Now there are more and more people paying attention to cryptocurrency trading, but very few truly understand it. Newcomers don't know where to start, so today I will share some basic knowledge about the cryptocurrency world with newcomers.
1. What is Cryptocurrency Trading?
In this article, we will first talk about cryptocurrency trading. In fact, trading cryptocurrency is similar to trading stocks, real estate, or foreign exchange; it is about buying at a low price and selling at a high price to earn the difference and achieve profits.
For example, if you believe that housing prices will rise, you immediately buy a house, wait until the price rises significantly, then sell it for a big profit. The difference is that cryptocurrency trading involves digital currencies, with a more flexible trading mechanism (24/7 trading) and greater profit potential (no limits on price fluctuations), making digital currencies an investment with returns that far exceed traditional stock markets, futures markets, funds, and real estate.
2. What is an Exchange?
An exchange is a platform for trading digital currencies. The three major exchanges currently in use are Huobi, Binance, and OKEx.
There are many other small exchanges, just like there are four major banks and various other banks. Using a top-ranked exchange offers a high safety factor, allowing for secure trading. Some coins can only be purchased on certain special exchanges.
3. What is USDT?
An exchange is a place for trading Bitcoin and other digital currencies. To trade digital currencies, you need a type of intermediary currency, also known as a stablecoin, which is USDT. This is also our 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 stored in foreign exchange reserve accounts and backed by fiat currency. You can simply understand it as equivalent to US dollars.
Tether (USDT) is a token based on the stable value of the US dollar (USD) launched by Tether, with a value of 1 USDT = 1 dollar.
Exchanges themselves cannot directly sell or purchase virtual currencies, nor can they sell you USDT. You cannot directly buy from the exchange. If you want to buy coins, you first need to use Renminbi to buy USDT, and 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 Renminbi. 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 of Cryptocurrency Trading
Position: Refers to the ratio of the actual investment to the actual invested funds.
Full Position: Invest all funds to buy virtual currency.
Reducing Position: Sell part of the virtual currency but not all.
Heavy Position: The proportion of virtual currency is larger compared to funds.
Light Position: The proportion of funds is larger compared to virtual currency.
Empty Position: Sell all the virtual currency held and convert all to cash.
Take Profit: Sell the held virtual currency after obtaining a certain profit to secure the earnings.
Stop Loss: Sell the held virtual currency 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 fall, and the outlook is bleak.
Bull (Going Long): Buyer, believes that the price of the currency will rise in the future, buys the currency, and sells it at a high price after the price rises to realize profits.
Bear (Going Short): Seller, believes that the price of the currency will fall in the future, sells part of the currency held (or borrows currency from the trading platform), locks in the position, and waits for the price to drop to a certain level to realize profits while also mitigating risks.
Building Position: Buying virtual currency.
Averaging Down: Buying virtual currencies in batches, for example: first buy 1 BTC, then buy another 1 BTC.
Rebound: When the price of the currency falls, it rebounds and adjusts due to a rapid drop.
Consolidation (Sideways): Price fluctuates within a small range, and the currency price remains stable.
Slow Decline: The price of the currency declines slowly.
Plunge (Waterfall): The price of the currency drops rapidly and significantly.
Cutting Losses: After buying virtual currency, if the price falls, sell the virtual currency at a loss to prevent further losses. Alternatively, if you short after borrowing coins and the price rises, you incur a loss by buying back the virtual currency.
Trapped: Expecting the price to rise, but after buying, the price falls; or expecting the price to fall, but after selling, the price rises.
Untrapping: After buying virtual currency, the price falls, causing temporary unrealized losses, but later the price rebounds, turning losses into profits.
Missing Out: After selling virtual currency due to a pessimistic view of the market, the price rises sharply, and you miss the opportunity to buy back, thus missing out on profits.
Overbought: The price of the currency continues to rise to a certain height, and the buying power is nearly exhausted, indicating that the price is about to fall.
Oversold: The price of the currency continues to fall to a certain low point, with the selling pressure nearly exhausted, and the price is about to rebound.
Inducing Long: The currency price has been consolidating for a long time, with a high possibility of falling. Most bears have sold their virtual currencies. Suddenly, the bears raise the price, inducing the bulls to believe that the price will rise and causing them to buy in, resulting in the bears pushing down the price, trapping the bulls.
Inducing Short: After the bulls buy virtual currencies, they deliberately suppress the price, leading the bears to believe that the price will drop, prompting them to sell, resulting in the bears falling into the bulls' trap.
5. What are mainstream digital currencies?
Mainstream coins refer to value coins. Bitcoin is the leader, Ethereum is the second. Some people believe that only these two are mainstream digital currencies, while others think that only the top ten by market cap are mainstream, and some believe that any currency listed on mainstream exchanges is considered mainstream digital currency.
Taking the non-small number as an example, we can see the market capitalization rankings of related cryptocurrencies. Mainstream coins rank high, with Bitcoin firmly occupying the top position in market capitalization.
In general, cryptocurrencies with higher market capitalization rankings are more recognized by the market, have good liquidity, and possess higher investment value; conversely, cryptocurrencies with lower market capitalization rankings are less recognized, have poor liquidity, and correspondingly higher investment risks, so users are advised to buy cautiously.
6. Risks of Cryptocurrency Trading
A very sincere piece of advice regarding investment in cryptocurrencies may come from Ethereum founder Vitalik Buterin: that is—do not invest any money that you cannot afford to lose. Again, I remind all newcomers to act within their means, and it's advised not to borrow money, take loans, mortgage, or use credit cards to participate in such investments, especially in contract trading.
7. Contract Trading Methods
Cryptocurrency trading is spot trading. To make money in either a rising or falling market, you need to engage in contract trading, which is a form of futures trading. This means that the underlying assets for these trades are standardized contracts.
You can pay a certain percentage of margin to borrow a portion of digital currency. If you expect prices to rise, you can choose to go long; if you expect prices to fall, you can go short. You can also trade in both directions, opening long and short positions to hedge risks. Thus, through contract trading, you can earn money in both bull and bear markets, greatly improving the utilization of funds.
The margin payment ratio corresponds to different leverage levels. For example, if you judge that BTC will fall in the future and wish to open a short position of 100 BTC, you only need to pay a minimum margin of 1%, which is 1 BTC, to borrow 100 BTC, equivalent to 100 times leverage. This means you use 1 BTC's worth of capital to leverage a profit of 100 BTC. After borrowing, you immediately sell 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, resulting in a profit of (35,000 - 34,000) * 100 = $100,000. If you do not use contract trading, you cannot profit from this drop, and without 100 times leverage, you also cannot achieve 100 times profit. This is the essence of contracts.
Newbies should not engage in contract trading! Newbies should not engage in contract trading! Newbies should not engage in contract trading! This important message is repeated three times! Contract trading may seem like the fastest way to get rich, but it is certainly not the safest route. The 'fast' mentioned here often refers more to approaching liquidation or bankruptcy quickly, rather than achieving financial freedom quickly.
8. Three Essential Elements for Cryptocurrency Trading
1. An Android phone. (Android is more convenient, while iPhones are prone to certificate loss) An Android phone is also essential for participating in projects.
2. Spare Money. Money that is not urgently needed in the short term, even if lost, will not affect the quality of life.
3. Mindset. Trading cryptocurrencies involves risks; those who are overly anxious about gains and losses should not participate.
Making money in the cryptocurrency space is not limited to trading cryptocurrencies; there are many paths to explore, and returns are always proportional to investments. I hope we can all gain something in the cryptocurrency world.
This article is not intended as any investment advice, but merely as an explanation of the current situation and terminology.
