Market Depth – the Market Depth view shows the total cumulated offer and demand for a given cryptocurrency. This is the place where we can identify the « sell walls » I was talking about in a previous section. A market that is not manipulated (or at least not overtly) will have a stair-shaped graph on both sizes, with people willing to buy or sell at different values.
Benjamin Graham, who is known as the father of value investing, has preached that the real money in investing will have to be made—as most of it has been in the past—not out of buying and selling, but out of owning and holding securities, receiving interest and dividends, and benefiting from their long-term increase in value. This practice has created millionaires.
A word on exchange balances: it is NOT RECOMMENDED to keep your cryptocurrency assets on exchanges. There are countless documented cases of people who lost access to their funds, either because their account was disabled, or because legislation forbade the exchange operator to give access to users based on their geographical location. Some exchanges have been hacked in the past and will be hacked. It is RECOMMENDED that you use your own wallets, that you secure them properly (more below) and that you limit the cryptocurrency held in exchanges only to carry the business/transactions you have to, and for the most limited amount of time, to reduce exposure.
To make comparisons between companies, sectors and markets a little easier, there are a number of mathematical models used. The most common and often the most helpful is the P/E ratio. The Price to Earnings ratio takes the share price and is divided by the earnings per share. It is possible to calculate this using past earnings, projected future earnings and with all sorts of moving averages ;-) Therefore, this is one number that it is vital for any investor to know and understand.
It is also worth trying to keep up to date with the latest thinking related to the area of investment that you are trying to specialise in. Therefore, if you plan to invest in defensive or income stocks, for example, it would be wise to read regularly about value investing and dividends. If you plan to invest in growth stocks, it would be wise to read about technology and the latest trends. Perhaps you could subscribe to one or more trade publications that relate to the sector(s) that you are most interested in.
The stock market is made up of exchanges, like the New York Stock Exchange and the Nasdaq. Stocks are listed on a specific exchange, which brings buyers and sellers together and acts as a market for the shares of those stocks. The exchange tracks the supply and demand — and directly related, the price — of each stock. (Need to back up a bit? Read our explainer about stocks.)
Insider trading: this is formally forbidden and punished in regular markets by stock exchanges organisations, but since crypto markets are unregulated, there is no way to apply any control here. Insider trading is when you have insider information about a project before anyone else or before the news hits the public, and you can thus acquire or sell a lot of cryptocurrency before the news break, allowing you to make huge profits, or to minimalise your losses.
A stock's market capitalization (cap) is the sum of the total shares outstanding multiplied by price. For example, if a company has 1 million outstanding shares priced at $50, its market cap would be $50 million. It has more meaning than the share price because it allows you to evaluate a company in the context of similar-sized companies in its industry. A small-cap company with a capitalization of $500 million shouldn't be compared to a large-cap company worth more than $10 billion. Here are how companies are generally grouped:
To buy cryptocurrency using what is called « fiat currency » (i.e. Euros, Dollars, Yen, whatever is your local currency), you will need to sign up to an exchange. There are two kinds of exchanges: fiat to cryptocurrency exchanges and cryptocurrency only exchanges. Obviously to get started you will need to go into an exchange that allows the purchase (and selling) of cryptocurrency against fiat currency, such as Coinbase, Kraken, GDAX etc. (note that some instant access exchanges – see below- also allow instant purchase with cash).
Dividends are quarterly payments companies send out to their shareholders. Dividend investing refers to portfolios containing stocks that consistently issue dividend payments throughout the years. These stocks produce a reliable passive income stream that can be beneficial in retirement. You can't judge a stock by its dividend price alone, however. Sometimes companies will increase dividends as a way to attract investors when the underlying company is in trouble. If a company is offering high dividends, ask yourself why management isn't reinvesting some of that money in the company for growth.
To facilitate this process, a company needs a marketplace where these shares can be sold. This marketplace is provided by the stock market. If everything goes as per the plans, the company will successfully sell the 5 million shares at a price of $10 per share and collect $50 million worth of funds. Investors will get the company shares which they can expect to hold for their preferred duration, in anticipation of rising in share price and any potential income in the form of dividend payments. The stock exchange acts as a facilitator for this capital raising process and receives a fee for its services from the company and its financial partners.
Bonus Stock Market Tip: Everything above is related to how best to invest actively - in other words buying and selling into companies that have been selected by you. But what if you don't have the time, money or inclination? What if the paragraphs above put you off? Perhaps you were looking for a simpler guide? The stock market for dummies perhaps?
You may decide to invest ad-hoc or on a regular schedule basis. You may for example want to invest 40% of your allotted funds into mainstream, “secure” investments such as Bitcoin, Ethereum or Zcash. You may decide to spread out the remaining 60% to cryptocurrencies listed in the top 20 or top 30 projects based on capitalization on coinmarketcap, if you feel this is a secure strategy.
Stock exchanges operate as for-profit institutes and charge a fee for their services. The primary source of income for these stock exchanges are the revenues from the transaction fees that are charged for each trade carried out on its platform. Additionally, exchanges earn revenue from the listing fee charged to companies during the IPO process and other follow-on offerings.
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At the same time, there are literally hundreds of thousands of individuals who buy and sell corporate securities on one of the regulated stock exchanges or the NASDAQ regularly and are successful. A profitable outcome is not the result of luck, but the application of a few simple principles derived from the experiences of millions of investors over countless stock market cycles.