Recently, with Bitcoin's price soaring, more and more people are paying attention to trading coins in the crypto world, but very few truly understand it. Newcomers often don't know where to start. Today, I will share some basic knowledge about the crypto world with new traders.
1. What is trading coins?
In this article, we will first discuss trading coins. In fact, trading coins is similar to trading stocks, real estate, or forex, where one buys low and sells high to earn the price difference and achieve profitability.
For example, if you believe house prices will rise, you immediately buy a house and wait until the price has risen enough to sell it at a profit. The difference is that trading coins involves digital currencies, which have a more flexible trading mechanism (24/7 continuous trading) and a greater profit potential (no limits on price fluctuations), making digital currency an investment target that outperforms traditional stock markets, futures markets, funds, and real estate in return on investment.
2. What is an exchange?
Exchanges are platforms for trading digital currencies. Currently, the two main exchanges used are Binance and OKEx.
There are many other smaller exchanges, just as there are various banks alongside the four major banks. Using exchanges with higher rankings has a high safety factor, allowing for safe trading. Some coins can only be purchased from specific exchanges.
3. What is USDT?
Exchanges are places used to trade Bitcoin and other digital currencies. Trading digital currencies requires a type of intermediary coin, also known as a stablecoin, like USDT. This is also the most commonly used fiat currency.
USDT, known as Tether, is a virtual currency that links cryptocurrencies to the fiat currency US dollar. It is a virtual currency backed by reserves of foreign currency and supported by fiat currency. You can simply think of it as US dollars.
Tether (USDT) is a token launched by Tether based on the stable value currency US dollar (USD), denoted as USDT, 1 USDT = 1 USD.
Exchanges themselves cannot directly sell or purchase virtual currencies, nor can they sell USDT to you. If you want to buy coins, you need to first use RMB to buy USDT, then exchange USDT for the digital currency you want to buy. If you want to sell coins, you need to exchange your digital currency for USDT and then sell it for RMB. Once you have USDT, you can exchange it for any digital currency on the exchange; this is called coin-to-coin trading.
4. Basic terminology for trading coins
Position: Refers to the ratio of the actual investment and the actual investment funds of the investor.
Full position: Buying virtual currency with all available funds.
Reduce positions: Selling part of the virtual currency but not all of it.
Heavy position: The proportion of virtual currency is greater compared to cash.
Light position: The cash portion is larger compared to virtual currency.
Empty positions: Selling all the virtual currency held and converting it all into cash.
Take profit: Selling the held virtual currency after obtaining a certain profit to preserve the earnings.
Stop loss: Selling the virtual currency held after losses reach a certain level to prevent further losses.
Bull market: Prices continue to rise, and the outlook is optimistic.
Bear market: Prices continue to decline, and the outlook is bleak.
Bullish (going long): The buyer believes that the price of the coin will rise in the future, buys the coin, and sells it at a high price after the price increases to lock in profits.
Short selling: The seller believes that the price of the coin will decline in the future, selling part of the coins held (or borrowing coins from the trading platform) to lock in profit when the price drops to a certain level, while also avoiding risks.
Build position: Buying virtual currency.
Averaging down: Buying virtual currency in batches, for example: buying 1 BTC first, then buying another 1 BTC.
Rebound: When coin prices drop too quickly, the price rebounds and adjusts.
Consolidation (sideways): Price fluctuation is small, and coin prices are stable.
Slow decline: Coin prices are gradually falling.
Plunge (waterfall): Coin prices drop rapidly and significantly.
Cutting losses: After buying virtual currency, if the price drops, selling the virtual currency at a loss to prevent further losses; or if the price rises after borrowing coins to short sell, buying back at a loss.
Trapped: Expecting the price of a coin to rise, only to find that it drops after buying; or expecting the price to fall, only to find that it rises after selling.
Breaking even: After buying virtual currency, a price drop leads to temporary paper losses, but then the price rebounds, turning losses into profits.
Missed opportunity: Selling virtual currency due to a pessimistic outlook, but the price continues to rise, resulting in not being able to buy back in time and thus missing out on profits.
Overbought: The price of the coin has risen continuously to a certain height, and the buying power is basically exhausted, indicating that the price is about to drop.
Oversold: The price of the coin has fallen continuously to a certain low point, and selling power is basically exhausted, indicating that the price is about to rebound.
Baiting longs: After a long period of consolidation, the chances of a drop are high, and most shorts have sold the virtual currency. Suddenly, the shorts drive the price up, luring the bulls to believe the price will rise, leading to a rush to buy, only for the shorts to suppress the price, trapping the bulls.
Baiting shorts: After bulls buy virtual currencies, they deliberately suppress the coin price, making shorts believe that the price will drop, resulting in a rush to sell, ultimately falling into the bulls' trap.
5. What are mainstream digital currencies?
Mainstream coins, or value coins, with Bitcoin as the leader and Ethereum as the second. Some believe these two are the only mainstream digital currencies, while others consider only the top ten by market capitalization on exchanges as mainstream, and some believe that any coin listed on mainstream exchanges counts as a mainstream digital currency.
Taking Non-Small Number as an example, we can see the market capitalization rankings of related coins. Mainstream coins rank high, for example, Bitcoin firmly occupies the top position in market capitalization.
Generally, cryptocurrencies with a higher market capitalization are more recognized in the market, have better liquidity, and higher investment value; conversely, cryptocurrencies with lower market capitalization are less recognized, have poor liquidity, and correspondingly higher investment risks. Users are advised to buy cautiously.
6. Risks of trading coins
One of the most sincere pieces of advice in cryptocurrency investing may come from Ethereum founder Vitalik Buterin: Do not invest any money that you cannot afford to lose. Again, I remind all newcomers to act within their means and avoid borrowing money, loans, pledging, or using credit cards to participate in this type of investment, especially in contract trading.
7. The mechanics of contracts
Coin-to-coin trading is spot trading; to profit in rising or falling markets, contract trading must be done. Contract trading is relative to coin-to-coin trading and belongs to futures trading, meaning that the underlying assets are standardized contracts.
You can pay a certain percentage of margin to borrow some digital currency, choosing to go long if you expect the market to rise, or go short if you expect it to fall. You can also trade both ways, hedging risks. Therefore, through contract trading, you can make money regardless of whether the market is rising or falling, greatly increasing the utilization of funds.
The margin ratio corresponds to different leverage levels. For example, if you believe BTC will decline, and want to open a short position of 100 BTC, you only need to pay a minimum margin of 1%, which is 1 BTC; you can borrow 100 BTC, meaning 100x leverage. This is equivalent to using 1 BTC of funds to leverage 100 BTC of profit. After borrowing, you can sell immediately and wait for the price to drop. If BTC falls from $35,000 to $34,000, you can immediately buy back 100 BTC and return it to the platform, thus earning ($35,000 - $34,000) * 100 = $100,000 in profit. Without contract trading, you wouldn't be able to profit from this drop, and without 100x leverage, you wouldn't be able to achieve 100x returns. This is what contracts are about.
Beginners should not trade contracts! Beginners should not trade contracts! Beginners should not trade contracts! This important point is repeated three times! Contracts may seem like the fastest way to get rich, but they are definitely not the safest route. The 'fast' mentioned here often refers to being close to liquidation or bankruptcy, rather than achieving financial freedom quickly.
8. Three essential elements for trading coins
1. An Android phone. (Android is more convenient; Apple devices are prone to certificate issues.) An Android phone is also essential for playing projects.
2. Spare money. Money that is not urgently needed in the near term, and losing it won't affect the quality of life.
3. Mindset. Trading coins carries risks; those who are overly anxious about gains and losses should not participate.
The crypto world does not only allow making money through trading coins; there are many paths to explore. Returns are always proportional to investments. I hope we can all gain something in the crypto world.$BTC