A Beginner's Guide To Trading Cryptocurrencies

Once thought of as an unknown and risky alternative asset, cryptocurrencies have really taken off over recent years. Bitcoin is one of the biggest names out there, but there are now thousands of different cryptocurrencies on the market, and as such there are many opportunities for savvy investors to achieve strong returns by moving into this burgeoning space.

For complete novices that want to move into investing in this dynamic and flourishing asset class, we answer some of the most pressing questions on how you can trade this unique form of currency and really enhance your portfolio.

What Are Cryptocurrencies?

Available under many different brand names, of which Bitcoin is just one, cryptocurrencies are digital assets that can be used on certain online platforms to buy goods and services. Stored in a digital wallet, cryptocurrencies can be spent in a variety of ways, as well as uploaded onto some prepaid credit cards to be used in a variety of different stores, both on and offline.

How Does A Digital Wallet Differ From A Traditional Wallet?

For starters, you can’t put a digital wallet in your pocket and lose it, so a digital wallet is safer than a physical wallet. Digital wallets store the records of every transaction you make, as well as keeping your cryptocurrencies safe. There are several different types of online wallet, each of which performs a slightly different function, but all of them give you access to your cryptocurrencies and keep them secure.

Where Can I Buy And Trade Cryptocurrencies?

There are a number of platforms on which you can trade cryptocurrencies, including the Forex market, where trading works much like it does for any other type of currency.

Cryptocurrencies can also be traded on a range of other platforms, such as social trading site eToro. Such platforms can be a challenge, as they’re unlike other existing trading solutions, so check out this detailed eToro guide by InvestinGoal.com to help you get started.

Why Should I Add Cryptocurrencies To My Portfolio?

Diversification is vital to ensuring that you spread the risk throughout your various investments, so using an alternative asset class like cryptocurrencies can help you to ensure that your money is as safe as possible, particularly in today’s volatile market.

How Are These Assets Valued?

Much the same as physical currencies and most goods or services, the value of cryptocurrencies is determined by supply and demand. When lots of people want a specific type of cryptocurrency, its value rises, whilst any cryptocurrency that isn’t popular will see its value slump. Like any asset, when trading a cryptocurrency, you need to be aware that its value will fluctuate and that there is a risk involved in making your investment, as you could potentially lose your money.

How Did Cryptocurrencies Grow In Popularity?

Initially there was scepticism about the benefits of these assets, but over the years many financiers, celebrities and technology experts have helped to drive them into the public eye. Today there are many different options for those interested in using cryptocurrencies, and you can invest, buy and sell them in a myriad of different ways.

How Do You Prove A Cryptocurrency Is Legitimate?

Blockchain is the technology that underpins cryptocurrencies, and this is how you prove that a cryptocurrency is real and not simply a concept, such as recently uncovered Ponzi scheme scam OneCoin. Blockchain is literally a record of every transaction that’s ever happened to a specific asset. Because of the nature of this technology, these records cannot be tampered with or changed, so you can view everything that a specific type of currency has ever been used for.

What Exactly Is Blockchain?

Defined essentially as the record keeping technology for cryptocurrencies, Blockchain is incredibly complicated, but the concept can easily be understood. Essentially Blockchain is a record of every transaction that has been done with each asset, and it is what Bitcoin and pretty much every other cryptocurrency is built on.

Do Cryptocurrencies Get Taxed?

Like any currency, cryptocurrencies are subject to taxes in some cases, which differ depending on where your portfolio is domiciled. For example, the UK government does not believe cryptocurrencies to be money, but the nature of their use determines whether or not they are subject to tax. Keep yourself informed so that you’re aware of whether or not your cryptocurrency portfolio is subject to tax and are always compliant.

What Other Options Are There Besides Direct Cryptocurrency Trading?

As the popularity of cryptocurrencies has grown, so too has its reach, and there are now a myriad of ways you can invest in cryptocurrency assets, such as by using a cryptocurrency fund. When deciding to move into a new asset class, it’s important that you check out all the options before you commit so that you’re fully informed about what you can do and how you can make the most out of your investment.

Investing in any new asset class is a daunting experience, but with a little perseverance it’s easy to make cryptocurrency work for you.