Diversification
Not tying all your capital to one asset or one moment reduces the effect of a single bad event.
Crypto basics and why people invest
This page is written for people who do not know cryptocurrency at all or who are just starting. We explain the complicated terms in plain language, with small tables and simple diagrams.
Information notice: The content on this page is educational and is not investment advice. Profit is not guaranteed for crypto-assets; part or all of the amount invested can be lost.
What is cryptocurrency?
A cryptocurrency is a type of asset that exists digitally and whose records are kept in a shared ledger. That ledger is a distributed record-keeping system maintained at the same time by many participants across a computer network.
In a bank account your balance sits in the bank's own ledger. With cryptocurrencies the records are not kept in one institution but in many computers of the network at once. When a transaction is made the network verifies it and adds it to the ledger; a recorded transaction cannot be altered afterwards. The price, as with many other assets, is set by supply and demand: when buyers are many the price tends to rise, and when sellers are many it tends to fall.
Besides well-known cryptocurrencies such as Bitcoin and Ethereum there are hundreds of other assets, each with a different purpose, supply and risk. For some the total supply is limited, for others it grows over time. Being well known does not mean an asset is safe; its price can still change quickly. So it is healthier to consider the assets whose workings you understand and can follow, not every name you have heard.
| Concept | In short |
|---|---|
| Digital asset | Value that exists only electronically and can be bought and sold. |
| Distributed ledger | The shared record in which transactions are stored in time order, in blocks. |
| Wallet | The app or account that holds the keys giving access to assets. |
| Exchange | The platform that matches buyers' and sellers' orders. |
| Supply and demand | The amount for sale and the amount people want to buy; the main driver of price. |
How a transaction moves along
- 1
An order is placed
A buyer places an order for a certain amount on the exchange.
- 2
Orders match
When price and amount agree with a seller's order, the trade takes place.
- 3
The network verifies
The transaction is verified on the network and recorded in the shared ledger.
- 4
Balances update
The asset moves to the buyer's account and the payment to the seller.
Why are people interested in cryptocurrencies?
There are a few concrete reasons behind investors' interest. None of them guarantees an outcome.
The market is open seven days a week, twenty-four hours a day; you can trade without waiting for an exchange to open. It is possible to start with small amounts, and trading volume is high in most assets. Some investors see crypto-assets as a way to diversify an existing portfolio. Tools such as AI also make it possible to scan a constant stream of data at a speed no single person could follow.
The same features enlarge the risk: a market that is always open means constantly changing prices, and high volume does not mean the price will always go the way you want. So being interested is not a reason to start without knowing.
- 24/7 market: You can trade at weekends and at night.
- Low entry threshold: You can start with small amounts.
- Interest in diversification: Some want to add a different asset type to a portfolio.
- Analysis tools: AI scans a large data flow continuously.
- Reminder: Every rise is an opportunity, and every opportunity carries risk.
Why does the price change?
The price of cryptocurrencies comes from a combination of many factors. None of them alone decides the future.
| Factor | Effect on price |
|---|---|
| Trading volume | When volume rises, price moves can be more marked; in thin volume even small orders can move the price. |
| News | A country's regulation, a big company's decision or a security event can change the price in a short time. |
| Investor sentiment | Expectation and fear can speed up waves of buying and selling. |
| Economic conditions | Interest rates, inflation and exchange rates affect risk appetite. |
| Global developments | Geopolitical events and moves in other markets can feed into the crypto market. |
How a price change comes about
- 1
A factor appears
News, data or expectations change.
- 2
Buyers and sellers react
Orders increase or decrease.
- 3
The balance shifts
The ratio between supply and demand is upset.
- 4
The price finds a new level
The point where orders meet moves.
What is volatility?
Volatility describes how sharply an asset's price swings over a given period.
With high volatility the price can move a large amount up or down in a short time, which enlarges both the chance of gain and of loss. With low volatility moves are slower and smaller. Cryptocurrencies are generally more volatile than traditional assets.
As a user, what you need to bear in mind is that volatility will not bring only pleasant surprises. It matters to keep the amount you invest at a level where you can bear the loss, and not to decide in a hurry in the face of short-term swings.
| High volatility | Low volatility | |
|---|---|---|
| Price movement | Large and fast | Small and slow |
| Opportunity | More | Less |
| Chance of loss | Higher | Lower |
| Predictability | Hard | Easier |
| Watch out for | Amount limit, loss limit | Opportunity cost |
What is risk management?
Risk management is not trying to bring loss to zero; it is setting rules in advance to keep loss under control.
Loss limit
Closing a trade at a loss level set in advance takes emotional decisions out of the picture.
The right amount
Investing only an amount you can afford to lose is the most basic rule of risk.
LiraX offers tools to help you apply these rules: strategy and amount limits, notifications, reports and a safeguard that can pause trading when volatility rises. The platform does not make investment decisions for you and does not guarantee a result; the tools only support your decision process. Read the Risk disclosure page for details.
A short FAQ for beginners
Is cryptocurrency a kind of money?
Cryptocurrencies are not a currency issued by a state; they are assets that change hands digitally. Although some places accept them as a means of payment, most users treat them as an investment or trading asset. Their value moves with supply and demand and is not guaranteed.
Who sets the price?
No single centre sets the price. It forms where buyers' and sellers' orders meet on exchanges, which is why small price differences can appear between exchanges.
Does it make sense to start with a small amount?
For beginners, usually yes. A small amount lets you get to know the platform and the risk while limiting a possible loss. Even so, use only an amount you could afford to lose.
Does artificial intelligence prevent losses?
No. AI looks for patterns in price and volume data and speeds up the decision process, but it cannot know the market's next move for certain. No system can guarantee profit or the protection of capital.
Is this page investment advice?
No. The information here is for education and information only. Make your decisions according to your own finances, goals and risk tolerance.
Want to put what you learned into practice?
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