Basic features of cryptocurrency trading

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Basic features of cryptocurrency trading
2018-10-11 in CRYPTOPEDIA

2017 was marked by the exponential growth of the cryptocurrency market, the dynamics of which is amazing. Many crypto enthusiasts were convinced that the return on investments in new assets is often more attractive than the results of investing in the shares of the most successful companies. Prospects for obtaining a significant return on investment attract all new participants to the cryptocurrency market, including well-known players in the world of traditional finance.

The risk of cryptocurrencies

Below is a rather entertaining infographic taken from the Visual Capitalist website. It shows the amount in which by the end of last year could have turned into $ 1000, invested in the shares of well-known American companies a little more than ten years ago, in anticipation of the global economic crisis.

It should be noted that the pre-crisis October 2007 was selected as the base period when these shares were traded on the “hays”. On the other hand, it would be much more profitable to buy these blue chips shortly after the global market collapse, for example, in 2008-2009.

Nevertheless, a patient and rational supporter of long-term investment provided that the assets were successfully selected and even if the entry point was not the most optimal, could significantly increase its capital over ten years (at least several times).

The cryptocurrency market makes it possible to achieve comparable profitability in a much shorter period of time (unless, of course, you are not purchased on highs and not panicked during periods of price collapse). For example, the same $ 1000 invested in Bitcoin just a few years ago could also grow dozens of times.

Of course, a comparison of Bitcoin with shares of top companies is not entirely correct – Bitcoin appeared only shortly after the start of the global financial crisis (perhaps, as a kind of answer to it). On the other hand, if a cryptocurrency had appeared a year or two earlier, then its profitability indicators would hardly have been completely different and would have looked equally impressive.

Below is a comparison of Bitcoin with the most profitable shares of 2017:

Other cryptocurrencies demonstrate amazing rates of return. So, over the past year, the second in terms of market capitalization of the cryptocurrency Ethereum has increased tenfold in price.

Thus, it is not difficult to guess why, in recent years, the cryptocurrency market has so attracted institutional investors and is becoming increasingly integrated with the traditional world of finance.

Few will doubt that cryptocurrencies are very attractive as an object of long-term investment, as well as a tool for diversifying a portfolio with various asset classes. However, a natural question arises: why are cryptocurrencies attractive for an ordinary trader who trades on small timeframes?

We list the main advantages of this market for short and medium-term trade.

24/7 strategy

Unlike the traditional financial market, the cryptocurrency market is devoid of many restrictions. So, it is distinguished from the stock market by the fact that it operates 24/7, does not have high barriers to entry, while the trade commissions are relatively small. Since the cryptocurrency market operates around the clock and without interruption, there is no need to close positions at the end of a trading day or week.

Low entry threshold

To enter the foreign exchange market, an investor should have a significant deposit, which is problematic for new traders. Even more capital is required to enter, for example, the securities market (for the American stock market it is from several tens of thousands of dollars). For Bitcoin trading, the minimum possible order is relatively small (usually from 0.0005 to 0.001 BTC, depending on the rules of one or another crypto-trading).

No correlation with other assets.

Cryptocurrencies are also distinguished by the fact that they practically do not correlate with the assets of the traditional financial market. Moreover, during periods of decline in world indices, buyers are often activated in the digital currency market. Thus, more and more investors see “safe haven” in Bitcoin to preserve capital during periods of economic turmoil.

In recent years, even supporters of a conservative approach to investment are increasingly seeking to diversify their portfolio with cryptocurrencies, and at the same time increase the profitability of the latter.

Volatility

Many “dinosaurs” of the traditional finance world are scolding digital currencies for their volatility. However, significant price fluctuations, on the contrary, attract crowds of traders to this market.

It’s no secret that crypto assets are much more volatile than fiat currencies. The latest on the Forex market are trading mostly “with leverage”. For example, when trading liquid currency pairs, say EUR / USD, the volatility will be approximately 2-5% per month. Such a small range of price fluctuations necessitates the use of borrowed funds in trading.

The “trick” of cryptocurrencies is that they can be successfully traded on the spot market, without using leverage and, accordingly, without stop losses, margin calls, fees for using borrowed funds and additional risks.

Bitcoin intraday volatility can be as high as 5, 10 percent or more per day, which is very attractive for a trader.

CRYPTOCURRENCIES
  • bitcoinBitcoin$3,603.15
  • rippleXRP$0.320955
  • ethereumEthereum$119.65
  • tetherTether$1.00
  • eosEOS$2.43
  • stellarStellar$0.105701
  • litecoinLitecoin$30.94
  • cardanoCardano$0.043714
  • tronTRON$0.024169
  • moneroMonero$44.58
  • iotaIOTA$0.306172
  • nemNEM$0.056036
  • dashDash$69.78
  • neoNEO$7.55
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