|Recommended Broker 🇮🇳||
|🌐 Official website:||Go to website|
Introduction to 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.
What financial assets can you trade?
This is the best option for people who can invest in the long term, especially for beginners, because it is less expensive, diversified, and safer.
Unlike a lot of people think, benchmark returns are very difficult to beat and very few fund managers achieve that, apart from some famous cases, like Warren Buffett's.
In practice, if a fund manager achieves to beat the benchmark, it is only for a short time or on a specific occasion. Or perhaps they would charge very high rates and indexing would be a better decision.
The great advantage of index funds is that they perfectly solve these two issues: their commissions are minor and they regularly beat active managers, but in the long term.
What is known as Forex trading consists in the exchange of currencies. Put differently, is the conversion of one currency to another, and the aim is, evidently, to make a profit out of this.
If you decide to exchange euros and dollars, for instance, you buy euros at their price in dollars, with the expectation that the euro will rise compared to the dollar. Therefore, if you purchased each euro at 1.15 USD and you sell them back when they are worth 1.20 USD, that margin will be yours.
As you may have already inferred, this kind of trading usually implies large resources, because prices never increase that much, or using a lot of leverage, which is always a risk. Our recommendation for those who are new in the world of trading is not to start with Forex, but with a safer and simpler market.
The most usual currency pairs are available on this broker. However, take into consideration that in Forex sales are made through contract for differences, so the underlying asset won't be yours.
Stocks or equities are the most popular financial assets. Some enterprises decide to split into fractions: you can be one of those shareholders, but first, you should know where and how to make your investment.
We can categorize stocks into two main types: those of companies that distribute their earnings among the shareholders and those that don't. Does that mean that you should only consider the former? No, of course not: if a company does not pay every year but has a lot of potential, it can still represent a good inversion, since selling the shares eventually could pay much more.
If you invest in stocks that payout, you will receive the funds into your broker account, and you can withdraw them or invest back. Nevertheless, you can benefit a lot from compound interest, so our suggestion is that you reinvest.
If you invest in stocks on this broker, you can use leverage. However, we don't recommend that, since it would be a CFD and you would not get dividends. On top of that, as equities tend to be long-term investments, you will have to pay fees as long as your position is open.
About Contracts for Difference
You probably have found the initials CFD all the time if you entered this broker before. Before we come back to this, you must know that CFDs on this broker are only possible when you short sell or leverage over x2 (although this is not even available on the platform).
We will also refer to concepts such as leverage and “going short”, in case you are considering day trading cryptocurrency or more advanced operations.
With CFDs you can operate on this broker even if you are “in red” or don't have a positive balance. Let's say that you are sure that the Polkadot will go down, so perhaps it is obvious to think “if it is going to depreciate (go down in price), I simply refrain from getting in and I'll go in when it has gone down”. Nevertheless, if it actually goes down, you can make some profits out of that.
You can do this through what is known known as “going short” which consists in something like the following:
- You ask someone for a loan of, let's say, 100 units of Polkadot, which total value at that moment is $ 5,000 (these numbers aren't real)
- Next, you make $ 5,000 by selling them at the market price
- The Polkadot devaluates from $ 50 to $ 30
- Again, you purchase the 100 units, but now they are worth $ 3,000
- Now you return the 100 units to the person that loaned them to you
- The rest is yours, so, you will have earned $ 2000
It is really simple. Just bear in mind that by trading in Polkadot on this broker, you can make money when you anticipate downs.
How to use leverage in trading
If you still don't know what “leverage” is, we'll put it short: it is, simply, the possibility to invest a higher amount than you actually have. For example, you can enter with $ 100, but if you use x2 leverage, you will be investing $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Suppose now that you are sure that the price of Polkadot is going to raise its price, thus you want to take a long position.
You are positive that Polkadot will go up, but you can only invest $ 1,000. Despite that, why miss the opportunity to make more money?
Possibly, you could ask your bank for a loan, wait for it to be accepted, wait for the money, send the money to your broker, confirm that it arrived, and then buy Polkadot… But by then it is possible that your prediction was confirmed a long time ago, and Polkadot would be already at such a high price that it is not worth investing.
Using leverage, you can get that amount just by clicking your mouse. It's exactly like a loan, but much better: from the broker itself. You will be able to invest much more money than you actually have on the the broker wallet. Before trading, you will see the leverage options as in the screenshot:
With other assets, the leverage you can choose is higher. This is because leverage is most common in short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. Let's talk a bit more about how leverage works.
You start with $ 1,000 and decide to use leverage x2, then you would have $ 2,000 to invest (the extra $ 1,000 to reach $ 2,000 are “borrowed” from your broker).
A week after that, turns out that Polkadot rises up by 20% and now your investment costs 2,400. So, a wise decision is to sell them back now.
You will have to give back the $ 1,000 of leverage and the net profit would be $ 400 (since the other $ 1,000 was your initial investment).
In conclusion, by investing $ 1000 you can make a profit of 40% (in the case you earn $ 400). That is pretty decent.
But not everything is wonderful. If all goes as you intended and the price rises, you will make profits. Nevertheless, if the price falls, you will also lose more money in the blink of an eye.
Let's say that the asset didn't increase by 20%, but it decreased also by 20%, you won't lose $ 20 but $ 40, because of the leverage. For that reason, the concepts of Take Profit and Stop Loss are fundamental when using leverage.
Take Profit is a trading limit you can set for your assets: you ask the platform to sell them once they get to a point above the entry price. For instance, you can buy Polkadot at $ 100 and request that your position is closed automatically when it reaches $ 120. It is very helpful to avoid being blinded by greed: we would all accept a 20% profit when investing, but when you reach that 20% it is easy to ask yourself “what if this keeps going up and I can earn even more?”. It's like you made sure now of not acting recklessly in the future.
On the other hand, when using leverage you should always use Stop Loss, because a small decrease in the price of an asset can lead to a substantial loss. Consider that your broker will recommend a limit for Stop Loss, but it is better to place it closer to current price than the platform suggests.