Nowadays, more and more people are paying attention to the cryptocurrency circle, but there are few people who really understand it. Newbies don’t know where to start. Today, I will share with the newbies in the cryptocurrency circle some basic knowledge about the cryptocurrency circle.
1. What is cryptocurrency trading?
In this article, we will first talk about cryptocurrency speculation. In fact, cryptocurrency speculation is similar to stock speculation, real estate speculation, and foreign exchange speculation. All of them are to make profits by buying at a low price and selling at a high price to earn the difference.
For example, if you think house prices are going to rise, you can buy a house immediately, and when it has risen to a certain level, you can sell it and make a fortune. The difference is that cryptocurrency trading is about digital currency, which has a freer trading mechanism (24-hour non-stop trading) and a larger profit margin (no limit on price fluctuations), making digital currency an investment target with a return on investment far exceeding that of traditional stock markets, futures markets, funds, real estate, etc.
Two, what is an exchange?
An exchange is a platform for trading digital currencies, and currently, the three major exchanges are commonly used.
There are many other smaller exchanges, just as banks have the four major banks alongside various other banks. Trading on top-ranked exchanges is very safe, allowing for worry-free transactions. Some coins can only be purchased on specific exchanges.
Three, what is USDT?
An exchange is a place for trading Bitcoin and other digital currencies. Trading digital currencies requires a type of intermediary coin, also called a stablecoin, namely USDT. This is also the fiat currency we use most often.
USDT is Tether, a virtual currency that links cryptocurrency to the fiat currency US Dollar. It is a virtual currency backed by foreign exchange reserves. You can simply understand it as USD.
Tether (USDT) is a token launched by Tether that is based on the stable value currency, the US Dollar (USD). 1 USDT = 1 USD.
Exchanges themselves cannot directly sell or purchase virtual coins, nor can they sell you USDT. You cannot buy USDT directly from an exchange. If you want to buy coins, you need to first buy USDT with Chinese Yuan, 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 Chinese Yuan. After obtaining USDT, you can exchange it for any digital currency on the exchange, which is called coin-to-coin trading.
Four, basic terms for trading coins.
Position: Refers to the ratio of the investor's actual investment to the actual invested capital.
Full position: All capital is used to buy virtual coins.
Reducing position: Selling a portion of virtual coins without selling all of them.
Heavy position: The virtual coins share a larger proportion compared to capital.
Light position: The capital shares a larger proportion compared to virtual coins.
Empty position: Selling all the virtual coins held, converting everything into capital.
Take profit: After gaining a certain profit, sell the virtual coins held to secure the earnings.
Stop loss: Selling the virtual coins held after losses reach a certain level to prevent further loss.
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): Buyers who believe the coin price will rise in the future, buy coins, and wait to sell at a higher price for profit.
Bear (going short): Sellers who believe the coin price will drop in the future sell a portion of their coins (or borrow coins from the trading platform), locking in to wait for the price to drop to a certain level to secure profit, while avoiding risk.
Building a position: Buying virtual coins.
Averaging down: Buying virtual coins in batches, for example: first buying 1 BTC, then buying another 1 BTC.
Rebound: When the coin price drops, due to a rapid decline, the price rebounds for adjustment.
Consolidation (sideways): The price fluctuates minimally, and the coin price remains stable.
Slow decline: The coin price is gradually declining.
Flash crash (waterfall): The coin price drops rapidly and significantly.
Cutting losses: After buying virtual coins, if the price drops, sell the virtual coins at a loss to avoid further losses, or if the price rises after borrowing coins for short selling, buying back virtual coins at a loss.
Stuck: Expecting the coin price to rise, but after buying, the price drops; or expecting the coin price to drop, but after selling, the price rises.
Unwinding: After buying virtual coins, the price drops, causing a temporary paper loss, but later the price recovers, turning losses into profits.
Missing out: After selling virtual coins due to a bearish outlook, the price keeps rising, and not being able to buy back in time results in missed profits.
Overbought: The coin price has risen continuously to a certain height, and the buying force is basically exhausted, leading to an impending price drop.
Oversold: The coin price has fallen continuously to a certain low point, and the selling force is basically exhausted, leading to an impending rebound.
Bull trap: The coin price has been consolidating for a long time, and the likelihood of a drop is high. Most bears have already sold their virtual coins, but suddenly the bears push the price up, luring the bulls into thinking the price will rise, leading them to buy in, resulting in the bears driving the price down, leaving the bulls stuck.
Bear trap: After the bulls buy virtual coins, they deliberately drive the price down, making the bears believe the price will drop, leading them to sell, ultimately falling into the bulls' trap.
Five, what are mainstream cryptocurrencies?
Mainstream coins are valuable coins, with Bitcoin being the leader and Ethereum the second. Some believe only these two are mainstream cryptocurrencies, while others believe that only the top ten by market value count as mainstream cryptocurrencies, and yet others believe that any coin listed on mainstream exchanges is considered mainstream.
Taking 'Non-Small Numbers' as an example, we can see the market capitalization rankings of related coins. Mainstream coins rank high, such as Bitcoin consistently occupying the top position.
In general, coins with higher market capitalization rankings have higher market recognition and liquidity, presenting higher investment value; conversely, coins with lower market capitalization rankings have lower recognition and liquidity, consequently bearing higher investment risks, so users are advised to exercise caution in purchasing.
Six, the risks of trading coins.
A prudent investment suggestion regarding cryptocurrencies may come from Ethereum founder Vitalik Buterin: Do not invest any money you cannot afford to lose. Once again, I remind all newcomers to act within their means; it is advisable not to borrow money, take loans, mortgage, or use credit cards for such investments, especially for trading contracts.
Seven, the ways to trade contracts.
Coin-to-coin trading belongs to 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, meaning that these transactions are all standardized contracts.
You can pay a certain proportion of margin to borrow a portion of digital currency, choosing to go long if the market outlook is bullish, or going short if bearish. You can also trade in both directions, opening both long and short positions to hedge risks. Thus, through contract trading, one can make money in both rising and falling markets, greatly increasing capital utilization.
The margin ratio corresponds to different leverages. For instance, if you judge that BTC will decline and intend to open a short position for 100 BTC, the minimum margin required is only 1%, which is 1 BTC, allowing you to borrow 100 BTC, equating to a 100x leverage. This means you can leverage 1 BTC of funds to gain the profits of 100 BTC. After borrowing, you immediately sell and wait for a decline. If BTC drops from $35,000 to $34,000, you can buy back 100 BTC and return it to the platform, resulting in a profit of (35,000 - 34,000) * 100 = $100,000. Without contract trading, you cannot profit from this downturn; without 100x leverage, you cannot achieve 100x returns. This is what contracts are about.
Newcomers should not trade contracts! Newcomers should not trade contracts! Newcomers should not trade contracts! This is important enough to say 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 quickly reaching 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; iPhones are prone to losing certificates.) An Android phone is also essential for playing projects.
Two, spare money. Money that is not urgently needed in the near term; losing it does not affect the quality of life.
Three, mindset. Trading coins carries risks; those who are overly concerned about gains and losses should not participate.
The cryptocurrency market is not just about trading coins to make money; there are numerous paths to explore, and returns are always proportional to the investment. I hope we can all gain something in the crypto space.
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