Now, more and more people are paying attention to trading coins, but very few truly understand it. Beginners do not know where to start, so today I will share some basic knowledge about the cryptocurrency world with new entrants.
One, 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, all aimed at buying low and selling high to make a profit.
For example, if you believe real estate prices will rise, you immediately buy a property, wait until it rises, and then sell it for a profit. The difference is that trading coins involves digital currencies, with a more flexible trading mechanism (24/7 trading) and greater profit potential (no price fluctuation limits), making digital currencies an investment target with a return on investment that far exceeds traditional stock markets, futures markets, funds, and real estate.
Two, what is an exchange?
An exchange is a platform for trading digital currencies, and the most commonly used one currently is Binance.
There are many other smaller exchanges, just like there are various banks in addition to the four major banks. Using high-ranking exchanges provides a high safety coefficient, allowing for secure transactions, while some coins can only be purchased at specific exchanges.
Three, what is USDT?
An exchange is a place to trade Bitcoin and other digital currencies. Trading digital currencies requires a kind of intermediary currency, also known as stablecoin, namely USDT. This is also the most commonly used fiat currency.
USDT, also known as Tether, is a virtual currency that ties cryptocurrency to the fiat currency US Dollar. It is a virtual currency supported by foreign exchange reserves. You can simply understand it as US dollars.
Tether (USDT) is a token based on the stable value currency US Dollar (USD) launched by Tether, with 1 USDT = 1 USD.
Exchanges themselves cannot directly sell or buy virtual currency, nor can they sell you USDT. You cannot buy from the exchange either. If you want to buy coins, you first need to 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 convert your digital currency into USDT before selling it, converting it back to RMB. Once you have USDT, you can exchange it for any digital currency on the exchange, which is called coin-to-coin trading.
Four, basic terminology for trading coins
Position: Refers to the ratio of the actual investment to the total investment funds.
Full position: Investing all funds to buy virtual currency.
Reducing position: Selling part of the virtual currency but not all.
Heavy position: Compared to funds, the proportion of virtual currency is larger.
Light position: Compared to virtual currency, the proportion of funds is larger.
Empty position: Selling all the virtual currency held and converting it entirely into cash.
Take profit: After obtaining a certain profit, selling the held virtual currency to secure the profit.
Stop loss: Selling the held virtual currency after incurring a certain degree of loss to prevent further losses.
Bull market: Prices continue to rise, with optimistic prospects.
Bear market: Prices continue to decline, with bleak prospects.
Bulls (long buyers): Buyers who believe that the price of the currency will rise in the future, buying coins and selling them at a high price for profit when the price rises.
Bears (short sellers): Sellers who believe that the price of the currency will decline in the future, selling part of their holdings (or borrowing coins from the trading platform) to lock in profits when the price drops to a certain level while also avoiding risks.
Establishing a position: Buying virtual currency.
Averaging down: Buying virtual currency in batches, such as first buying 1 BTC, then buying another 1 BTC.
Rebound: When the price of the currency drops, it rebounds due to the rapid decline.
Consolidation (sideways): The price fluctuates slightly, and the currency price remains stable.
Gradual decline: The price of the currency is slowly declining.
Plunge (waterfall): The price of the currency drops rapidly and significantly.
Cutting losses: After buying virtual currency, if the price falls, selling the virtual currency at a loss to prevent further loss. Or after borrowing coins to short, if the price rises, buying back the virtual currency at a loss.
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 and the price drops, resulting in a temporary paper loss, but later the price rebounds, turning losses into profits.
Missed opportunity: Selling virtual currency due to a bearish outlook on the market, but the price keeps rising, failing to buy back in time, thus missing out on profits.
Overbought: The price of the currency has risen continuously 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 has continuously dropped to a certain low point, and the selling pressure is nearly exhausted, indicating that the price is about to rebound.
Inducing buying: The price of the currency has been consolidating for a long time, with a high likelihood of decline. Most bears have sold their virtual currency. Suddenly, the bears push the price up, inducing bulls to believe the price will rise, leading them to buy in. As a result, the bears suppress the price, trapping the bulls.
Inducing shorts: After bulls buy virtual currency, the price is purposely suppressed to make bears believe the price will decline, leading them to sell, ultimately falling into the trap set by the bulls.
Five, what are mainstream digital currencies?
Mainstream coins refer to valuable coins. Bitcoin is the largest, Ethereum is the second largest. Some believe that only these two are mainstream digital currencies, while others believe that only the top ten coins by market cap qualify as mainstream digital currencies. Some think that any coin listed on mainstream exchanges qualifies as a mainstream digital currency.
Taking Non-Small Numbers as an example, we can see the market cap rankings of related coins. Mainstream coins rank high, with Bitcoin firmly occupying the top position.
Generally, coins with higher market cap rankings have a higher market recognition, better liquidity, and higher investment value; conversely, coins with lower market cap rankings have lower recognition, worse liquidity, and correspondingly higher investment risks. It is recommended that users invest cautiously.
Six, the risks of trading coins
One of the most honest pieces of advice regarding investments in cryptocurrencies may come from Ethereum founder Vitalik Buterin: that is — do not invest any money you cannot afford to lose. I remind all novices again to act within their means, and it is advised not to borrow money, take loans, mortgage, or use credit cards to participate in such investments, especially in contract trading.
Seven, the gameplay of contracts.
Coin-to-coin trading is spot trading. To make money in a rising or falling market, you need to engage in contract trading, which is relative to coin-to-coin trading and belongs to futures trading, meaning that the underlying objects of these trades are standardized contracts.
You can pay a certain percentage of margin to borrow a portion of digital currency, choosing to go long if the market is bullish, or short if the market is bearish, and you can also trade both ways to hedge risks. Therefore, through contract trading, you can make money whether the market is rising or falling, greatly improving the utilization of funds.
The margin payment ratio corresponds to different leverage levels. For example, if you judge that BTC will be bearish in the future and want to open a short position of 100 BTC, you only need to pay a minimum margin of 1% or 1 BTC, allowing you to borrow 100 BTC, which is a leverage of 100 times. This means that you use 1 BTC of funds to leverage a return of 100 BTC. After borrowing, you immediately sell it and wait for the price to drop. If BTC drops from $35,000 to $34,000, you can immediately buy back 100 BTC and return it to the platform, earning (35,000 - 34,000) * 100 = $100,000 in profit. If you don’t use contract trading, you cannot profit from this drop; if you don’t use 100 times leverage, you also cannot achieve 100 times the profit. This is the essence of contracts.
Newcomers should not engage in contract trading! Newcomers should not engage in contract trading! Newcomers should not engage in contract trading! Important things should be repeated three times! Contract trading may seem like the fastest way to get rich, but it is definitely not the safest path. The 'fast' mentioned here often refers more to quickly approaching liquidation or bankruptcy, rather than quickly achieving financial freedom.
Eight, the three essential elements for trading coins.
One, an Android phone. (Android is more convenient, while iPhone is prone to losing certificates) An Android phone is also essential for playing these projects.
Two, spare cash. Money that is not urgently needed in the near term; losing it will not affect the quality of life.
Three, mentality. Trading coins has risks; those who are overly anxious about gains and losses should not participate.
The cryptocurrency world is not just about trading coins to make money; there are countless paths to explore, and returns are always proportional to the investment. I hope we can all gain from the cryptocurrency world.
