Non-fungible tokens, commonly called NFTs, have taken the world by storm, especially the digital art and collectables world. Although these tokens had been around for a while, NFTs officially became popular in 2020 and have generated great excitement ever since. In simple terms, NFTs are unique digital assets on the blockchain but cannot be copied, distributed, or subdivided. They belong to only one owner at a time and have unique metadata that separates one from the other.
Today, people trade and exchange NFTs for money, cryptocurrencies, or other NFTs, depending on their value. This concept may sound far-fetched to the uninitiated, which is why we’ve written this article to explain NFT trading. Here, we explain what NFTs are and how to trade them, offering proven strategies for making profits.
What are NFTs
NFTs stand for non-fungible tokens that exist on the blockchain in a tokenized form, such as pieces of art, digital content, or video. These tokens contain unique identification codes made from metadata via an encryption function. The creators then store the tokens on a blockchain while they store the assets in other secure places.
Generally, what differentiates NFTs from fiat currency and crypto assets is their fungibility. Fiat and cryptocurrencies can be traded for one another while NFTs can’t, which explains the name.
Common NFT Collections
When NFTs first came into view, they were centred around digital art and collectables, but they have evolved into much more. It includes several NFT categories, including:
- Photography
- Sports
- Trading Cards
- Art
- Domain names
- Virtual worlds
- Utility
Understanding NFT Trading
First, every upcoming NFT trader must understand that tokens are not like crypto assets that can be traded or exchanged equitably. In other words, they can’t be used as a medium for commercial transactions. You may then ask how the value of NFTs is determined.
Unlike other physical assets, NFTs hold a value set not only by the market’s supply and demand but also by rarity, utility, and creator’s reputation. So, since they are digital representations of assets, their trading, buying, and selling by users is made more efficient.
Where to Trade NFTs
Trading of NFTs can be done using cryptocurrencies like Ethereum, and it occurs on special marketplaces as listed below:
- OpenSea: OpenSea is one of the largest marketplaces for selling non-fungible tokens. It is home to several tokenized arts, pictures and videos, trading cards, and music. The leading crypto coin on OpenSea is Ethereum, while others may include Solana and USDC.
- Binance: Binance is popular in the crypto market, being the largest exchange platform by trade volume. In 2021, the platform became an NFT marketplace, allowing users to trade digital coins and tokens. One reason most traders prefer Binance is its relatively low commission and its ability to run on its blockchain.
- Magic Eden: This is the best marketplace to buy and sell NFTs on Solana. As a marketplace, Solana is popular for its cheap network fees, making Magic Eden preferable to users over Ethereum-based NFT platforms.
Proven Strategies and Tips to Maximize Success When Trading NFTs
NFT trading strategies are those techniques successful traders use when buying and selling tokens to make a profit. Some of the most notable NFT trading strategies include:
Buy the Dip
This technique is common to cryptocurrency and NFT traders. It involves buying assets at their lowest prices so you can reap more profits when the price appreciates.
Diversify Your NFT Holdings
This means spreading out your trading portfolio over various tokens across different blockchains. This way, traders can access a wider range of trading options, reducing their exposure and risk.
Consider social media Trends
When trading NFTs, it’s important to be up to date on online trends. However, one must be careful not to blindly follow the crowd because of FOMO. Listen to what the trend says, make your findings, and determine if it’s more profitable to go for or against the herd.
Find Flipping Opportunities
Flipping is a technique that allows traders to determine an NFT whose value has the potential to skyrocket. When done right, it has the potential to yield great returns, although it requires a great deal of skill.
Frequently Asked Questions About NFT Trading
Non-fungible tokens are unique digital assets that represent ownership or proof of authenticity of a specific item. Examples include virtual real estate, digital art collectables, music, videos, and even tweets.
No, NFTs are not cryptocurrencies, although they are related in a way. Non-fungible tokens and crypto assets like Bitcoin and Ethereum operate on blockchain technology. However, crypto assets are fungible and can be exchanged for another unit of the same value, while NFTs can’t be traded with another.
The point of having NFT assets varies depending on the individual. For creators, NFTs offer a way to monetize their digital work by selling to customers without the need for intermediaries. For collectors, these tokens provide a way to own and invest in unique digital assets that appreciate over time.
It depends on the collectable in question. Tokens like digital real estate can be exchanged for the property’s market value. In contrast, the value of a tokenized image of a monkey in a hat depends on the overall market value.
The duration for holding NFTs varies depending on several factors. These may include market trends, utility, asset rarity, and social media trends. As such, the value of certain NFTs may appreciate over time, while others may experience downward trends.
Takeaway
The concept of non-fungible tokens results from the evolution of cryptocurrencies. As such, buying or selling them holds the potential to yield abundant profits if done right. Go through our proven strategies and maximize your NFT trading potential. Good luck.