Ripple (XRP) is known as one of the heavyweights of the cryptocurrency industry, ranking 4th among all crypto assets by market capitalization, right after forerunner Bitcoin and altcoin leader Ethereum. It’s, therefore, understandable that an increasing number of retail and institutional investors see it as a potentially lucrative venture and seek to take advantage of its standing in the market.
As with all other coins, trading Ripple successfully requires a combination of skills, knowledge, and constant monitoring of the asset’s evolution. This implies reading the XRP news today to understand how different events and factors are influencing the coin’s performance, but also learning about the project’s fundamentals and the strategies that can help you reach your trading objectives.
The basics
Before you jump into the action, you need to have a good grasp of the asset you’re planning to invest in. So, let’s start by looking at Ripple’s key features and characteristics. The Ripple blockchain and its native cryptocurrency XRP were created in 2012 by Chris Larsen, Jed McCaleb, and Arthur Britto, who took over an earlier financial services project founded by engineer Ryan Fugger.
The three co-founders created Ripple as a blockchain-based digital payment network that facilitates fast and cheap transactions, serving as an alternative to traditional financial systems known for their long processing times and high fees, particularly in international payments.
With Ripple, transactions are typically settled in approximately 3 to 5 seconds, and the network can handle a high number of transactions per second (TPS), which, according to representatives, increased from the former 1,500 TPS to about 3,400 TPS. By comparison, Bitcoin can only process 7 TPS, with the average time for settlement being 10 minutes, while Ethereum has a throughput of 15-30 TPS and an average processing time of 12-15 seconds.
In order to speed up the transaction validation process and keep costs low, Ripple utilizes a unique consensus protocol called the Ripple Protocol Consensus Algorithm (RPCA). This differs from the usual proof-of-work (PoW) and proof-of-stake (PoS) mechanisms that most blockchains use, having participants appoint nodes to check and confirm transactions.
Determine your trading goals and preferred strategy
Once you’ve familiarized yourself with the ins and outs of the Ripple network and learned about its strengths, it’s time to decide if you’re going to focus on short-term gains or if you’re in for the long haul. Based on the goals you set for yourself and the time horizon, you can select a trading strategy that fits your specific needs. The most commonly used strategies include:
Day trading – this implies buying and selling Ripple within the same day, with the purpose of capitalizing on quick price swings and avoiding the risks of sudden fluctuations that might happen during the night.
Swing trading – with swing trading, you’re looking to hold Ripple for longer periods, from a few days to a few weeks, and take advantage of the price changes that happen during this time, which might be more significant (and potentially more profitable) than those occurring in just one day.
Hodling – this is a more passive approach to investing where you buy and hold XRP for a very long time, ignoring short-term gains and trusting that the asset will appreciate more as the network continues to evolve.
Dollar-cost averaging (DCA) – a great approach if you want to reduce the influence of market volatility on your trading decisions. This strategy involves investing a fixed amount of money into XRP at pre-scheduled intervals.
Breakout trading – when the XRP price breaks out of its regular range, crossing resistance and support levels, you might want to adopt a breakout strategy and either buy or sell, depending on the direction of the breakout.
Trading styles can also be classified based on the type of instrument one chooses. As such, we have:
Spot trading – this is where you buy or sell XRP directly, at its live price, to make an immediate profit.
Margin trading – you make a minimal investment in XRP and borrow funds from the exchange to supplement your capital and increase your potential profits (which also increases risks).
Futures trading – you enter a contract where you commit to buying or selling XRP on an established date at a predetermined price.
Options trading – options work just like futures, giving you the possibility to trade XRP at a set price and a selected date but with no obligation to execute the exchange.
Track industry news and events
Industry events can have a huge impact on Ripple’s performance and intensify its inherent volatility, as demonstrated by the project’s troubled history involving a lengthy legal battle with the Securities and Exchange Commission (SEC).
It all started in 2020 when the SEC filed a lawsuit against XRP’s parent company, Ripple Labs, claiming that the XRP token was, in fact, an unregistered security that they sold to investors, thus violating the Securities Act of 1933. The case is still ongoing, although there are strong indications that the SEC might drop the case in the near future. Both parties scored victories during this time, and the XRP price experienced notable fluctuations due to legal developments.
Ripple also has various collaborations with different financial institutions and companies, which also have a big say in the evolution of XRP’s price, so that’s something you should keep a close eye on.
Lastly, trading XRP successfully also depends on your ability to manage risks effectively. Diversification is the first line of defense against potentially disruptive losses. This means you should make sure to include other digital assets than XRP into your portfolio and diversify across asset classes as well to mitigate risks and increase the likelihood of long-term returns.
Setting stop-loss orders is also a great strategy to protect yourself against major losses. These orders act like automatic mechanisms that end a trade once a specific limit has been hit.
You should always keep in mind that, just like all other digital currencies, XRP is subject to constant fluctuations, and its price can rise or drop with no prior notice. This can make future and margin trading with XRP particularly risky since these methods involve leverage and can amplify losses, just as they can amplify gains.
As one of the best-performing cryptos at the moment, XRP can turn into a profitable investment, but just like all other digital currencies, it carries a certain level of risk, highlighting the need for adequate research and caution.