Trading is the action of buying and selling particular investments. Trading in crypto is reaching new levels as more exchanges are being introduced to the market. In addition, the already existing ones are being modernized, and people have the opportunity to trade not only during the day but also overnight. However, before going deeper into this adventure, we need to examine the vital concepts behind trading statistics.
First of all, we can focus on some of the main financial metrics that can affect the price of a cryptocurrency, such as volume, volatility, the ratio between buyers and sellers, and market capitalization.
Volume plays a crucial role as it shows the recent interest of the investors towards a particular cryptocurrency. Volume is the number of coins traded during a certain period of time, in most cases 24-hour period. This metric also shows us the investors' interest in the particular cryptocurrency. If the volume is high compared to its competitive digital coins, then maybe the demand for holding it is high, and thus, its price goes up.
Volatility is something common for the crypto world, as the value of the coins can change quickly and by a lot in a short period. Most cryptocurrencies are interrelated with Bitcoin and follow its price movements. However, most altcoins have higher volatility than Bitcoin's, making it riskier to invest in them.
Market capitalization is the token price multiplied by the number of tokens currently in circulation. It can show us potential growth in a recently launched project as the coins with low market capitalization have a lot of room to flourish. However, this financial metric doesn't reflect actual value as it doesn't show the amount of money stored in the specific cryptocurrency.
Other supply mechanisms, such as the Stock-to-Flow model, are widely used among the blockchain community. The model measures the abundance of a particular resource.
By dividing the number of resources held in reserves by the amount produced annually, we can structure a model that predicts the price of the cryptocurrency.
It will be beneficial for every trader to get familiar with those terms and their meanings to start exploring this part of the cryptocurrency world. Otherwise, people would be just gambling without having any rationale or logic in their trades.