Cryptocurrency
A cryptocurrency is a digital asset recorded on a blockchain and transferred directly between users, without a bank keeping the record.
Cryptocurrencies such as bitcoin and ether trade around the clock, move between people without a bank in the middle and can swing in price far more than most stocks. Before trading them it helps to know what you are actually buying: a record on a blockchain, controlled by keys, with risks that differ from traditional markets.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 4 min
- Also called
- Crypto, Crypto asset, Digital currency
- Updated
Cryptocurrency in plain words
A cryptocurrency is a digital unit that is sent cryptographically from one user of a blockchain network to another.1
The record of who owns what is kept on the blockchain itself, not by a bank.2
Crypto prices can climb fast, but they can also fall hard — these are very risky, volatile assets.3 Size positions with that in mind — see Position Sizing and Volatility.
How to approach a first crypto trade, step by step
Learn what it is
Know whether the coin is a native blockchain asset, a token or a Stablecoin.
Decide your risk
Because crypto can be very volatile, risk only a small share of your account.3
Place the order
Use a Limit Order to control the price you pay.
Decide on custody
Leave the coins on the platform or move them to your own wallet; securing crypto mainly means securing the private keys.3
Record the trade
Log price, size, fees and the reason in your Trading Journal.
Worked examples
Example 1 — A large daily swing
−$240You buy 0.1 coin at $30,000. The price falls 8% in a day.
| Position value | 0.1 × $30,000 = $3,000 |
| Loss | $3,000 × 8% = $240 |
Moves like this are common in crypto, which is why it is described as often volatile.3
Example 2 — Sizing for volatility
$1,000 positionYour account is $10,000 and you risk 1% per trade. Your stop is 10% below entry.
| Risk amount | $10,000 × 1% = $100 |
| Position size | $100 ÷ 10% = $1,000 |
A wide stop calls for a smaller position, so a normal crypto swing does not break your risk limit.
Example 3 — Fees on a round trip
1% to break evenYou buy and sell $2,000 of crypto with a 0.5% fee each way.
| Fees | $2,000 × 0.5% × 2 = $20 |
| Break-even move | $20 ÷ $2,000 = 1% |
The price must rise 1% just to cover costs — check fees before trading small moves.
Cryptocurrency vs. stocks
| Aspect | Cryptocurrency | Stocks |
|---|---|---|
| What you own | A blockchain record controlled by keys | A share of a company |
| Trading hours | 24/7 | Exchange hours |
| Typical volatility | Often very high | Usually lower |
| Investor protections | Often limited | Long-established rules |
Why people trade or hold crypto
Speculation
Trading price swings in either direction.
Moving value
Sending funds across borders at any hour.
Using stablecoins
Holding a dollar-linked token between trades.
Diversifying
Some hold a small share as a separate asset class — see Diversification.
Advantages and disadvantages
Advantages
- Markets open 24/7.
- Transfers do not need a bank.
- Easy to buy small amounts.
- Wide choice of coins and pairs.
Disadvantages
- Prices can be extremely volatile.
- Transfers are hard to reverse.
- Investor protections are often weaker than for securities.
- Scams and hacks are common.
Going deeper
Read as far as you need. Each level builds on the one before it.
Coins live on blockchains
Beginner
A coin is a unit recorded on a blockchain and moved cryptographically between users.1
Native assets and tokens
Intermediate
Native crypto assets such as bitcoin and ether belong to their own blockchain; tokens are built on top of another blockchain. Both are recorded on a shared ledger secured by cryptography.3
Risk is the main variable
Advanced
Because crypto can be exceptionally risky, many traders cap total crypto Exposure and use stop losses and smaller sizes than in other markets.3 Leveraged products such as Perpetual Futures add Liquidation risk.
Common mistakes
Going all in
One asset with large swings can wipe out a big part of an account.
Trusting promises of guaranteed returns
These are a classic sign of fraud.
Ignoring fees
Spreads and fees can be high on small trades.
Using high leverage early
Volatility plus leverage leads to fast liquidations.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Cryptocurrency is a digital asset recorded on a blockchain.
- It moves between users without a bank keeping the record.
- Prices are often very volatile.
- Securing crypto means securing private keys.
- Size positions smaller and check fees and protections.
Frequently asked questions
Is cryptocurrency legal?
Is cryptocurrency money?
Can a cryptocurrency go to zero?
Further learning
- Spot Trading
Buying and selling the coin itself.
- Stablecoin
Crypto designed to hold a steady value.
- Perpetual Futures
The most common crypto derivative.
- Position Sizing
Fitting position size to high volatility.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- NIST CSRC Glossary. Cryptocurrency (opens in a new tab) Checked .
- NIST. NISTIR 8202: Blockchain Technology Overview (opens in a new tab) Checked .
- FINRA. Crypto Assets (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.