on
Elon Musk tweeting about bitcoin, China cracking down on cryptocurrency mining, El Salvador legalizing bitcoin, the RBI clarifying its position, and backing the Supreme Court circular that allowed cryptocurrency trading-all of these are significant developments that have had a significant impact on market movement. Keep up to date on all choices affecting the price of these alternative currencies, both in India and internationally.
Remember to report your income from cryptocurrency trading as well, since the existing IT regulations, despite the lack of specific provisions for cryptocurrencies, do not exclude money received from this source. According to sources, the government may classify them as capital assets rather than money, which would subject them to different tax treatment.
When it comes to cryptocurrency trading patience should be your best friend. While not investing in cryptocurrencies is not a good idea, anticipating fast profits from cryptocurrency is also a bad idea. It has an endless upside, but the disadvantage is that everything you invest in may fall to zero. As a response, familiarizing oneself with the market is critical.