Tuesday May 1, 2018 - 15:00:24 GMT
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Buying or Trading Cryptocurrencies?
This article aims to explore the differences between buying and trading cryptocurrencies. After which you should be able to decide which method is the most suitable for you.
When you buy the cryptocurrency you actually own the cryptocurrency. In order to do this, you must first put forward the full amount of the value of the cryptocurrencies that you purchased. Importantly you will need to buy and sell via an exchange. In order to do this, you must first create an exchange account and then you must store the cryptocurrency somewhere most likely in a wallet.
Bear in mind that opening an account with an exchange can be slow, as you will most likely be joining a queue of people which require manual approval. The chances are there will be restrictions on deposits and possibly withdrawals. Furthermore, you will probably incur charges for deposits and withdrawals.
Owning the cryptocurrency and storing it, leaves you open to theft. Security remains a huge problem for cryptocurrencies, which is highlighted by the number of large scale thefts which have happened in cryptocurrencies short history.
A word of warning here, regulation has been particularly lax surrounding cryptocurrencies, meaning the risk is higher than with regulated trading accounts.
Trading on Cryptocurrencies
There are several advantages associated to trading cryptocurrencies over buying them. Firstly, it is possible to go long or go short when you trade cryptocurrencies. This means you can speculate and make money whether the cryptocurrency rises or fall, a very useful trait given that Bitcoin has fallen over 50% so far this year.
Secondly, trading cryptocurrencies is much more secure, you don’t have to be concerned about theft or worried about where you are going to store them.
Cryptocurrencies are often traded on margin. This means that you only need to put forward a small percentage of the entire value of the trade. So, you only need a small amount of capital to trade a position which is actually much larger.
When trading cryptocurrencies you have risk management tools such as stop losses at your disposal. This means that you don’t have to sit and watch the trade, you know that you are protected should a price move be too large for you. This is particularly useful given the volatility of cryptocurrencies, which can move over 20% in 48 hours.
Finally, there is much more regulation over trading accounts. Don’t be fooled into thinking all trading accounts are regulated, because there are still a fair few unregulated trading brokers out there. However, the brokers which are regulated will almost always say so on their website, or phone up and ask if you unsure. A regulated broker gives you peace of mind and more protection over your funds.
Trading vs Buying
You should now have more of an understanding as to the main differences between trading cryptocurrencies and owning them. From these points, it makes more sense to trade cryptocurrencies than own them outright.
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