Crypto basics and why people invest

An introduction for readers who are new to digital assets: what they are, why prices change, what volatility means and how risk is managed. This page is for information only. It is not investment advice and it does not promise returns.

Information only. Nothing here is a recommendation to buy or sell, and nothing guarantees a profit. Digital assets are high risk and you can lose all of the money you put in.

What are cryptocurrencies?

A cryptocurrency is a digital asset that exists only as records on a shared ledger, which is kept by many computers rather than one bank. That ledger is called a blockchain: a chain of blocks of transactions, each linked to the one before it so that history is very hard to change. Bitcoin was the first, and thousands of others now exist.

Like any traded asset, the price depends on supply and demand. When more people want to buy than sell, the price tends to rise, and when more want to sell, it tends to fall. Some assets have a fixed or capped supply and others are created over time, which also affects value.

Abstract illustration of a rising price chart with a connected network of nodes

Key terms in brief

TermPlain meaning
Digital assetSomething of value that exists only in electronic form.
BlockchainA shared, tamper-resistant record of transactions.
WalletSoftware or a device that holds the keys needed to move assets.
ExchangeA marketplace where assets are bought and sold.
Supply and demandHow many units are on offer against how many people want them.

How a transaction travels

  1. 1. You sendA payment request is created from your wallet
  2. 2. It is broadcastComputers on the network receive it
  3. 3. It is checkedThe network confirms the funds exist
  4. 4. It is recordedAdded to a new block in the ledger
  5. 5. It arrivesThe recipient's balance updates

Why does the price change?

Digital asset prices respond to many things at once. The main factors are trading volume, news and announcements, investor mood, economic conditions such as interest rates and inflation, and global events. Because the market is open around the clock and is smaller than traditional markets, a single large order or headline can move prices noticeably.

FactorHow it can affect price
Trading volumeHigh volume usually means smoother price moves, and low volume can allow larger jumps.
NewsRegulatory announcements, hacks or adoption by large firms can move prices quickly.
Investor sentimentOptimism pulls in buyers and fear brings sellers, often both in waves.
EconomyInterest rates, inflation and the strength of the pound can alter appetite for risk.
  1. News or eventSomething changes expectations
  2. Sentiment shiftsBuyers or sellers become more active
  3. Order flow changesDemand and supply rebalance
  4. Price movesA new level is reached

What is volatility?

Volatility describes how much and how fast a price moves. A volatile asset can rise or fall by several percent in a day, while a calm one moves little. Higher volatility creates more opportunity to gain and more chance to lose, and it makes outcomes harder to predict. What matters for you is how much movement you can tolerate without having to sell at a bad moment.

High volatilityLow volatility
Price swingsLarge and frequentSmall and gradual
Potential gainHigherLower
Potential lossHigherLower
PredictabilityLowHigher

What is risk management?

Risk management means deciding in advance how much you could lose and acting to keep to it. Common principles are to invest only money you can afford to lose, to spread exposure over several assets, to avoid borrowing to invest, to set limits on each position and to review your plan regularly.

On Fexenvance the tools that support this include adjustable strategy settings, alerts, a market pause during extreme volatility and clear reports. They help you manage risk, but the platform does not make investment decisions for you and does not remove the risk of loss.

Quick questions from beginners

Is it too late to start?

Nobody can say where prices will go. Starting later does not make a loss more or less likely, so base your decision on your own situation and risk tolerance.

How much do I need?

Our Basic plan starts at £200, but you should only use money you can afford to lose entirely.

Do I own the coins?

Assets stay in your own exchange account. We connect through an API key and never hold your coins.

Can I lose more than I deposit?

On the platform your exposure is limited to the capital you allocate, but you can lose all of it. Never borrow to invest.

Continue with Getting started or read the Risk disclosure.

Why do people invest in digital assets?

People give several reasons, and it helps to look at each honestly. Some are drawn by the possibility of gains, because digital assets have had periods of very rapid rises. Others like that the market is open all day, every day, so they can act outside working hours. Some want a small amount of exposure to a different kind of asset from shares and savings, and some are simply curious about the technology.

Every one of those reasons has a flip side. Rapid rises have been followed by steep falls, round-the-clock trading means bad news can hit at any hour, and a different asset class can still fall at the same time as everything else. Digital assets have lost large parts of their value more than once, and some have gone to zero. Think carefully about whether the possible upside is worth a loss you may not be able to recover.

A short glossary

  • Spread: the gap between the buying price and the selling price.
  • Liquidity: how easily an asset can be bought or sold without moving its price.
  • API key: a code that lets one program act on your exchange account within set limits.
  • Stablecoin: a digital asset that aims to track the value of a currency such as the dollar, though it can lose that link.
  • Custody: who holds the keys to your assets, you or a third party such as an exchange.
  • Slippage: the difference between the price you expected and the price you got.
  • Two-factor authentication: a second check at sign-in, such as a code from an app.

How the platform fits in

Knowing the basics is not the same as being ready to invest. If you decide to go further, Fexenvance offers monitoring, alerts and automated strategies for digital assets and currencies, with a personal manager who explains each setting. The platform does not hold your coins. They stay in your account with an exchange, and the platform connects through a key you control.

Taking your time is perfectly reasonable. Read the Risk disclosure, look at the fees, and compare what you read here with independent sources, such as the Financial Conduct Authority's consumer pages on cryptoassets. If something sounds too good to be true, treat it with suspicion. Real investing involves uncertainty, and anyone who tells you otherwise is selling something.

Questions to ask yourself first

  • Could I lose this entire amount without hardship?
  • Do I understand what the strategy will do with my money?
  • Am I investing to follow a plan, or because I fear missing out?
  • Do I know how I will react if the value halves in a week?