Digital currency Trading, Is It a Profitable Business?
This year, coronavirus has made online trading extremely popular. Now, when millions of people are learning to make money remotely, Forex and cryptocurrency are more attractive than ever. It is true for South Africa and many other countries.
Volatility: Friend or Foe?
Bitcoin is famous and notorious (depending on who you ask) for its volatility. It means its rate is often so erratic. It can nosedive or skyrocket within a short period. For example, in October 2020, Bitcoin reached a 15-month-high above $13,000 after PayPal announced support for digital currencies.
For traders, this means they may achieve their goals more quickly by following consistent strategies. However, crypto coins are also risky due to the same characteristic. One may cap potential losses using technical tools and other methods.
Choose Broker Wisely
Since crypto is so popular, it is sometimes used for fraud. Be careful who you trade through. Regulated brokers have official licences and approval from such international organizations as the FCA in the UK, the FSCA in South Africa, and the CySEC in Cyprus.
To comply, providers need to adhere to strict rules concerning client protection. For example, ForexTime is licensed in different jurisdictions, and it does a lot to educate clients about fundamental cryptocurrency trading strategies.
How to Access Cryptocurrency Trading
The easiest way is through special virtual instruments known as CFDs (Contracts for Difference). These allow you to profit from the dynamics of bitcoin, Ethereum, Ripple, and other currencies without owning them.
It makes the process more secure and accessible. All you need is a trading platform, a registered account, and support from a broker. The initial investment may be very modest — for example, $100 to open a live account.
CFD trading is, to a degree, like sports betting — you open positions based on predictions. Every CFD is your agreement with the broker. CFDs may bring profit when they are sold, and the closing price is higher than their initial value.
Therefore, you need to spot the moment when the value of your underlying asset is the highest. You may achieve this through analysis of fundamental or technical indicators — pretty much like in the currency market.
CFD trading is not gambling. It is a process based on rigorous analysis and objective data. If you take high risks, you may reap greater profits within a short period. Still, it is advisable to keep potential losses under control. Use technical tools like stop loss, and consider diversifying.
How to Make Higher Profit
High profits are achievable in two situations. You may take high risks or trade large volumes (with or without leverage). The leverage system allows you to use a share of your broker’s funds to open larger positions. It is also known as trading on margin, where margin refers to the percentage of your investment.
Cryptocurrency CFDs may have different leverage — for instance, 1:100. It means you may open a position worth $100,000 when there is just $1,000 in your account. If the broker is regulated, it must adhere to the unfavourable balance protection requirements. If you fail, you will never end up in the red, as you may only lose your balance. Still, leverage is extremely risky, and all respectable companies emphasize this aspect.
Do not expect to make a million in a month, or get rich quickly. Traders need to follow strict strategies with rigorous risk management limitations. In general, you should not risk more than 1% of your capital per trade. This limits your potential profits, but they will still accumulate over time if you are persistent and circumspect.