It is no wonder that cryptocurrency has attracted traders worldwide: it has the potential to reach $10 trillion in 15 years with a great variety of coin and an almost endless number of crypto tokens out there. However, cryptocurrency trading differs from traditional investment processes such as stock exchanges. Today we talk about what these distinctions are and what to expect when starting to trade cryptocurrencies.
Cryptocurrency volatility is hundreds of times higher than that of securities and fiat currencies. For example, Bitcoin experienced massive growth in 2017, growing from $700 to almost $20,000; that’s a staggering 27,000% ROI in merely 12 months. Such dynamics during the year have never been observed in the stock market.
As a rule, on stock exchanges, the rates change smoothly, and to get substantial profits, you need to trade for significant amounts. In the cryptocurrency industry, it is quite possible with investments of only $500 to earn $5000 in a few weeks (especially when the market is green as it’s now).
Still, the possibility of rapid growth means high risks. Huge volatility can instantly destroy the entire deposit. Success depends on the experience of the trader, the ability to quickly predict the movement of price, and conduct market analysis.
Significance of Technical Analysis
Some experts doubt the usefulness of technical analysis in relation to cryptocurrencies, considering it to be inaccurate in this market due to the high volatility, the small number of regular events, and the lack of historical statistics.
In fact, the rates of digital currencies depend on individual groups of players who pursue different goals and can pump and dump trading volumes dramatically. At the same time, many traders successfully use separate elements of technical analysis to predict the movement of courses when trading cryptocurrencies.
The news-based trading strategy is effective, but the problem is that it is difficult to find hot and relevant news on cryptocurrencies in time. Moreover, there is an issue of fake news specially crafted to spread FOMO and FUD in the market. The best sources of news, in this case, are specialized blogs, forums, and websites, rather than universal news resources of a general subject.
From our side, ROKKEX will integrate News Flash function so a trader can get notifications when something significant has happened on the market; News Flash will also show how one or another event influenced the price of the cryptocurrency.
Peculiarities of Price Formation
One of the remarkable peculiarities of price formations in the cryptocurrency industry lies in the fact that some players deliberately stimulate a sharp price movement. As a result, other market participants, without understanding the situation, quickly engage in the trade and thus contribute to further price movements.
Only by taking into consideration the points mentioned above (technical analysis and news relevance) a trader can benefit from price volatility.
Stock exchanges have trading sessions: timeframes when traders can place orders. Only some of the platforms are providing 24-hour access; nonetheless, they are usually closed during state holidays. This makes planning hard, and this is why many traders prefer not to hold any open positions between trading sessions, closing them, and opening the next day.
A cryptocurrency exchange works 24/7 and instantly reacts to any events. It also means that a trader should have fast access almost all the time, or they risk to miss out on opportunities.
Similarities of Cryptocurrency Exchange and Stock Exchange
- The price is determined by demand. Both on crypto and stock exchange, when someone pays more than the previous person the price goes up. When someone is willing to sell their assets for less, the price goes down.
- An asset is backed up with an idea. Stock is based on the business and currency is based on the idea or the product too. The value in both lies behind the idea to some extent.
- Both are valued in fiat. Some of the investors value cryptocurrency in fiat currencies. However, some believe that there shouldn’t be any centralized party that controls cryptocurrency as it contradicts the ideals of decentralization.
Only by understanding the peculiarities of the cryptocurrency market and taking them into account, one can expect to receive high profits in transactions with digital currencies.
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