For anyone that is involved in cryptocurrencies, they’ll understand that ICOs play a considerable role in the accumulation of wealth in crypto. How exactly does ICO work and how to profit from it? First, we’ll need to understand the traditional form of IPO.
All stock investors are familiar with the abbreviation IPO (Initial Public Offering), which means the initial public offering of stocks. The buyers of shares become co-owners of the company, and the company itself gets money from sales, usually exceeding its annual returns. Recently, a similar abbreviation has come into existence in the cryptocurrency community: ICO, or Initial Coin Offering. An IPO is a legitimate (legally speaking) operation.
A company with an existing and maturing business structure launches an IPO to attract funding. Raising funds through selling shares is the cheapest way to do this. At the same time, starting an IPO is a costly process. For a company to enter the exchange, it must meet many requirements, including the volume of capitalization and undergo an audit. In addition, the company should attract underwriters who will sell the company’s shares.
Then there’s getting the word out, attracting money and investors, and then the company will start to trade its shares on the stock exchange. That’s why it is a long and expensive process. Also, a deficit is deliberately created within the framework of an IPO, and only a limited number of the company’s shares enter the market. The creators of ICO campaigns also declare that the number of coins is limited, and because of this, many people press the panic button, thinking if they do not buy these coins now, they will have to buy this currency later but at a higher price. Both IPOs and the ICOs are risky ways to make money, but they can also be very profitable. People participate in ICOs hoping to make a quick buck. And as soon as these people earn their money back, they immediately withdraw them.
That’s why the coins first zoom up sharply and then go down in price when people start to sell them. This is one of the strategies the speculators use. In contrast to ICOs, such speculations are somewhat rare in IPO because of the so-called “lock-up period.” People, who bought shares before the IPO cannot sell them until three months later. With ICOs, you can buy coins even during the pre-ICO stage. Let’s summarize why so many people take the risk of investing in ICOs. Some spend money in these projects merely to support them, while other people will quickly buy and quickly sell, and the third group of people invests because they read about the project somewhere or, even worse, want to duplicate the success of their friends.
A quick buck. And as soon as these people earn their money back, they immediately withdraw them. That’s why the coins first zoom up sharply and then go down in price when people start to sell them. This is one of the strategies the speculators use. In contrast to ICOs, such speculations are somewhat rare in IPO because of the so-called “lock-up period.” People, who bought shares before the IPO cannot sell them until three months later. With ICOs, you can buy coins even during the pre-ICO stage.
Let’s summarize why so many people take the risk of investing in ICOs. Some spend money in these projects merely to support them, while other people will quickly buy and quickly sell, and the third group of people invests because they read about the project somewhere or, even worse, want to duplicate the success of their friends.
I recommend that you buy pre-bankruptcy ICOs and keep them in case one of the booms. To be frank, I have a separate list of all dropping ICOs, and I keep track each of them every day. I am ready to buy them for some disposal value. For example, 10% of the placing price. In this case, I will gladly make a purchase, for instance, at $1,000, and thus my risk will be the same $1,000. The next tip: many people think that if the price starts to go down, it is a sign of bankruptcy and you need to run away. And vice versa: if the amount grows, you need to buy. In fact, everything works the other way round. Falling market is the best opportunity for identifying strong and weak coins and tokens. Track whether the volume of currency increases when it lands. If it grows, that’s good. If the coin price drops and the amount does not improve, it means there is no demand for these coins, and a seller continually has to lower the price. Also, do not forget that, currently, 99% of all ICOs are a scam. However, you may participate these ICOs too. You read right. You may do it to make a profit on greedy and ill-informed people. In a particular way, this also proves that ICO is a legal pyramid scheme, and your task is to enter it and leave it as soon as possible.
Suppose you found a good ICO. To participate in it, you need to visit its site. Go to the Tokens tab and click on Get EOS. Afterward, be sure to tick the box that says you agree to the terms of the project. Read between the lines: you decide to lose your capital possibly. After clicking Continue, you will be taken to the page which explains how the project will raise funds. I recommend that you carefully review all the figures, especially the ones about capitalization.
If the ICO capitalization is about $500 million, it’s okay. However, if you multiply the value of a token by the number of all symbols known in advance and get the capitalization of $5 billion, this gives pause for thought. You can also compare capitalization of the ICO you are interested in with a previous ICO. When comparing, pay attention, not to the value of one token.
But to the capitalization of the whole company. Study the Schedule section carefully to find out how long the ICO will last. The ICO tokens you purchased appear very quickly on the hitbtc.com exchange. Here you can also find tokens offered by ICOs. In any case, if you fail to figure out how to participate in the ICO, the sites of any ICO always publish detailed instructions (sometimes even a video). There you will also find the information on how to transfer money to participate in the ICO. But remember that this money can be transferred only from your wallet, not from the exchange. So that’s how ICOs work and how I recommend you invest in them. No matter what, remember this: Don’t stay in one ICO for too long. Leave it as soon as you can make a small profit.
After you’ve participated in ICOs, the next step would be trading. Some do it day to day, others are slightly passive and make the occasional trade, mostly holding it up for the long run. Regardless of what kind of trader you are, it’s good to understand various styles of trading out there. The easiest way to buy or sell something on the stock exchange is to place a market order. This order is executed at the current market price immediately after putting it on the trade if there is a reverse limit order for it. For example, to complete a market buy order, a sell limit order is required. To perform a market sell order, a buy limit order is needed. To achieve a market order, the best one is chosen from all the available limit orders. Therefore, the market buys warrant executed at the asking price, while market sell order is filled at the bid price.
When dealing with this kind of order, you do not need to specify the price, just the volume, i.e., how much you want to buy. However, there is a significant problem you can face – slippage. What is it? It is the difference between the expected price of a trade and the rate at which the business is executed. Slippage may occur during periods of higher volatility when market orders are used, and also when there are significant orders there may not be enough interest at the desired price level to maintain the expected price of the trade. It is for this reason that I do not recommend using market orders at all.
Here’s an example. Let’s say you place a market order to buy coins for $5,000, but the value of available coins is just $1,000. The price you pay for the medals at the time your order is executed will be in between these prices. I should also mention that the exchange is also artful and is always happy to earn something. If you place a market order, then be 99% sure you will never get the very first ask price. As a result, you’ve sent your request, and then, for example, get a price of 244.78.
By the way, in this situation, you can use the easiest way to make a profit on the exchange without taking a risk – make the spread, i.e., the difference between the bid and ask prices, more full. I recommend using a limit order to avoid similar situations. A limit order is an order to buy or sell a particular volume of an asset at a specific price. Here we consider two parameters: price and quantity. For example, you place an order to buy coins for $5,000 at the cost of $243.47. The first option: you can put a buy limit order, for example, in the bid line. So you join the line of buyers waiting until their orders are filled. Another option: you can come to the sellers and make a deal at their price, but one which is not lower than yours.
Evaluate your order about the overall liquidity of market depth. That is, you need to examine what orders have been placed. Theoretically, you have a chance to gather the first best positions regarding price and volume, but there is always a possibility that someone had already placed an order before you and took this volume because the information is sometimes displayed with a delay. If you still want to fill your order (not using a market order to avoid substantial slippage), you only place a limit order at a price where your warrant will be executed, not at a cost you wish it was implemented. This means that you are very likely to fill your order at a price offered by a seller. If these orders are in the market and you’ve managed to hit them, then you increase your chances of filling your order has offered a little bit outsized price.
Margin or leverage in any other market is an excellent tool for maximizing your profit. Almost all experienced traders use force. However, as we said earlier, the cryptocurrency market is highly volatile, so here the leverage can figuratively kill you. Why does it happen? Let’s compare it with the stock market. What can happen to make Apple shares drop, say, by 20%? I think nothing of a kind can occur. Therefore, it is safe mainly to trade Apple shares with leverage as these shares cannot suddenly fall by even 10%. At the same time, you can always close the position in the stock market because the trade is strictly regulated here, and you can follow all the events.
Hopefully, the tips and strategies presented here have provided you a strong fundamental understanding of starting your ICO journey and trading the coins or tokens obtained from the ICOs. Many coins will be created in the crypto space over the next few months, and you’ll be able to have a better grip of trading crypto after several attempts and ovservation of the market.