How Does Ethereum Trading Work?

Outside of Bitcoin, Ethereum is the cryptocurrency network with the most potential for providing real-world benefits to its users. However, cryptocurrency requires patience and a willingness to learn, as there’s a bit of a barrier to entry. If you’re interested in trading on the Ethereum Network, here are some things you need to know.

Understanding Ethereum

In simple terms, Ethereum is essentially a software platform, not unlike Apple’s iOS or Microsoft’s Windows. However, this particular platform is exclusively online. Ethereum’s ultimate goal is to decentralize applications to provide added security over the existing options that are available today. The way it does this is by hosting the database on numerous computers around the world. Each computer has a copy of this database and several of them have to agree on database changes before they’re implemented. This kind of database is called a blockchain and is one of the fundamental concepts of existing cryptocurrencies.

The currency that is exchanged across this particular blockchain is known as Ether. It differs from Bitcoin in several ways, the largest of which being its unlimited supply. Bitcoin gains its value from supply and demand. There are only 21 million Bitcoins and that’s how the most there will ever be. However, year over year, the same amount of Ether will produced and introduced to the system.

Getting Started

If you’re ready to dive into ethereum trading, the process is fairly straightforwardthough it does require a fair amount of research. Firstly, you’ll need to create an account on an exchange. The exchange you use will vary based on personal preference, where you’re located, and local governing laws. Not all exchanges are created equally and some provide the added benefit of being able to directly purchase Ether. If you’re asked to provide proof of identity when signing up for an exchange, it’s a security measure implemented to help prevent money laundering, so it’s best to comply.

Next, you’ll need to fund your account either via a transfer from your bank account or a credit card. The credit card method is most often the quickest if that’s a factor in your decision. Bank transfers frequently take up to a week to be processed but do typically come with the perk of higher transfer limits.

Basics of Trading

There are two basic strategies when it comes to trading on the Ethereum Network. As with any financial trades, keep in mind the basic tenet of “buy low and sell high.” This maximizes your chances for profiting off of your trades. The first is the buy and hold method. It’s fairly self-explanatory as you’ll purchase Ether and then store it in a safe place until you’re ready to cash it in.

The other method is active trading which is the more complex of the two. Depending on the exchange you selected, you may or may not be able to set stop-limit orders. If you’re unable to set these orders, you’ll have to set up alerts to help you track how the market is moving and then manually make your trades. Not all exchanges will allow you to store your sales in your local currency so you may need to consider transferring the money back into your bank account to secure your profits.

Start Small

If trading on the Ethereum Network seems a little daunting at first, you’re not alone. Before diving into your first trades, you should make sure you’ve done a fair amount of research. Seek out online communities for beginner traders to get advice and information on completing your first trade. You should also start off with a smaller trade to minimize the risk of losing any money on a bad investment. With some practice and continued research, you’ll be trading Ether like a professional!