The word cryptocurrency is no longer a term. This phrase changes how money is viewed and transacted in the world. Recently, the US President signed an executive order for Strategic Bitcoin Reserve. Interest in digital assets is also growing from Indian metro cities Mumbai and Bengaluru to even smaller cities like Indore and Bhopal.
Understanding the Cryptocurrency Fundamentals
1. What Is Cryptocurrency
Cryptocurrency is a type of digital currency that the government or banks do not control. It operates within distributed systems that are run by computers (blockchain), and transactions are checked and kept safe by privately owned companies or individuals called miners. Each coin is unique and has its own features, and sending them needs complex security systems.
- Digital Currency: Cryptocurrencies are a type of digital money because they are only digital and have no real form.
- Safe and autonomous: They are autonomous and protected by cryptography, which means that a single organization like the RBI does not control them.
Different types of cryptocurrencies, such as Bitcoin, Ethereum, and many others, are examples of well-known cryptocurrencies.
How Does It Work?
Blockchain technology is used by cryptocurrencies to keep track of all transactions in a public ledger. Computers that can check transactions and solve difficult math problems are needed to mine new coins. Once these coins have been verified, they are kept forever. This method eliminates the need for middlemen, which speeds things up and cuts costs.
Technology behind blockchains: A blockchain is a public record of events that is extremely difficult to modify.
Mining: In Bitcoin and other cryptocurrencies, “mining” means using computer power to solve hard problems to earn coins. The miner who solves the problem first receives new coins.
2. How to Buy and Store Cryptocurrency in India
For Indian investors, the first step is to buy Bitcoin and store it safely. This section discusses how to buy digital cash using Indian Rupees and different ways to store it.
Purchasing Cryptocurrency
Various platforms now enable Indian investors to buy cryptocurrency using their INR.
Well-established local exchanges have built user-friendly interfaces that allow fund deposits through bank transfers, UPI, and other payment options. After completing the KYC process, you can effortlessly purchase Bitcoin, Ethereum, and many other altcoins.
- Local Exchanges: You can use INR to buy crypto on CoinDCX, ZebPay, and Mudrex, among others.
- International Platforms: Some global exchanges, such as BingX, have become more famous. It has strong protection, low trading costs, and dependable customer service.
Keeping Your Cryptocurrency Safe
The next most important thing to do after buying crypto is to keep it safe. Your exchange gives you the choice to store by default. The level of security you want will also greatly impact your storage choices. Still, if you’d rather keep your crypto safe, there are two main types of wallets:
Hot Wallets: These are wallets you can access from the internet. They are easier to use, especially for sellers who do it all the time, but they are also easy to hack.
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- Pros: They’re great for dealing because you can get to them through web or mobile apps.
- Cons: It’s easier to hack than cold wallets, so online crooks can access your money.
Cold Wallets: These are different from hot wallets. They keep your funds offline, which makes them safer for long-term holders.
- Pros: These provide peace of mind as they are stored offline. They may be hardware or paper wallets, making protecting your assets for a long time easier.
- Cons: Less convenient for those who want to trade frequently.
Two-factor authentication (2FA) should be enabled, and wallet addresses should be verified to improve security.
Open Account to Trade Crypto
3. What Does Crypto Trading Mean?
Like day trading stocks, crypto trading is the act of buying and selling digital currencies to make quick money. It’s not the same as crypto investing, which means keeping assets for a long time and hoping their value will rise. You need to know how to do market and technical analyses for both ways to work.
Different Ways to Trade Crypto:
Trading: Crypto trading is the act of buying and selling coins to make quick money. This is like intraday stock trading.
Investing: As an investor, you buy coins or other assets with the hope that their value will rise over time. This is called crypto investing.
How Does Trading in Crypto Work?
To begin, sign up for an account on a reputable exchange and pay INR. After that, choose a pair to trade, such as Bitcoin/INR. Putting in market orders lets you trade right away. Putting in limit orders, on the other hand, lets you set a price cap. No matter what you decide, you should always check your positions and set stop-loss orders to effectively control risk.
When you sign up for BingX, you can set up an account. After that, you can:
- Deposit Funds: Put money into your trade account in INR or USDT.
- Pick a pair to trade: Ethereum/INR or Bitcoin/INR
- Place Your Order: Market Order makes the trade right away at the price on the market.
You can set a limit order to buy or sell at a certain price. - Watch over and manage: Keep an eye on your trades and change your stop-loss levels to lower your risk.
4. Trading Strategies for Cryptocurrency
In order to be successful in the crypto market, you need a well-thought-out plan and careful risk management. We use trend analysis to look at well-known trading strategies like day trading and swing trading. We also discuss how to protect your money using stop-loss orders and diversification for risk management.
Before making trades, you should do a lot of study, like reading white papers, to learn about the cryptocurrency’s technologies, goals, and team. In a market that isn’t controlled, don’t make choices based on fear of missing out (FOMO) or tips from people you can’t trust.
Strategies for Trading
Technical Analysis (TA): TA is the process of looking for trading opportunities by studying price change.
Momentum Trading: This type of day trading takes advantage of price changes that only last a short time.
Contrarian Strategies: These traders try to make money off of what they see as an overcorrection in assets that have been moving steadily over a certain period of time. They use TA indicators to keep an eye out for possible dips and try to get in or out of a trade right before the market changes direction.
Day Trading: It is buying and selling an instrument more than once on the same day. These deals only last a few hours at most.
Scalping: Traders use this technique to try to make money from tiny changes in prices throughout the day. Traders set their chart timeframes to 1 and 5 minutes and set aggressive stop-loss limits. They place multiple trades daily to earn minimal profits on every trade.
Swing trading: This method follows trends by keeping deals open for several days.
Order Types and Execution: Every order costs something, no matter what kind it is. There will be a fee for immediate delivery market orders, and limit orders will have a set price at which they will go into effect. Traders can also use stop-loss and take-profit orders to keep risk under control and make sure they make money. However, buying too much may make transaction fees go up.
Margin trading: This has a much higher benefit but also a higher risk because you borrow money to trade, which makes both the profit and loss bigger. The risk, on the other hand, is very changeable, so it needs very strict risk management because of the higher interest rates and exposure.
Swing Trading: This strategy captures trends by holding positions for several days.
Order Types and Execution: Regardless of its type, each order has a cost. Immediate execution market orders will have a cost, while limit orders will have a defined trigger price at which they will activate. In addition to these, traders can also use stop-loss and take-profit orders to manage risk and secure profit. However, excessive trading may increase transaction fees.
Margin Trading: This allows for a much higher reward with greater risk due to using borrowed funds to gain leverage, thereby increasing both profit and loss. However, this comes with highly volatile risk and, as such, requires very strict risk management due to heightened exposure and interest costs.
How to Mitigate Risk
- Invest Only What You Can Afford to Lose: Markets are out of control.
- Diversification: Refrain from investing all your assets into one digital coin.
- Setting Stop-Loss Orders: Close trades at a profit or loss; you will be stopped if the market turns against you.
- Stay Updated: Create an account with trusted news providers to receive information that doesn’t cause sudden market shifts.
5. Regulatory Concerns in India
India’s cryptocurrency market legalizations are still advancing. The 2022 Budget Bill levies a 30% tax on any profits earned from cryptocurrency trading, while losses cannot be counterbalanced with other income. Furthermore, there is a 1% tax Deduction at Source (TDS) on sums exceeding certain limits. To stay compliant, Bank, crypto exchange, and tax authority communications should be monitored.
6. Final Thoughts
The most prominent aspect of cryptocurrency trading is its level of risk, which can only be endured by investors willing to face adversity. The essence of investing in cryptocurrency as an Indian is building a foundation on understanding the underlying technology, accompanied by thorough planning and detailed risk assessment. Day traders utilizing Bitcoin or Ether investors intending to hold for the long haul must ensure they know the constantly evolving environment.
There is always a chance of receiving a substantial reward, but always remember that trading cryptocurrency brings significant risks. So, it is best to exercise caution when investing and only spend what you are comfortable losing.