Trading online Forex has been around for well over 10 years now. Ever since retail brokers gave clients the chance to trade on their own account, people have been trading from home with the goal of financial freedom.
However, as the large financial institutions controlled the market, they were able to usually make a profit much more quickly than the retail trader
This was the case until cryptocurrencies burst on the scene a few years ago. What first started out as a hobby for computer scientists as they were looking for a truly secure decentralised currency, transformed into a multibillion dollar industry.
Yet, because cryptocurrencies are decentralised, they allowed people to trade on them as a crowd. There were no centralising forces that would manipulate the market.
For you, as an individual, there is no asset that you can trade today that is able to give you the returns of cryptocurrencies.
We will take a look at how to trade cryptocurrencies and make the most of the markets.
But first, lets start with the basics…
What is a Cryptocurrency?
Put quite basically, a cryptocurrency is a digital record of a transaction that is stored on a decentralised ledger called the Blockchain.
It is decentralised which means that there is no central authority that controls the supply or has anything to do with the protocol.
It is also very secure because it uses some of the most advanced principles in cryptography. This makes it immune to hackers.
The blockchain or ledger is immutable which means that it cannot be changed. Hence, everything that is currently on the blockchain is as it will be. It is tamper proof.
When someone wants to send coins to someone else, this can be done really quickly and effeciently. It is broadcast to the network and the transaction is added to the blockchain.
These transactions will take place and completed by the help of computers on the network and do not need a centralised authority to push them through.
If you wanted to buy cryptocurrencies, you would need to make use of a cryptocurrency exchange. These are basically marketplaces that allow you to exchange your Fiat funds for the cryptocurrency.
There are a number of exchanges that you can make use of such as Coinbase, Bitstamp and Kraken. Once you have signed up for the exchange and verified yourself, you can buy the crypto.
If, however, you wanted to trade a derivative instrument on cryptocurrency, you could use an option instrument. Options have a defined premium that you can risk for all of the upside.
There are a number of different option brokers for crypto. These brokers will allow you to enter both CALL and PUT options on the assets.
Which CryptoCurrencies To Trade
This year was indeed a great year for crypto. Nearly all cryptocurrencies rallied extensively and people who had invested at the beginning of the year would have amazing returns.
However, given that there was already such an extensive rally in the value of all coins, which ones have the best prospects for 2018?
When investing in cryptocurrencies, it is important to make sure that you spread your risk. There is indeed unique idionsyncratic risk that may plague certain coins only.
Hence, it could be beneficial to spread your trades accross coins that have different use cases and technology. Below are some examples that you can follow.
Store of Value
As a store of value, there is only really one coin that has demonstrated its use case extensively. That is Bitcoin or the original digital gold.
Bitcoin has been a store of value for a number of people accross the world. For people who live in countries where economic conditons have eaten away at their savings, Bitcoin has been a saviour.
Hence, it would be a great idea to include Bitcoin in your portfolio. There may be a good opportunity early in January as people start to pile into the coins again.
One cryptocurrency has taken the year by storm and that is Ripple. It has risen from below $0.001 to almost $3 by the end of the year.
This is basically a crypto token that will be used by banks in order to facilitate payments.
They have a great use case as they will allow large financial institutions to make payments to counterparts in a mere matter of seconds.
Anyone who has tried to pay someone else in another country using traditional methods of payment such as Swift will appreciate how much a payment system like Ripple can can change that.
Privacy Conscious Cryptocoin
There are also great use cases for coins that are focused on the privacy of the user. Many people are of the view that cryptocurrencies such as Bitcoin are private.
Unfortunately, this is not entirely the case. Bitcoin works because of the blockchain which records all of the payments. Hence, someone can trace your transactions and it therefore places your finances under their scrutiny.
One of the most promising privacy conscious cryptocurrencies now is Monero XMR. This is a really advanced cryptocurrency that relies technical protocols that hide transaction on the blockchain.
Manage Your Risk
Now that you know the best cryptocurrencies to include in your portfolio, you have to make sure that you have proper risk management protocols in place to handle them.
This is why you should never invest more than you can afford and always balance the risk from the downside with hedged instruments such as options and futures.
However, the most important aspect of trading effeciently is making sure that you do not punt. You should always make sure that there is a rationale for your investment.
Good luck with your crypto trading career.