More and more people are paying attention to trading coins in the cryptocurrency space, but few truly understand it. Newcomers often don’t know where to start, so today I will share some basic knowledge about the cryptocurrency space with newbies.
1. What is trading coins?
In this article, we will first talk about trading coins. In fact, trading coins is similar to trading stocks, real estate, or foreign exchange, where you buy low and sell high to earn the difference and achieve profits.
For example, if you believe house prices will rise, you immediately buy a house, wait until the price rises significantly, and then sell for a huge profit. The difference is that trading coins involves digital currencies, with a freer trading mechanism (24/7 trading) and a larger profit potential (no limits on price fluctuations), making digital currencies an investment target with returns far exceeding traditional stocks, futures markets, funds, and real estate.
2. What is an exchange?
An exchange is a platform for trading digital currencies. The most commonly used exchanges are Huobi, Binance, and OKEx.
There are many other smaller exchanges, just like there are various banks aside from the four major banks. Using top-ranked exchanges has a high safety factor, allowing for secure trading. Some coins can only be purchased on specific exchanges.
3. What is USDT?
An exchange is a place to trade Bitcoin and other digital currencies. Trading digital currencies requires an intermediary coin, also known as a stablecoin, which is USDT. This is also the fiat currency we use most often.
USDT, known as Tether, is a virtual currency that links cryptocurrency to the fiat currency US dollar. It is a cryptocurrency backed by reserves held in foreign exchange accounts. You can simply understand it as a US dollar.
Tether (USDT) is a token based on the stable-value currency US dollar (USD) launched by Tether, with an exchange rate of 1 USDT = 1 USD.
Exchanges themselves cannot directly sell or buy virtual currencies, nor can they sell you USDT. You cannot buy it from the exchange either. If you want to buy coins, you need to first buy USDT with Renminbi, then exchange USDT for the digital currency you want to buy. If you want to sell coins, you need to convert your digital currency into USDT and then sell it for Renminbi. After obtaining USDT, you can exchange it for any digital currency on the exchange, which is called coin-to-coin trading.
4. Basic terms for trading coins
Position: Refers to the ratio of an investor's actual investment to the actual investment funds.
Full position: Buying cryptocurrency with all available funds.
Reducing position: Selling part of the cryptocurrency, but not all.
Heavy position: A situation where the amount of funds is lower than the proportion of cryptocurrency held.
Light position: The proportion of funds is greater than that of the cryptocurrency held.
Empty position: Selling all cryptocurrency held and converting everything to cash.
Take profit: Selling the held virtual currency after achieving a certain profit to secure earnings.
Stop loss: Selling the held virtual currency after incurring a certain level of loss to prevent further losses.
Bull market: Prices continue to rise, with an optimistic outlook.
Bear market: Prices continue to decline, with a bleak outlook.
Bull (going long): The buyer, who believes the price will rise in the future, buys coins and sells them at a higher price for profit.
Short seller (shorting): The seller, who believes the price will drop in the future, sells part of the coins they hold (or borrows coins from the trading platform) and locks them in until the price drops to a certain level to take profits, while also mitigating risks.
Establishing a position: Buying cryptocurrency.
Adding to a position: Buying cryptocurrency in batches, e.g., first buying 1 BTC, and then buying another 1 BTC later.
Rebound: When the price drops rapidly, it may rise and adjust due to the fast drop.
Consolidation (sideways): The price fluctuates within a small range, stabilizing.
Gradual decline: The price of the currency slowly decreases.
Plunge (waterfall): A rapid and significant decrease in price.
Cutting losses: After buying cryptocurrency, if the price drops, selling the cryptocurrency at a loss to avoid further losses. Or, after borrowing coins to short, if the price rises, buying back the cryptocurrency at a loss.
Stuck: Expecting the price to rise, but after buying, the price drops; or expecting the price to drop, but after selling, the price rises.
Breaking even: After buying cryptocurrency, if the price drops and causes a temporary book loss, but later the price rebounds, turning losses into profits.
Missing the opportunity: Selling cryptocurrency due to a bearish outlook, only to see the price rise steadily afterward, resulting in missed profits.
Overbought: The price of the currency has risen continuously to a certain height, with buying power almost exhausted, and the price is about to drop.
Oversold: The price of the currency has been continuously dropping to a certain low point, with selling power exhausted, and the price is about to rise.
FOMO: After a prolonged price consolidation, with a high possibility of a drop, most short sellers have sold their cryptocurrency. Suddenly, the bears push the price up, enticing bulls to believe the price will rise, leading them to buy. Eventually, the bears suppress the price, trapping the bulls.
FOMO: After the bulls buy cryptocurrency, they intentionally suppress the price, misleading the bears into thinking the price will drop, leading them to sell, ultimately falling into the bulls' trap.
5. What are mainstream cryptocurrencies?
Mainstream coins refer to valuable coins. Bitcoin is the leader, Ethereum is the second. Some people believe only these two are mainstream cryptocurrencies, while others think that only the top ten market cap coins on exchanges count as mainstream. Some believe that any coin listed on a major exchange is considered mainstream.
Taking non-small numbers as an example, we can see the market capitalization rankings of related coins. Mainstream coins rank high, for example, Bitcoin firmly holds the top position.
Generally, cryptocurrencies with higher market capitalization rankings are more recognized in the market, have good liquidity, and possess higher investment value; conversely, those with lower rankings are less recognized, have poor liquidity, and correspondingly higher investment risks. It is advised to proceed with caution.
6. Risks of trading coins
One very sincere piece of advice regarding cryptocurrency investment may come from Ethereum founder Vitalik Buterin: Don’t invest any money that you cannot afford to lose. I remind all newcomers to act within their means and avoid borrowing, taking loans, mortgaging, or using credit cards to participate in such investments, especially in contract trading.
7. The gameplay of contracts
Coin-to-coin trading is a form of spot trading. To make money in a rising or falling market, one must engage in contract trading, which is relative to coin-to-coin trading and belongs to futures trading. This means that the underlying assets of these trades are standardized contracts.
You can pay a certain percentage of margin to borrow some digital currency. If you are bullish on the market, you can choose to go long; if you are bearish, you can short. You can also trade both ways, opening both long and short positions to hedge risks. Therefore, through contract trading, you can earn money in both rising and falling markets, greatly improving capital utilization.
The margin payment ratio corresponds to different leverage levels. For example, if you predict a bearish market for BTC and want to open a short position of 100 BTC, you only need to pay a minimum of 1% margin, which is 1 BTC, to borrow 100 BTC, achieving 100x leverage. This means you are using the funds of 1 BTC to leverage a profit of 100 BTC. After borrowing, you immediately sell and wait for the price to drop. If BTC drops from $35,000 to $34,000, you can buy back 100 BTC and return it to the platform, earning ($35,000 - $34,000) * 100 = $100,000 profit. Without contract trading, you cannot profit from this decline. Without 100x leverage, you also cannot achieve 100x profit. That is the essence of contracts.
Newbies should not trade contracts! Newbies should not trade contracts! Newbies should not trade contracts! It’s important to say it three times! Contracts may seem like the fastest way to get rich, but they are not the safest path. The 'fast' often leads to liquidation and bankruptcy, rather than financial freedom.
8. Three essential elements for trading coins
1. An Android phone. (Android is more convenient; iPhone may easily lose its certificate.) An Android phone is essential for playing projects.
2. Spare money. Money that is not urgently needed in the near term, and losing it will not affect living standards.
3. Mindset. Trading coins is risky; those who are overly anxious should not participate.
The cryptocurrency space is not just about trading coins to make money. There are many paths to explore, and returns are always proportional to the investment. I hope we can all gain something in the crypto space.
