How to buy Polkadot from the UK

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What is Polkadot?

Polkadot is a platform developed by Gavin Wood (co-founder of Ethereum) whose purpose is to allow the transfer of information between different blockchains and solve the scalability problems of these, which also has its own token: the DOT.

Each blockchain, along with its ecosystem, is a totally isolated entity from the rest, so they cannot communicate with each other. Thus, although we can exchange Bitcoin for Ethereum and vice versa, we cannot transfer data from one network to the other.

Added to this are the limitations of each network which, with the progressive increase in their use, end up congested and increasingly slower. In the case of Bitcoin, the network can only process on average 3 transactions per second, which is a very low limit.

On the other hand, Ethereum has even processed 19 transactions per second which may fall short given the large number of decentralized applications operating over the Ethereum network.

These limitations make it highly unlikely that these two cryptocurrencies (and the vast majority) will become a mainstream payment method. To understand this, let's compare with traditional means of payment such as Visa.

According to its official website, Visa can process 65 thousand transactions per second in 160 different currencies, although supposedly on average it only processes a maximum of 20 thousand transactions per second. Whatever the figure, the difference is abysmal.

Add to this the ability of the Visa platform to connect to other platforms such as Paypal, in addition to any bank's own platforms. Knowing the magnitude of the problem, we can now understand more clearly the breakthrough that Polkadot represents for the crypto world.

How much is the difference between Polkadot and other cryptocurrency networks?

Polkadot's complex infrastructure seeks to solve the problems described with a multi-chain platform where different blockchains can be connected, that's right, it connects Bitcoin with Ethereum and many others.

In addition, the platform allows individual chains to exchange information with each other also making it possible to process multiple transactions in parallel which greatly increases the amount of processing.

According to tests conducted in 2020, Polkadot is capable of processing more than 1,000 transactions per second. Although this amount is still far from what Visa processes, the best thing is that this amount can be increased very easily as the number of users and transactions grows.

But like all of them, it works with its own token, the DOT, which is used to pay fees for each transaction made using the Polkadot network. Therefore, as the use of Polkadot is expected to increase, the price of its token, the DOT, is also expected to grow steadily over time.

Instruments you can trade

Meet the Exchanged Traded Fund

Have you heard about Exchange-traded funds? They are passively managed funds, known for combining the advantages of stocks and mutual funds, because they can be exchanged at any moment in the market, but include a much wider diversity of assets and considerably lower fees.

About Index Funds

In case you are interested in long-term investments, and you won't need to take back your money in at least five years, index funds can be the best choice. This type of investment is also suitable for beginners since the risks are lower. Besides, the variety is wider.

Perhaps you have a different idea, but very few fund managers can beat the index (although you have probably heard of managers who obtain huge profits).

But putting aside some unusual cases (like Warren Buffett's), all that glitters is not gold: when someone brags about having beaten the benchmark, it was probably for a short time, or their rates are really high. In the end, indexing is better because commissions are minimal. Also, if something happened in the past it doesn't necessarily represent a regular behavior.

Index funds offer solutions to both concerns: their commissions are insignificant and in the long term they almost always beat active managers.

Forex trading

What is known as Forex trading consists in the trading of currencies. In other words, is the conversion between a pair of currencies, and the aim is, evidently, to make a profit out of this.

If you decide to exchange the EUR/USD pair, you speculate how many dollars it will take to buy a euro, anticipating that after buying the first currency (the euro) it will revalue compared to the second (the dollar), to make a profit by selling it. Suppose you entered when a euro is worth 1.10 USD and you leave when the price has gone up to 1.15: that margin is yours once you make the operation.

You may be thinking that operating with currencies requires high investments, and that is correct, since increases in prices are never that dramatic, and if you use a lot of leverage to counter that, you will take a considerable 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.

Most currencies are available on this broker. Still, take into account that this market works through contract for differences, thus you will not be the owner of the real asset.

Stocks

Let's discuss the most well-known instruments: stocks or shares. Stocks are portions of publicly traded corporations. It is possible to be a shareholder of a company and have returns, but you must know where to invest your money.

We can classify stocks into two main types: the ones that divide their earnings regularly among the investors, and those that don't. The former ones are great, of course, but investing in the latter can also be a good idea since sometimes you can make even more money by selling the shares.

If you invest in stocks that payout, you will receive the funds into your broker account, and you can withdraw them or invest back. However, you can take advantage of compound interest, so we would recommend reinvesting in the company.

If you invest in stocks on this broker, you can use leverage. However, it is not advisable, since it would be a CFD and you would not receive dividends. On top of that, shares are usually long-term investments, and you have to pay commissions.

How do Contracts for Difference function?

You probably have seen the acronym CFD now and then if you entered this broker before. We will come back to it, but first, you should know that CFDs on this broker are only possible if you short sell.

We will also explain terms such as short-selling and leverage, in case you are considering day trading cryptocurrency or other more advanced practices.

Even if you don't have a positive balance, you can still operate on this broker with CFDs. In a hypothetical case: you believe that the Polkadot will go down, so the logical thing is to think “if it is going to depreciate (go down in price), I'll just wait and bet when it has gone down”. However, if it really falls, it might mean extra money for you.

The practice known as “going short” will allow you to do that. It works, more or less, like this:

  • You ask for a loan of, let's say, 100 units of Polkadot, which cost $ 5,000 at the moment (these figures aren't real)
  • You sell the 100 units at $ 5,000
  • The price falls, as you guessed, and the unit of Polkadot goes from $ 50 to $ 30
  • Again, you buy the 100 units, but now they are worth $ 3,000
  • Then you give back the 100 units to whoever loaned them to you
  • The rest is yours, so, you will have earned $ 2000

Consider that it sounds much more tricky than it really is: we can summarize this whole operation by saying that by trading in Polkadot you can also earn money if you foretell the downs.

Leverage: trading with someone else's money

Do you know what leverage is? Just in case, we'll put it simply: the good thing about trading is that it allows you to invest even more than you can have in a given time. Let's say that you enter with $ 100 and you put them with x2 leverage, the amount of your investment will be $ 200.

Leverage and the importance of “Take Profit” and “Stop Loss”

Let's say now that you know that the price of Polkadot is about to raise its price, therefore you are thinking about “going long”.

You are absolutely certain that Polkadot will rise, but you only have $ 1,000 available. Isn't it a shame to miss out on the possibility of earning more money?

You could consider requesting a credit, but it is a process that takes time, and when you receive the money, Polkadot might be already at a much higher price, so you wouldn't be able to invest the way you planned.

Leverage is just like a loan, but it is only a few clicks away! You will be able to operate with much higher amounts than what you actually have on the platform. Before trading, you will how much leverage to use as in the screenshot below:

apalancamiento

Within other markets, the leverage you can use is higher. Why? Because leverage is regularly for short-term operations, and cryptocurrencies tend to be a medium or long-term investment. That said, I'm going to explain better how leverage works.

You begin with $ 1,000 and decide to use leverage x2, which means you would really invest $ 2,000 (the extra $ 1,000 to reach $ 2,000 are “borrowed” from the broker).

A few days later, as you thought, Polkadot increases by 20% and your money has appreciated reaching $ 2,400. But you don't want to take too much risk, so it's time to sell.

You need to pay back the $ 1,000. You have $ 1,400 left, of which $ 1000 was yours initially, so you'll have earned $ 400.

By starting with $ 1000 and getting $ 400, you'll be earning 40% of your investment. That is pretty good.

Does it sound too wonderful? The thing is, it can also play against you. If everything goes according to plan and the price goes up, you will earn more money in less time; however, if the value of the asset goes down, you will also lose more in less time.

For example: if 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 crucial to know two other concepts: Take Profit and Stop Loss.

Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.ย 

If you bought Polkadot at $ 100, you can ask the broker to close when it reaches $ 120. That way, you make sure you won't be blinded by greed and decide to keep waiting in case it keeps going up, which could be a mistake.

Also, if you use leverage you absolutely need to place a Stop Loss order (take into account that any small loss is greater with leverage). Always remember to mark a Stop Loss more tight than that suggested by your broker.