In order to understand cryptocurrency, you should also understand the following technologies and principles:
Cryptocurrency utilizes cryptography — the method of disguising and revealing information — to ensure the security of user information and transactions are done safely.
A blockchain is a form of Distributed Ledger Technology (DLT), which is essentially a database spread over multiple operators (nodes, computing devices, etc.)
This is the technology that powers an entire cryptocurrency. It’s essentially a digital ledger that verifies accounts, balances, and transactions.
There are many uses for blockchain outside of financial purposes such as supply chain management, tracking art ownership, and even digital collectibles.
A term related to blockchain that will also be used throughout this article is a node. A node is the individual part of the larger data structure that is a blockchain. Without nodes, the entire system would fall apart.
Cryptography and blockchain help cryptocurrencies create new coins, enforce legitimate transactions, and create a secure system.
Decentralization, as seen with Bitcoin, means that all authoritative power is distributed among all the peers on a network, and there isn’t one individual point of failure.
For example, in order to “hack” Bitcoin, someone would need to hack into at least 51% of the large network of computers responsible for running Bitcoin, which is considered an impossible task.
Cryptocurrency can be sent directly between two people without the need for a broker. These transfers are done with very low processing fees that go to compensate the network, making it possible for users to bypass hefty transaction fees with more traditional payment transfer services.
That means no need for a PayPal, Zelle, or a bank.
- How to pick the best cryptocurrency exchange
- Cryptocurrency deposits and transactions
- Risk Reward Ratio
- Benefits of cryptocurrency Binary Options
- Disadvantages of Cryptocurrency Binary Options
- Cryptocurrency Beginner’s Guide: Day Trading or Investing?
- How Does Crypto Day Trading Work?
- How Investors Buy or Trade Cryptocurrency
- Coinbase Pro
- HitBTC $
- Huobi Pro
- Key Terms in Bitcoin Options Trading
- Strike Price
- What are Binary Options for cryptocurrencies?
- Benefits of Bitcoin and Crypto Options
- Enables you to speculate with more capital than you own
- Your risk is limited to the capital used to buy the options
- Enables you to speculate on price declines
- Enables you to hedge your portfolio at a low cost
How to pick the best cryptocurrency exchange
There are hundreds of cryptocurrency exchanges in the market today. Some are centralized (a company runs them), while others are decentralized (a community runs them). Whichever option you choose comes down to your preferences. But here are a few factors to consider when choosing the best crypto exchange for a beginner:
- Liquidity. This is the number of assets supported as well as the sizes of the different order books. The volume of trades will give you an idea of the popularity and the reliability of the exchange you are considering.
- Fees. Knowing the fee structure of a trading platform is important because this affects the kind of trading strategy you choose. Let’s consider that you opt for daily trade or scalp. As we mentioned above, in this strategy, you will need to enter and exit multiple positions in a day to make a profit. This profit is dependent on your trading fees and buys/sell spreads. The lower the fees, the higher the profit margins (given other factors are kept constant).
- Payment options. It would be best if you considered what payment options the exchange supports. This could be credit cards, wire transfers, other cryptocurrencies (crypto to crypto deposits), etc. Some platforms support a wide range of options, while others have limited options.
- Security. This is especially important in cryptocurrency. Do not compromise on this factor. A trading platform needs to have the best security in place to secure its assets and those of its customers. On top of this, there should be an insurance policy for extra assurity.
- User experience. The ease of navigating a trading platform is also a big consideration, especially so for a beginner. You want to find things easily, place orders easily, and keep track of your trades more easily. Typically, centralized exchanges are much more user-friendly as compared to their decentralized counterparts.
- Customer support. Even though a trading platform seems easy to use, it is also important to consider how easy it is to reach the help care desk. You can check Reddit and other relevant places to read reviews about a platform’s customer support efficiency. This may come in handy when you have an issue.
Cryptocurrency deposits and transactions
Some brokers are currently accepting Bitcoin as a deposit method. They allow traders to deposit, trade, and receive Bitcoin payments. The leading broker offering this service is Quotex.io. The company accepts 15 different cryptocurrencies including Bitcoin, Ethereum, and DASH as funding methods. If you are learning Bitcoin trading, you have probably come across companies like Trade Rush that offer binary options trading for Bitcoin.
(Risk warning: Trading involves risks)
Risk Reward Ratio
Most critics of the legitimacy of binary options trading usually refer to the risk-reward ratio that traders face when trading in this market. On platforms like Option.FM, traders can earn up to 91% of the trades they put on the market. This is one of the highest income levels in the industry. This profit means that if a trader trades $100, he can earn $91 if the guess is correct. But if you make a mistake, you lose $100. Your risk outweighs the potential reward. For this reason, most critics classify binary options as game derivatives.
However, critics do not realize the simplicity of binary options trading and the possibility of repaying the profits in a short period of time. In binary options, traders earn a certain profit if the closing price of an asset is above or below (even partially) its strike price. In other markets, such as forex, profit depends on how far the asset price moves from the strike price. In these markets, traders need to perform more accurate and detailed analyses than binary options. When the market is less volatile, traders in this market will have a worse risk-reward ratio than the binary options market.
Binary options allow traders to return profits faster than in other markets. On platforms like Option.FM, traders can trade contracts with expiration dates of up to 30 seconds. This gives traders the opportunity to make money in a short amount of time. It is impossible to make a huge profit in such a short time in other markets.
Benefits of cryptocurrency Binary Options
It is not necessary to know the exact value of the cryptocurrency at the end of the option, only if it has increased or decreased. You don’t need extensive trading knowledge to participate in Bitcoin’s binary options. The payout can be 88% ROI.
Disadvantages of Cryptocurrency Binary Options
As you may have noticed, binary options in cryptocurrencies are similar to easy play. If you study binary options in detail, you will find that trading platforms always have an advantage over investors (you need to earn more than 50% of your time to keep your budget balanced).
Due to the unpredictability of binary options for cryptocurrencies, in many countries, there are strict rules about who can carry out these activities, so it’s a good idea to check if the exchange you want to trade binary options for cryptocurrencies is regulated. Also, cryptocurrency options, just like games, can be very addictive, and no matter how knowledgeable you are, it is impossible to consistently predict what cryptocurrency prices will be in the short term.
Cryptocurrency Beginner’s Guide: Day Trading or Investing?
Cryptocurrency Beginner’s Guide: There are two ways you can handle your coins – you can day trade them or hold them as an investment. This is an important decision you want to make at the very beginning of your venture. Let’s see what the difference is:
How Does Crypto Day Trading Work?
This means basically that you buy different cryptocurrencies and try to sell them at a higher price in a short timeframe. This needs much training and knowledge in technical analysis and fundamentals.
You will need a trading plan. Many coin owners are day trading without even knowing it. It is a bad idea to use Facebook groups for example to read about this or that coin, sell at a loss to buy into another coin, and so on.
Your funds will be bleeding in the long run. You will find much better information with crypto signals. You might want to have a look into our selected Crypto!
How Investors Buy or Trade Cryptocurrency
Purchasing cryptocurrency has become a user-friendly process in the past year, with popular financial companies such as Robinhood and Square Cash jumping on board.
Here are a few alternative ways that investors currently buy or trade cryptocurrency to help boost your cryptocurrency IQ.
Coinbase built its reputation as a leader in the cryptocurrency exchange space by drastically simplifying how users buy cryptocurrency.
Coinbase has some of the highest exchange fees out of all of the cryptocurrency exchanges, with a 1.49% transaction fee if using a bank account or a whopping 3.99% if using a credit card.
- Advantages: User-friendly interface, a wide variety of cryptocurrencies available
- Disadvantages: Limited countries supported — US only
- Unique features: user-friendly interface and is one of the most popular exchanges online.
- Fees: Coinbase charges a flat fee of 1.49%
Formerly known as GDAX, Coinbase Pro is an offering by Coinbase catering to more intermediate users. Coinbase Pro has more advanced and detailed trading charts and graphs, as well as more trading options.
The transaction fees are worth noting: they range from $0.10 to $0.30 depending on the order size.
Binance is one of the largest cryptocurrency exchanges by volume and by users.
Binance has hundred of different cryptocurrencies, advanced trading features, and robust trading charts and graphs. Binance charges a 0.1% trading fee.
- Advantages: Low fees, wide variety of cryptocurrencies available
- Disadvantages: Limited countries supported
- Unique Features: offers a very large number of cryptocurrencies to trade.
- Fees: Binance charges a fee of 0.1% for all trades.
- Supported Countries: Worldwide except for United States, Algeria, Bahrain, Cuba, Iran, Iraq, Lebanon, Libya, North Korea, Oman, Qatar, Saudi Arabia, Syria, Trinidad and Tobago, Tunisia, United Arab Emirates
- Advantages: High liquidity, wide variety of cryptocurrencies available
- Disadvantages: Does not offer fiat-to-cryptocurrency trading, high fees
- Unique Features: HitBTC offers a variety of features that are not available on most other exchanges. These features include over-the-counter (OTC) trading, a fiat gateway, and a cryptocurrency debit card.
- Fees: HitBTC charges a fee of 0.25% for all trades. The fee decreases as the trade volume increases.
- Supported Countries: Worldwide
- Advantages: High liquidity, a wide variety of cryptocurrencies available
- Disadvantages: Does not offer fiat-to-cryptocurrency trading
- Unique Features: Huobi Pro offers a variety of features that are not available on most other exchanges. These features include over-the-counter (OTC) trading, a fiat gateway, and a cryptocurrency debit card.
- Fees: Huobi Pro charges a fee of 0.20% for all trades. The fee decreases as the trade volume increases.
- Supported Countries: Worldwide
Key Terms in Bitcoin Options Trading
As a concept, Bitcoin options trading can be relatively difficult to grasp, particularly for new traders due to the technical vocabulary that is often used to describe it. Because of this, if you intended to get involved in options trading, or just want to brush up on your investment jargon, then these are the key terms you will want to understand.
If you are bullish on the price of Bitcoin, then you would consider opening a call option, as this will allow you to buy BTC at the strike price, even if the market value is higher. In essence, Bitcoin call options allow you to speculate on the future growth of Bitcoin.
For example, if you buy a call option with a strike price of $10,000 and a 6-month expiration date, you will then be able to buy BTC at $10,000 in 6 months, even if the market value is much higher. You could then go on to sell this 1 BTC at a profit.
If you are looking to short Bitcoin, and believe that its price will go down over the option contract term, then you would want to open a put contract. This will essentially allow you to sell Bitcoin at the strike price, even if the market value is much lower.
In essence, put options allow you to speculate on the decline in an asset’s value. After buying a put option, the more BTC goes down before expiry, the more your option is worth.
For example, if you buy a put option with a strike price of $5,000 and Bitcoin trades below this price at maturity, you will be in the money and will make a profit on the difference in value between the spot price and strike price.
One of the most important terms to consider when purchasing a Bitcoin option is its strike price. In short, the strike price is the price a Bitcoin option holder can buy (call option), or sell (put option) an underlying asset when the option is exercised.
For example, if you have a Bitcoin call option that is “in the money”, then you be able to buy the agreed amount of BTC at the strike price. Conversely, if your Bitcoin put option is “in the money”, you will be able to sell the agreed amount of BTC at the strike price.
An option’s maturity date is also known as its expiration date. This is the last date by which the option must be exercised before automatically expiring. After the maturity date, the seller will no longer have any obligation to the buyer, and the buyer will be unable to exercise his or her option.
Typically options will have a fixed expiration date, this might be 1 day, 1 week or any length of time. If your option is out of the money when expiring, you will lose the amount you paid for the option.
What are Binary Options for cryptocurrencies?
The rise and popularity of binary options and cryptocurrencies have provoked mixed reactions. For many traders, for example, binary options are the perfect speculative product, while cryptocurrencies are a more efficient value proposition than fiat currencies. But for regulators, this is food to watch with a falconer’s eye.
Binary options and cryptocurrencies have several features. Some have come under regulatory scrutiny, while others have caught the attention of traders and investors. As a purely speculative contract, binary options have a validity period of 30 seconds to a month, with a fixed payout of up to 92% of the amount invested in the trade.
A standard type of binary option is to predict whether the price of a particular underlying instrument will rise or fall. However, more types of binary options have emerged, including no-touch, double-touch, and double-touch binary options. For example, a one-touch binary options trade is considered successful when the underlying asset’s fixed price is reached.
Benefits of Bitcoin and Crypto Options
Being a more advanced trading tool does bring a number of benefits that make Bitcoin and crypto options an appealing choice for many traders. Though it may take some time to fully understand, there are plenty of reasons why options should be considered as part of any carefully constructed portfolio, including;
Enables you to speculate with more capital than you own
Just like in crypto margin trading, one of the major benefits of options is their ability to allow you to speculate with more capital than you actually have. This works because options allow you to profit on changes in the underlying asset value, rather than the cost of your position.
For example, rather than buying Bitcoin for its spot price, you can instead by 1 Bitcoin option contract, which allows you to profit from the difference in the strike price vs spot price of BTC.
Your risk is limited to the capital used to buy the options
Unlike some other derivatives, when buying a Bitcoin option, the maximum you can lose is the cost of the option premium. This means that no matter how farout of the moneyyou go, you can never lose more than what you paid for the option.
Because of this, with Bitcoin options, you never run the risk of getting into debt or entering a deficit on your chosen trading platform. This essentially enforces the rule of “never investing more than you can afford to lose”, making it a useful investment medium for less experienced traders.
Enables you to speculate on price declines
As previously mentioned, options contracts come in two main varieties — calls and puts. By buying a put option in a declining market you will be able to essentially short BTC, earning a potentially chunky profit if BTC falls below the strike price.
With Bitcoin binary options, this is reduced to a simple prediction whether Bitcoin will fall to a lower value than its current price. If you are correct, you win a specific payout amount, while risking only the cost of your option premium.
Enables you to hedge your portfolio at a low cost
As with any investment, hedging your risks is always a good idea. With Bitcoin options, this is particularly useful when you already own Bitcoin at the spot price. Buying put positions can allow you to cheaply hedge against a declining market, protecting you from any sudden volatility or crashes.
In addition, since options contracts are typically low cost, relative to the underlying asset price, they remain one of the most cost-effective ways of hedging against your existing investments. As such, hedging with options is one of the most common strategies used by experienced investors.