A Beginner's Guide to NFT Investing and Trading
What are NFTs?
NFTs or non-fungible tokens refer to digital assets based on a blockchain, making them decentralized and censorship-resistant. They burst into popular culture in 2021 when a Beeple NFT sold for $69 million. From mainstream media to Twitter memes, NFTs were everywhere, and this sudden popularity also led to a massive increase in the number of NFTs available for purchase.
From a few dollars to tens of millions, you can find NFTs in all price ranges. With so many options and hype, it’s easy to get carried away and start investing or trading in NFTs without fully understanding them.
Ten things to consider before investing in NFTs
This article will explain the 10 key points that new users should consider before venturing into this exciting but volatile market.
1. Understand the Basics: Before putting your money in NFTs, it’s important to know what they are, how they can be useful, and what they represent. On SynFutures Academy, we have several articles that cover topics like NFT basics, NFT platforms, NFT fractionalization, and NFT derivatives. You can also find many YouTube videos that teach NFT basics. Read the articles and see the videos to understand NFTs before you decide to invest your hard-earned money in them.
2. Consider the NFT Type: Not all NFTs are the same. Some, like gaming NFTs, have a specific use case. Others, like art NFTs, are meant to be collectibles, while PFPs are primarily meant to be used on social media. Choose the NFT that most suits your needs. For example, if you’re a gamer interested in blockchain games, gaming NFTs are more suited for you, but if you’re more interested in showing off your wealth on social media, then a costly PFP would be more style. Understand your needs and invest accordingly.
3. Do Your Own Research: NFT market is saturated with shills. Many social media platforms will give you the impression that every new NFT launched will make you a ton of money. This is not the case. NFTs are risky investments and while they can be highly profitable, they can also lose value extremely quickly. As such, it’s important to do your own research.
4. Learn about network and fees: NFTs operate on top of a blockchain like cryptocurrencies. This means NFT transactions come with transaction fees. If you’re on an Ethereum Layer-2 or other chains like BSC, Solana, or Avalanche, the transaction fees will be minimal. However, many NFTs are on Ethereum mainnet, where the transaction fee can sometimes run into triple digits. Always consider the network and the transaction fee on the network before purchasing the NFT.
5. Look at the volume: Many NFT projects have little to no volume, so selling these assets will be extremely difficult. If you’re purchasing an NFT to sell at a higher price or just trading for the short term, it’s important to choose an NFT with a large enough volume to ensure you can sell it without significant slippage. On the other hand, if you’re purchasing an NFT to use as PFP or to play a blockchain game, then the volume may not be as important.
6. Select the right platform: This is another important factor before jumping into the NFT space. Several NFT trading platforms are available in the market, each with unique features, fees, and user bases. Some popular NFT trading platforms are OpenSea, Blur, Rarible, and SuperRare. Depending on your needs, you may prefer a platform that offers a larger user base, lower fees, or more significant artist collaborations. If you’re interested in trading NFTs rather than investing, check out SynFutures’s NFTures platform, which offers NFT derivatives trading with 3x leverage and an extremely user-friendly interface.
7. Pay attention to storing the NFT safely: Once you’ve completed your NFT purchase, store it safely. You can store them in a hardware wallet or a software wallet. Hardware wallets are safer than software wallets, while software wallets are easier to use. IFPS platforms are also an option, but most users avoid them as they’re too complicated to set up.
8. Stay Informed: As the NFT market matures, it can be unpredictable and volatile. Therefore, keeping yourself updated on the latest news and trends about the ecosystem is important. Following trusted influencers on Twitter is a good first step, as much news about the blockchain space breaks first on Twitter. There are also dedicated NFT news sites that cover the space thoroughly and weekly NFT newsletters that condense the important NFT news of the week into one email.
9. Consider the downside: NFTs also come with risks like any other investment. It’s essential to consider the potential downsides and worst-case scenarios before investing. For example, the value of an NFT may fall drastically in a short period of time, the smart contract exploit could result in the NFT being stolen from your wallet, or similar NFTs might get launched in the future, which reduces the value of the current batch. Understanding the potential risks and downsides is always a good practice before entering into any form of investment.
10. Only invest what you can afford to lose: Finally, the most important rule: Only invest the amount of money you are comfortable losing so you don’t jeopardize your financial stability or well-being. Like cryptos, NFTs are also extremely volatile.
NFTs are an exciting emerging asset class. Investing in them can be a great way to diversify your portfolio. However, it’s important to approach this market cautiously and consider all the factors involved before risking your hard-earned money. Hopefully, this article has given you a basic understanding of the different factors involved in an NFT purchase and helped you in your effort to understand this ecosystem.
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