Table of contents:
- Why invest in NFTs?
- What to look at before investing in NFTs?
- How does NFT trading work?
- Pros of NFT trading
- Cons of NFT trading
- Types of trading NFTs
- How to start trading NFTs?
- Top NFT trading strategies
- A few things to remember
Why invest in NFTs?
Investing in NFTs (Non-Fungible Tokens) can be appealing for several reasons. First, NFTs provide a unique and verifiable digital ownership experience, allowing collectors to own one-of-a-kind digital assets such as artwork, music, or even tweets. The scarcity and uniqueness of these assets can make them highly valuable, especially if they are created by well-known artists or celebrities.
Additionally, NFTs can offer a way for creators to monetize their digital creations directly without going through intermediaries like galleries or record labels. This can result in more revenue for the creators and potentially lower prices for buyers compared to traditional physical art or collectibles.
Another reason to invest in NFTs is their potential for future growth. NFTs are a relatively new and rapidly evolving market, and their value can fluctuate significantly in a short period of time. If you can identify promising new projects or emerging artists, you may be able to invest early and see significant returns on your investment.
However, it's important to note that NFTs are not without risks. The value of NFTs can be highly speculative, and there have been instances of fraud and market manipulation in the NFT market. As with any investment, it's crucial to do your research, understand the market dynamics, and only invest what you can afford to lose.
What to look at before investing in NFTs?
Before investing in NFTs, there are several factors that you should consider to make informed decisions. Here are a few things to look at:
- Authenticity and Ownership: Verify the authenticity of the NFT you are considering and ensure that it's unique and verified on a blockchain network. This will confirm ownership and prevent the possibility of acquiring fake or fraudulent NFTs.
- Market Demand: Investigate the demand for the type of NFT you are interested in and the market trends for similar assets. This will give you an indication of the potential value growth and how easy it may be to sell the NFT in the future.
- Creator or Artist: Research the creator or artist behind the NFT to understand their reputation, the quality of their work, and their involvement in the NFT community. It may be beneficial to invest in NFTs created by reputable artists or creators with an established following.
- Scarcity and Uniqueness: Look for NFTs with a limited edition or unique feature, as this can increase their value over time. Rare or exclusive NFTs often tend to have a higher demand and increase in value as the demand for them grows.
- Platform and Infrastructure: Check the underlying platform and infrastructure for the NFT. Ensure that the network is reputable and secure, and the NFT can be easily transferred, bought, or sold.
- Legal Implications: Check for any legal implications associated with the ownership and transfer of the NFTs. Some NFTs may have restrictions or copyright infringement concerns that may affect their value and legality.
How does NFT trading work?
NFT trading works similarly to traditional asset trading but with a few key differences due to the unique nature of NFTs. Here's a brief overview of how NFT trading works:
- Creating an NFT: A creator or artist creates an NFT on a blockchain network, such as Ethereum, that verifies and tracks ownership of the asset.
- Listing the NFT: The creator or owner of the NFT lists it for sale on an NFT marketplace, such as OpenSea or Rarible, with a specific price or auction format.
- Buying the NFT: Interested buyers can purchase the NFT on the marketplace, usually using cryptocurrency such as Ethereum, at the listed price or the highest bid during an auction.
- Transferring the NFT: Once purchased, the NFT is transferred to the buyer's digital wallet on the blockchain network, and the transaction is recorded on the blockchain.
- Selling the NFT: The buyer can choose to keep the NFT or sell it on the same marketplace or other NFT marketplaces.
The value of NFTs is determined by various factors, such as the rarity, demand, and perceived value of the asset, similar to traditional collectibles. The prices of NFTs can fluctuate significantly, with some NFTs selling for millions of dollars.
Pros of NFT trading
- Unique digital ownership of digital assets, including artwork, music, and other digital collectibles;
- Transparency and authenticity;
- Potential for value appreciation, particularly if created by well-known artists or have a unique feature that makes them desirable to collectors;
- Direct monetization for creators directly without intermediaries like galleries, record labels, or publishers;
- Diversification for investors, adding a new asset class to their portfolio;
- Accessible market for buyers and sellers.
Cons of NFT trading
- Volatility which may lead to potential losses for investors;
- Lack of regulation, leaving investors at risk of fraud, scams, and market manipulation;
- High entry costs;
- Limited liquidity, meaning that there may be a limited number of buyers or sellers at any given time, which can make it difficult to sell an NFT quickly;
- Environmental concerns;
- Uncertainty over long-term value of NFTs and whether they will hold their value in the future, particularly if the market becomes oversaturated with new NFTs.
Types of trading NFTs
There are several types of trading NFTs that can be used depending on the goals and preferences of the buyer or seller. Here are some common types of NFT trading:
- Fixed-price sales: Fixed-price sales are straightforward transactions where the seller lists the NFT for a specific price, and interested buyers can purchase the NFT at that price. This type of trading is suitable for sellers who want to sell their NFTs quickly and buyers who prefer a predictable price.
- Auctions: Auctions are a popular way to sell NFTs, and they can be conducted in a traditional auction format or a Dutch auction format. In a traditional auction, the starting bid is set, and interested buyers bid higher until the auction ends. In a Dutch auction, the price starts high and gradually drops until a buyer purchases the NFT. Auctions are suitable for sellers who want to get the highest possible price for their NFTs and buyers who enjoy the thrill of bidding.
- Bundles: Sellers can also bundle multiple NFTs together and sell them as a package deal. This type of trading is suitable for sellers who want to sell multiple NFTs and buyers who want to diversify their portfolio.
- Fractional ownership: Fractional ownership allows multiple buyers to own a fraction of an NFT, and each owner has a proportional share of the asset's value. This type of trading is suitable for buyers who cannot afford the entire NFT or sellers who want to reach a broader market.
- Royalty-based sales: Royalty-based sales allow the creator or original owner of an NFT to receive a percentage of the sale price each time the NFT is resold. This type of trading is suitable for creators who want to earn ongoing income from their NFTs and buyers who are willing to pay a premium for NFTs that support creators.
How to start trading NFTs
Before you start trading NFTs, it's important to understand what they are, how they work, and their potential benefits and risks. You can find plenty of resources online to learn about NFTs, including articles, videos, and online communities.
The next step is to choose a marketplace. There are several NFT marketplaces where you can buy and sell NFTs, including OpenSea, Rarible, and SuperRare. Each marketplace has its unique features, fees, and user base, so it's essential to research and compare different platforms before choosing one.
To buy or sell NFTs, you'll need a digital wallet that supports the blockchain platform where the NFTs are created. Ethereum is currently the most popular blockchain platform for NFTs, and wallets like MetaMask and MyEtherWallet are commonly used.
You can buy NFTs on a marketplace or create your own NFTs by minting them on a blockchain platform. To mint an NFT, you'll need to upload the digital asset to the platform, set a price, and create a smart contract that defines the ownership and transfer rights of the NFT.
Once you have NFTs in your wallet, you can list them for sale on the marketplace. You'll need to set a price, choose a trading type, and pay any applicable fees to the marketplace.
As with any trading activity, it's important to monitor your NFT trades, including price changes, fees, and potential buyers or sellers. You can use tools like OpenSea's portfolio tracker to monitor your NFT holdings.
Top NFT trading strategies
1. Buy the floor
As the NFT market continues to gain popularity, there is a good chance they will remain in existence for many more years. That’s why new investors should consider purchasing NFTs at the floor price.
The NFT market floor prices are the lowest price for a non-fungible token. You can sort the NFT items from a specific collection by price to get the cheapest NFT listed for sale, and that would be the floor price. However, not all cheap NFTs guarantee a positive return. That’s why you should always pick an NFT project based on your interests. To guarantee you’ll get the best price for an NFT collectible, the best thing you could do is to follow the project before it is launched.
2. Search for Google Trends
No matter how new you may be in the NFT market, you can quickly determine if a particular NFT market is still hot by looking at the current Google trend.
Google Trends is a fantastic free tool that offers great insights into the public’s opinion on a topic or keyword. Searches for the word are rated in a range from 0 to 100. A high rating indicates that people are interested in NFT collectibles. It also indirectly signals that it is a good time to buy.
However, you need to be aware that trends can quickly gain or lose popularity, which applies to NFT projects as well. Traders are attracted to hyped projects, but they can quickly leave when trading volume falls.
For better results, try to observe and correlate market trends with the project’s trading volume. It is also important to monitor the number of traders, as a project that has a lot of traders is more likely to be healthy than one with only a few traders.
3. Buy NFTs collectibles with few sellers
Making a profit from any NFT investment implies that you will successfully sell that NFT for a higher price than the price you pay to buy it. Obviously, it will be more difficult to sell an NFT that doesn’t have a large community supporting the project and is willing to buy it.
Your NFT trading strategies should always depend on how many sellers there are for that NFT collection. If you want to sell, you need to have a high enough trading volume to make a sale. With more sellers, the difficulty in maintaining competitive prices increases. That’s because there are more people who will lower their prices than you.
When you are looking at sellers for an NFT, look at how they act. If the prices listed are spaced from one another, it means that the sellers have enough patience to wait for the right buyer for them. They will probably not react if you offer a lower price.
However, if there are many prices that are close together, it is a sign that the sellers are impatient and want to undercut. Selling NFTs is about a battle for buyers’ money. You will be more successful selling NFTs with patient sellers.
The market trends and how sellers behave will significantly impact how they act. Note that this NFT trading strategy trend can change over time. This strategy is best used when you are comparing similar NFTs collections.
4. Value strategy
The NFT value strategy focuses on purchasing high-value NFTs. It is worth mentioning that this might not be the best trading strategy for you if you’re just starting out and your budget doesn’t allow it. You’ll need to use online NFT tools, such as rarity.tool to find valuable NFTs. It is one of the most popular tools that compare different NFT projects by their rarity.
5. Buy the ceiling
If you’re ready to invest big bucks in the NFT market, then you should consider buying the ceiling as your NFT trading strategy.
The ceiling, or top, is a great option if you have the money to invest in NFTs, as these assets are rare and highly sought-after. This means that ceiling NFTs may go up in price if there is more demand for the project. These items are also popular in the marketplace, where people can sort by the highest to the lowest price. They may be promoted in different places as the best example of the project’s NFTs.
The downside to this particular NFT trading strategy is that there are fewer people who have enough money to purchase the NFT. This makes it difficult to find someone willing to sell at a fair price.
6. Look for underpriced NFTs
The dream of any newbie NFT investor is to find an underpriced NFT on a marketplace. This strategy doesn’t rely on a rising market trend and can work even when there is little demand for a certain NFT collection. To use this NFT trading strategy to make a profit, you will have to find NFTs that are selling now for a lower price than they were bought for.
7. Market for an NFT project
This is probably the most important aspect of NFT investments and one important pillar for your NFT trading strategies. You should always ask yourself if there is a market for that NFT project you want to invest in.
If the community is small and the plans for a marketing campaign are nonexistent, then you shouldn’t put too many eggs in that basket. Probably, the safest bet would be to avoid altogether.
The NFT marketplaces are flooded with new projects each day. But successful NFT investors are those who can filter through all those projects and find the ones that have a purpose. Try to find NFT projects that have a utility and, most importantly, a supportive community. Aim to discover communities that are large enough to have future buyers for your NFTs.
Ultimately, you might even want to get involved and market those NFTs to give it a notch and help boost its selling value. Get involved in the community. Find the pain points of the project and offer to lend a hand to make everything smoother for the new potential buyers and art collectors.
A few things to remember
Like any investment, it's crucial to research and understand the NFT market's dynamics, trends, and potential risks. You can use tools like market analysis and data analysis platforms to monitor market trends.
And remember that NFT trading is a rapidly evolving market, and there are risks involved, including potential losses and fraud.