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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.
Assets you can trade
The most popular financial assets are stocks: these are fractions in which a firm can be shared. You can be a shareholder of a company and obtain a profit, but first, you should know where and how to invest your money.
We can categorize stocks into two different kinds: the ones that divide their earnings regularly among the investors, and those that don't payout. The former ones are great, obviously, but investing in the latter can be a good idea too since the profit you can make by selling the shares can be even larger.
When trading on 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. Our suggestion is, if you don't need the money immediately, that you don't renounce the magic of compound interest and reinvest it in the company itself.
If you trade with stocks on this broker, you can use leverage to “dope” your trades. However, it is not advisable, since it would be a CFD and you would not receive dividends. Besides, as shares tend to be long-term investments, you will have to pay fees.
Exchange-Traded Funds or ETFs are similar to index funds. They can be described as a combination of stocks and mutual funds, including the best features of both. They are traded in the market like stocks, during the day. Their main benefit is that they offer more alternatives compared to stocks, and their commissions are much lower than those of an actively managed fund.
Forex or currency trading is the exchange between two currencies.
If you decide to trade EUR and USD, you speculate how many dollars it will take to buy a euro, with the expectation that after obtaining the first currency (the euro) it will raise its price 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 exit when it is worth 1.15: consequently, that margin will be yours once you sell back.
As you may have deduced, operating with foreign exchange requires investing a lot, since variations are typically low, or using a lot of leverage, which implies an extra risk. In case you are new to the world of trading, we don't recommend beginning with Forex, because it is very risky and intricate.
Most currencies are available on this broker but keep in mind that in Forex sales are made through CFDs, therefore you will not be the owner of the underlying asset.
About Contracts for Difference
You probably have seen the acronym CFD now and then if you entered this broker before. Before we come back to it, you should know that cryptocurrency trading on this broker is only CFD if you go short.
We will also refer to concepts like short-selling and leverage, in case you are considering day trading cryptocurrency or other more advanced practices.
With CFDs you can operate on the platform even if you are not “in the black” or having a negative balance. For instance, you are sure that the Dogecoin will fall, so perhaps you consider that it is better to refrain from getting in until it does. But if it really falls, it might mean extra money for you.
You can accomplish that by “going short”. Basically, this is how it works:
- You ask someone to lend you, for instance, 100 units of Dogecoin, which total value at the moment is $ 5,000 (obviously, these numbers aren't real)
- You sell the 100 units at $ 5,000
- The price is reduced, as you calculated, and the unit of Dogecoin now costs $ 30 instead of $ 50
- You buy all 100 units one more time, but now their price is $ 3,000
- Then you return the 100 units to the person that loaned them to you
- The $ 2000 difference is yours
Consider that it seems much more complex than it really is: we can just say that by trading in Dogecoin you can also earn money if you anticipate it will go down.
How does leverage work
Do you know the term “leverage”? We'll put it simply: trading allows you to invest more money than you can have in a given time. Let's say that you have $ 100 and you put them with x2 leverage, you will be really investing $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Let's assume that you are sure that Dogecoin is going to rise, therefore you decide to “go long”.
You are certain that Dogecoin will rise, but you can only invest $ 1,000. Isn't it a shame to miss out on the opportunity to earn more money?
Possibly, you could ask a financial company for a credit, put something as a guarantee, wait for it to be accepted and receiving the money, and then obtain Dogecoin… But by then it is possible that your prediction was confirmed a long time ago, and Dogecoin would be already so high that it is not worth investing.
Using leverage, you can get that amount with two clicks. It's like borrowing money, but much easier and quicker, and with the benefit that you will be getting it directly from the broker which will let you invest much more than you have on the platform. Before trading, you will be able to choose between the different leverage options as in the image below:
When trading with other assets you can use more leverage. This is because cryptocurrencies are a value that is invested in the medium-long term. However, leverage is used primarily for short-term operations or day trading. That said, I'm going to explain better how leverage works.
You begin with $ 1,000 and pick leverage x2, then you would really invest $ 2,000, since your broker would put the other $ 1,000 (which is double the initial amount).
A couple of days later, as you thought, Dogecoin increases by 20% and the value of your investment is now $ 2,400. But you don't want to take too much risk, so it's time to sell.
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 and obtaining $ 400, your net profit would be 40%. That is quite good.
But watch out: if everything goes ok and the price rises, you will make profits. On the opposite scenario, if the asset decreases, you will also lose more money than you invested.
Supposing that the asset didn't increase by 20%, but it went down also by 20%, you won't lose $ 20 but $ 40, because of the leverage. That is why to operate with leverage it is fundamental to know two other concepts: Take Profit and Stop Loss.
Take Profit is the automatic order to sell once the asset is above the entry price: you purchase Dogecoin at $ 100 and you ask your broker to close your position as soon as the price goes up to $ 120. It is very helpful to avoid being blinded by enthusiasm: we would all take a 20% profit when making the investment, 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 important, mostly if you trade with leverage, since a small loss with leverage can have a significant impact on your wallet. Always remember to set a Stop Loss lower than that suggested by the platform.