Guest Post was written by Sean Mortberg, an aspiring tech writer and a student at the University of Louisville in Louisville, Kentucky.
With the sharp rise in popularity and volatility this past year, it’s important to understand the way the crypto world works. Currencies such as Bitcoin, the most valuable and most popular of over 1,500 tokens and coins, are traded on open-source markets referred to as exchanges. On these exchanges, traders can buy, sell, or trade cryptocurrencies for equally valued amounts of other currencies or fiat money, such as U.S. dollars.
Every exchange is different. They each carry different trading options, deposit methods, supported currencies, and each has its own record of security successes and failures. Mt. Gox collapsed in 2014 due to a major hack which took $450 million. BitConnect, another exchange, collapsed earlier this year after months of bad press in which they were accused of being a Ponzi scheme.
It’s important to consider these and other important aspects of trading when beginning to invest in cryptocurrency. Just like in the traditional stock market, it is essential to diversify, pay attention to market trends and experts, and be patient. Many people expect instant returns and dump all their life savings into one exchange only for that exchange to be hacked, leaving the investors with nothing.
Another issue presented by the decentralized and volatile crypto market is the issue of slippage. Slippage is when the price drops abruptly mid-trade due to market spikes and dips. There are several ways to avoid this such as market orders, stop orders, and limit orders. Each has its advantages and disadvantages and require strategizing and the willingness to risk. Depending on the order you choose, the exchange will receive a commission in the form of maker and taker fees, which differ in the time orders take and the fee amount on orders.
Learn more about crypto strategy and the top crypto exchanges by reading the infographic below, provided by Best Bitcoin Exchange.