There are lots of possible ways and strategies that you can use when looking to make money in the cryptocurrency market, and depending on your intentions, time, and effort, you can apply different strategies today.
Well, keep in mind I’m not a financial investor, but if you haven’t done your research, I recommend you take a deep breath, exhale and go.
Do your research now you’ve already been researching crypto.
There are lots of possible ways and strategies that you can use when looking to make money in the cryptocurrency market, and depending on your intentions, time, and effort, you can apply different strategies. Today, we’re going to look at how you can actually start investing in crypto and What strategies and possibilities you have when investing?
There are some things you need to be aware of and consider before you ever think of actually getting off the starting line.
First things first, don’t trade assets? You can’t lose most beginning traders, and we can all attest to this because we’ve all been there, we’ll lose money, I’m no exception.
I made my mistakes too and have learned from them, and that’s what I want to tell you about make sure that you’re also not too invested.
If this is your first time trading, make sure this is not your only source of income, as it is likely that you are going to lose before you can make the mad gains everyone is talking about.
I feel like your dad here, though, but the general advice is always the same.
It is generally advised to trade.
Smaller accounts you’ve been able to make a profit off of and are comfortable enough to trade into larger amounts. Having all the caveats out of the way, let’s take a look at some of the well-known trading options that you have:
Now the first way is a little risky, maybe more than a little an easy way to punch over your weight is margin trading. This is a method to trade assets borrowed from a third party in traditional markets.
Those additional funds would be lent to you by a broker, but in crypto, those funds are usually provided by other traders through platforms designed to offer such services as margin trading.
Lets you leverage your position in trading terms.
This basically means you can begin the profits that you would usually have on a given trade.I know that’s not a word.
Just like a lever multiplies any force applied. You can create those leveraged positions at different rates. Just like you can use a longer wrench to apply more force, but I know most of you guys are still getting your dad to do your car work.
You can actually borrow sometimes up to 100 times what you have to trade with using a leveraged position.
You can then enter trades without having to front that much capital.
So how does this work? Well, let’s say that you are entering a 10 times leveraged position with a margin of 100, meaning that you enter a total position of 1,000.
Should the price of the asset you’re trading on go down to 10? That would be covering your entire margin. That means that if the price goes down any lower, it would be eating into the borrowed funds and not into the margin.
Any insane lender would not risk their assets on your behalf, so your position is liquidated to be able to have the needed funds to repay the lending party, and your position is closed.
Liquidation in this manner usually does incur fines, and, given that you can lose more money than you initially invest, these can be relatively risky.
You can see how leveraged trading works here.
The amplification effect does work both ways as you amplify your losses as well, leading to the possibility of going over your margin, and you can be at risk of liquidation.
Now, let’s look at derivatives and the typical types of derivatives.
In short, a derivative is a financial asset with a value that is derived from an underlying asset or a group of assets.
Whatever asset is used as a reference point, the core concept is that the derivative product derives its value from it.
A futures contract is a type of derivative that lets you speculate on the price of a given asset at a later date. You basically say that a given asset will be at a certain fixed price at a later date and take a position on it short or long.
A short position is when an investor buys an asset with plans to sell it at a later predefined contract price, while a long position means entering a contract to buy the underlying instrument at the contract price at expiration.
So what does this mean?
Well, let’s say that you settle to buy one bitcoin at a price of ten thousand dollars by the end of the year. Should the price of that bitcoin go above that settled price by that date, you will essentially have made a profit.
Let’s just say that by the end of the year, the bitcoin price is at twelve thousand dollars. You will still be buying it for ten thousand dollars.
You will essentially have made a profit of two thousand dollars, while the person that you entered the contract with would have made a loss. Someone always loses these futures contracts can also be bought and sold independently without having to wait for the settlement date to anyone willing to buy them.
Future contracts are typically used as a way to hedge other investments or to lock in profits.
When trading in volatile markets, you can mitigate the risk of a falling price by taking a short future position on the asset. If the price falls, the short position will mitigate losses by providing additional revenue.
Now, unlike the traditional futures contract, a perpetual futures contract does not have the pesky expiration dates or expiry dates, and you can hold your position as long as you like imagine.
You placed a futures contract on buying bitcoin in 2016 when it was worth four thousand dollars, and you said, sure I’ll buy that bitcoin and, let’s say 500 in a day later, given that it’s now worth around 10 000, you could end up with a massive disparity Between the contract and the actual price of the asset, this is where we get into what we call funding rates.
These are rates paid between parties that are meant to keep the perpetual market in check.