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Dogecoin, the meme cryptocurrency, is one of the most unique cryptocurrencies in existence and one of the most talked about recently. Mainly because of the tweets of billionaire Elonk Musk, who on several occasions has said that Dogecoin is one of his favorite cryptocurrencies.
It was created in 2013 when Billie Marcus, an IBM engineer, was playing and experimenting with cryptocurrencies. It would be his friend Jackson Palmer who would propose to put the Shiba Inu dog of the memes (doge) as an image, finally, it was just a joke.
Thus, with such a simple origin story, the Dogecoin went on the market in December 2013 revaluing 6% in less than two weeks. And it has remained with a steady growth in price and popularity until reaching the levels it maintains today.
How does Dogecoin work?
Dogecoin is based on the Litecoin platform that runs on a proof-of-work algorithm. This means that Dogecoin, like the vast majority of cryptocurrencies, must be mined to comply with the transaction validation process.
But something that characterizes this cryptocurrency is that there is no maximum number of coins that can be mined, that is, it has no limits. This makes it an inflationary cryptocurrency as several billion tokens are added each year from mining.
However, this makes practical sense, which was the idea of its creators: that Dogecoin should always be cheap. Moreover, this makes Dogecoin's commissions per transaction incredibly cheaper than with any other cryptocurrency.
That is why sending money using Dogecoin is much cheaper than with Bitcoin or Ethereum. This has made it an ideal cryptocurrency for “tipping” on the internet, and one that has been widely used on Reddit for fundraisers.
The future of Dogecoin
Another particularity of the cryptocurrency is that Elon Musk, founder of Tesla and other companies, has said on several occasions that Dogecoin is one of his favorite cryptocurrencies.
In one of his most controversial tweets, Elon posited that the most absurd things end up being the most likely and Dogecoin becoming a global currency is the most absurd possible outcome.
And that is exactly why Elon Musk invests in this cryptocurrency and gives it his full backing. This, along with its large and growing market capitalization, makes it virtually impossible for the cryptocurrency to ever disappear.
Financial instruments you can trade
What do you know about Exchange-traded funds? They are similar to index funds and are known for merging the benefits of stocks and mutual funds: they can be exchanged regularly at market price, but have much more diversity and the fees are significantly lower.
Forex or currency trading allows obtaining profits by exchanging one currency for another.
If you decide to trade EUR and USD, you speculate how many dollars it will take to buy a euro, with the expectation that the euro will raise its price compared to the dollar. Then, if you bought each euro for 1.15 USD and you sell them back when their price is 1.20 USD, you'll be keeping that margin.
Perhaps you already deducted this, but trading with currencies requires investing a lot, since variations are typically low, or using a lot of leverage, which you know is a risk. Our advice for those starting in the world of trading is to choose another market to begin with, since Forex is risky and complex.
The most known currency pairs are available on this broker but take into account that in Forex sales are always made through contract for differences, thus the underlying asset won't be yours.
Stocks or equities are the most common securities. Some publicly traded companies decide to split into fractions: you can be one of those shareowners, but first, you have to know where and how to make your investment.
We can group stocks into two different kinds: the ones that divide their earnings regularly among the shareholders, and those that don't payout. The former ones are great, obviously, but investing in the latter can also be a good idea since sometimes you can make even more money by selling the shares.
In the case of this broker, if you choose a company that pay out dividends, these will be reflected in your balance, and you can collect them in cash or reinvest them. We recommend, if you don't have financial urgencies, that you benefit from compound interest and reinvest it in the company.
If you trade with stocks on this broker, you can use leverage. But it is not advisable, since it would be a CFD and you would not get dividends. Besides, shares are usually long-term investments, and you have to pay commissions as long as your position is open.
About Contracts for Difference
If you have entered this broker previously, you must have seen how the initials CFD appear all the time. We will explain its meaning now, but you should know first that cryptocurrency operations on this broker are only CFDs if you go short or leverage over x2 (but the platform does not even allow this option).
We will also refer to concepts such as leverage and “going short”, in case you are considering day trading cryptocurrency or other more advanced practices.
The good thing about this broker is that it allows you to bet both “in the black” and “in red”. Let's say that you are sure that the Dogecoin will fall, so the logical thing is to think “if it is going to depreciate or go down in price, I simply refrain from getting in and I'll go in when it has gone down”. However, if it really falls, it might mean extra money for you.
You can accomplish that by “going short”. Here's how it works ,roughly:
- Someone lends you, for example, 100 units of Dogecoin, with a total price of $ 5,000 (these are completely made up numbers)
- You make $ 5,000 by selling the 100 units
- The Dogecoin goes from $ 50 to $ 30 (as you thought, it devaluates)
- You obtain the 100 units again, but their current value is now $ 3,000
- You return the 100 units
- The rest is yours, so, you will have earned $ 2000
It all sounds more complex than it really is. Just keep in mind that by trading in Dogecoin on this broker, you can make a profit when you anticipate the price will fall.
How to use leverage in trading
In case you haven't heard about “leverage”, we'll describe it briefly: it is the possibility to invest a higher amount than you actually have. For example, if you start with $ 100 and you leverage x2, your initial investment will be $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Let's assume that you know that Dogecoin is going to rise, thus you are thinking about “going long”.
You are certain that Dogecoin will go up, and you just have $ 1,000 at that moment, but the fact is, you have the chance of investing more.
Perhaps you could go to your bank, ask for a credit, put an asset as collateral, wait for it to be accepted, wait for the money, send the money to your broker, confirm that it arrived, and then buy Dogecoin… Nevertheless, once you've managed doing all that, probably Dogecoin would be already at a much higher price, and it wouldn't be a good idea to invest then.
Leverage is like a loan, and you will only have to click a few times! You will be able to invest (and earn) much more than what you have on the platform's wallet. Before trading, you will be able to choose between the different options as in the image below:
With other assets, you can use more leverage. This is because leverage is regularly for short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. But let's see how leverage works:
- If you decide to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 (remember that$ 1,000 are a “loan” from your broker).
- Then, turns out that Dogecoin does rises, as you thought, and now the cost of your investment is $ 2,400 (20% more), so you decide to sell back.
- Once the $ 1k from leverage is returned, you will have $ 1,400 left; which means you've earned $ 400, since the other $1,000 was yours from the beginning.
In conclusion, by investing $ 1000 you can make a profit of 40% (in the case you earn $ 400). That is quite good.
But there's always a drawback. If everything goes ok and the price rises, you will make money. However, if the price falls, you will also lose more money than you invested.
For instance: if instead of increasing by 20%, the price falls by 10%, you do not lose $ 10, but twice (the leverage) that figure, that would be $ 20. Therefore, when operating with leverage it is essential to take into account Take Profit and Stop Loss.
Take Profit is a limit you can set when trading: you set the platform to sell your assets once they get to a point above the entry price. For instance, you can buy Dogecoin at $ 100 and ask your broker to close your position automatically when it reaches $ 120. It is very useful to avoid being blinded by greed: we would all accept a 20% profit in the beginning, but when you reach that 20% it is easy to want some more and put yourself at risk of losing money. It's like you made sure now of not acting recklessly in the near future.
Stop Loss is even more necessary, mostly when operating with leverage, since a small loss could be fatal for your wallet. Consider that the broker will recommend a limit for Stop Loss, but you should place it closer to current price than the platform suggests.