Three Essential Elements for Entering the Crypto Circle
Three Principles of Risk Control:
1. Beginners should not engage in contracts, as the final result is liquidation; beginners should avoid it!!
2. Invest with spare money, avoid borrowing (credit cards/online loans). Do not let investments affect your normal career and related income. Investing is merely a potential shortcut to success; remember that your ability to make money outside the market is far more important than making money within it.
3. Mentality Building (Ethereum founder Vitalik Buterin says: Don't invest money you can't afford to lose!) Use a long-term dollar-cost averaging method to reduce risk during large fluctuations; although it may seem slow, it can be profitable. If you are still frequently checking prices and losing sleep over it, you are likely not investing but gambling. This is not a good approach and will not yield ideal results.
Three Major Areas to Understand Before Trading
Contracts
Cryptocurrency trading is categorized as spot trading. To profit in a rising or falling market, you need to engage in contract trading. Contract trading, in contrast to cryptocurrency trading, falls under futures trading, meaning these trades involve standardized contracts.
You can pay a certain percentage of margin, borrow part of the digital currency, and choose to go long if you expect a price increase, or go short if you expect a price decrease. You can also trade in both directions to hedge risks. Therefore, through contract trading, profits can be made in both rising and falling markets, greatly improving capital utilization. The margin payment ratio corresponds to different leverage. For instance, if you expect BTC to decline and want to open a short position of 100 BTC, you only need to pay 1% margin, which is 1 BTC, to borrow 100 BTC, meaning 100x leverage, allowing you to leverage 1 BTC worth of funds to gain 100 BTC worth of profits. After borrowing, you sell immediately 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 (35000-34000)*100=$100,000 in profit. Without contract trading, you cannot profit from this decline, and without 100x leverage, you cannot achieve 100x gains. This is what contracts are.
Spot Trading
In the crypto circle, spot trading refers to the direct buying and selling of cryptocurrencies. Once a trade is completed, the buyer pays the funds, and the seller immediately transfers the cryptocurrency to the buyer's wallet or exchange account. This type of trading does not involve leverage or futures contracts; it is the buying and selling of actual cryptocurrency assets.
Characteristics of Spot Trading in the Crypto Circle:
Instant Delivery: After the transaction is completed, the cryptocurrency is immediately transferred.
Physical Trading: Buying and selling actual cryptocurrencies, not derivatives.
Price Transparency: Prices are determined by market supply and demand, open and transparent.
No Leverage: No leverage is used, and the risk is relatively low.
Process of Spot Trading in the Crypto Circle:
Choose a Trading Platform: Register an account on a cryptocurrency exchange that supports spot trading.
Deposit Funds: Deposit fiat currency or other cryptocurrencies into the exchange account.
Place Orders: Choose a trading pair (e.g., BTC/USDT) and place buy or sell orders.
Transaction and Delivery: After the order is executed, the cryptocurrency is immediately transferred to the buyer's account.
Types of Spot Trading in the Crypto Circle:
Market Order: Executed immediately at the current market price.
Limit Order: Set a specific price, executed when that price is reached.
Difference between Spot Trading and Futures Trading in the Crypto Circle:
Delivery Time: Spot trading is delivered instantly, while futures trading is delivered on a future specified date.
Leverage Use: Spot trading generally does not involve leverage, while futures trading can use leverage.
Risk Level: Spot trading has lower risk, while futures trading has higher risk due to leverage and price fluctuations.
Advantages of Spot Trading in the Crypto Circle:
Simple and Direct: Easy to operate, suitable for beginners.
Lower Risk: No leverage, smaller price fluctuation risk.
Actual Assets Held: Trading actual cryptocurrencies, available for use or transfer at any time.
Disadvantages of Spot Trading in the Crypto Circle:
Capital Occupation: Requires full payment, significant capital occupation.
Price Fluctuation Risk: Cryptocurrencies have significant price fluctuations, which may lead to losses.
Summary: Spot trading in the crypto circle is suitable for investors who wish to hold cryptocurrencies directly. It is simple to operate and has lower risk, but one must be cautious of the risks brought by price fluctuations.
