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What is Forex Trading? Learn to Trade Forex NOW!

Let’s say you’re traveling to the United States from the UK. When you arrive at the US airport, you’ll notice there are tens, if not hundreds, of different “currency converters”. When you approach these machines you see that you can insert the GBP currency you brought from the UK and have it exchanged for US Dollars, the countries native currency. When you insert 1000 GPB, you notice that in return you’ve just received around 1300 USD.  You think to yourself, “Why did I just receive more than I put in?” Unknowingly, you’ve just swapped currencies through the foreign exchange market, a form of the financial markets, where assets or valuable have varying & alternating prices.

The financial markets are various and littered with opportunity. Learning how to trade Forex markets, for example, can be an invaluable skill you utilize for the rest of your professional career. Understanding their core and learning how to maneuver through them is under no circumstances an easy task, but if done, can produce a jaw-dropping profit. This guide will overview how to trade the foreign exchange markets, how to set up and get started with simple Forex trading accounts, and the basic fundamentals of the process.

Forex Trading

The foreign exchange (Also known as “Forex” and “FX” Markets) markets are often considered one of the most globally acknowledged markets because it is the most liquid market in the world, and generates more volume than any other market. Additionally, Forex Markets are technically considered to be 24/7 markets, unlike equities where you can only trade 5 days a week, depending on which currencies you trade.

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Find in This Article What is the Forex market? Understanding currency pair fundamentals What is a Forex broker? Types of Forex trading platforms 10 tips for trading Forex FAQs

What is the Forex Market? This guide will dial in on Forex Trading, which is conducted on the Forex Market.

…On average, about 95%, or 9 out of 10 traders lose money, or are unsuccessful. Barber, Lee, Odean, in a case study on trading returns. Forex Market Real-time Quotes

While this is more paraphrased, the bottom line is that trading is not easy. However, if you dedicate a serious amount of passion and effort to grasping this knowledge, which also means reading and following this guide meticulously, it is, *not guaranteed*, but absolutely possible to make vast amounts of money from trading markets.

The Forex Market as a whole is simply a place where people across the globe enter in transactions with one another to buy and sell certain global currencies. Let’s apply the previous example used of walking into an airport and exchanging your GBP from USD in order to use it for purchases in the United States. In a very simplified sense, this transaction was conducted on the Forex Market. The Forex Market is one of the largest markets in the world with an estimated over $5.1 trillion in market capitalization calculated per day.

The Forex Market is a compilation of the world’s acknowledged and regulated currencies. There are some exceptions as well; assets such as “cryptocurrencies” are not included in the classification of the Forex Market. The Forex Market is a common outlet for traders; people who buy and sell assets for a profit. You may have heard of stories of people getting rich by trading Forex. While this is true, getting rich by trading is entirely subjective.

Forex trading has birthed a new-age market where anyone with a phone and valid identification can get started. But what is Forex Trading? Breaking down the concept, the term is composed of 2 words which need to be understood prior to any action.

Forex- Forex is short for “(for)eign (ex)change markets”, which is the financial markets reflecting the buying and selling of global currencies and their respective pricing on a global level.

Trading – Refers to the financial action of buying and selling assets (In this case of global currencies) in a consistent manner in hopes of realizing a profit. Taking these terms into account, Forex trading refers to buying one currency and selling another currency at the same time.

Forex trades are popular partly due to their low commissions and fees. Despite this, we advise to be cautious when forex trading and to use orders such as stop-losses to minimise your risks of losing funds. As we mentioned briefly in our Forex terms section, currency pairs are two currencies that are being exchanged for one another either in a cyclical or expansive manner. Within Forex, currency pairs consist of 2 currencies: a currency that is being bought and a currency that is being sold. Pairs are denominated by respective currency tickers, which as also aforementioned, are represented by a finite amount of letters. Currency pairs adhere to the following format: “Currency 1” / “Currency 2”. The slash represents their pairing.

The best way of understanding currency pairs deeply is by exploring them in real-time settings. As a result, let’s look at an example.

While brokers will yield the tools you need for exact trading, Google has multiple tools built in its infrastructure that is tailored for forex market trading. For example, typing in any currency pair will return the most recent conversion rate for those two currencies. In the above example, typing “USD/JPY”, or United States Dollars converted to Japanese Yen will return the last retrieved conversion rate, which is at the moment 111.91 Japanese Yen per US Dollar.

Let’s dissect a currency pair; what does a currency pair tell us when we’re potentially looking to buy, sell, or trade currencies? Look at the following currency pair:

NZD/USD This case is translated to New Zealand Dollar by United States Dollar, or in the world of currency trading, it’s referred to as the “kiwi dollar”. If we were to sell NZD/USD, you would be selling the New Zealand Dollar and buying the United States Dollar. Now let’s say we were buying NZD/USD – this would mean that we are buying the New Zealand Dollar and selling the United States Dollar. What does this mean in terms of sentiment? If we are simply buying NZD/USD with no associated orders, we’d essentially want the price of the New Zealand Dollar to increase relative to the price of the United States Dollar. If this is the case, our position will be more valuable. If the opposite happens, our position will decrease in value. Let’s take the opposite order in this currency pair that we mentioned: let’s say we sold NZD/USD and didn’t have any positions to sell, then we’re entering a position similar to ‘short selling’, however, this is a more complicated topic that won’t be discussed here.

Having trouble identifying which pairs link to which world currencies? There are a plethora of resources available that can be used to find either a pair relative to currency or currency relative to pair. Bloomberg has a great portal for this, however, you can also do a quick Google search for currency pairs.

What are the Most Traded Currency Pairs on the Forex Market? The most common currencies on the Foreign exchange markets are the United States Dollar (USD), the Japanese Yen (JPY), the Euro (EUR), the Canadian Dollar (CAD), the New Zealand Dollar (NZD), as well as the Pound Sterling (GBP). The trading pairs that have been deemed the largest due to their consistency and large volume in daily trading are as follows (Not in order, as they change the order of most volume obtained daily):

USD/CAD, EUR/USD, GBP/USD, NZD/USD, AUD/USD, USD/JPY, as well as EUR/JPY, EUR/CHF (Swiss Franc), EUR/GBP, and AUD/CAD.

How to Read Forex Charts Forex markets demonstrate exchanges between different currencies and their prices relative to that exchange. Understanding charts are very important and can be an extremely useful tool in trading Forex. Prior to learning how to read them and how you can use them to make money trading, you should understand what exactly goes on in a forex market chart.

Charts Are Relative to a Parameter – Foreign exchange market charts are always relative to a certain parameter. The most basic chart type in Forex, which you’ll also be using the most, is the standard line graph. A line graph houses two axis, the X-Axis, and the Y-Axis. Charts demonstrate something. The most common chart, a line graph, shows the performance of one parameter over the length of a different parameter.

The most common chart in Forex trading is the performance of a currency pair over a said period of time. In this case, we can determine the following parameters are used to demonstrate a chart for how the price of a currency pair performs over time. The parameters used in this case are:

1.) The trading pair 2.) The exchange rate (price) of the trading pair, 3.) Length of time the exchange rate of the trading pair has been recorded. In the most standard and most likely used average format of this type of chart, the parameters are used in the following notion; on the Y-Axis, you have a scale that shows the prices that the trading pair has previously obtained. On the X-Axis, you have a start date for where the data recording starts, and then an end date for when the data ends.

Let’s look at the above chart of USD/JPY courtesy of DailyFX. At the title of each graph, you will have an overview indication of what it is you’re looking at. In this case, this is the chart for the price of “USD/JPY“, in other words, the amount of USD that can be exchanged for JPY over the period of a year. On the X-Axis you can see the time indications, which are marked by Months (Time).

Then as we previously mentioned, on the Y-Axis, we have the price points at which the USD/JPY pair has attained.

Now, let’s delve a bit deeper into the graph. The exact price points may simply look like the prices at which USD/JPY has obtained previously, correct? Yes and no. The above chart is one of the most used and probably most important chart type that you’ll come across, called a Candlestick Chart.

A candlestick chart is a type of chart that shows the performance of a currency over time through the form of “candlesticks”. Candlesticks are visual representations of price movements of an underlying currency from its open price, close price, as well as its price increase/decrease relative to the price of the currency on the previous close. This might sound confusing at first, but let’s dive in; candlesticks are a concept that can only be learned with practice.

A candlestick represents a singular time mark relative to the time preference you’ve set. If you open a “Daily” candlestick chart, each candlestick that you see on the chart will be representative of a “Day” of price movement. Let’s look at a zoomed in version of the USD/JPY chart, which looks like so:

Looking at this chart, each candlestick represents a “Day” of price movement for the USD/JPY pair. Each green candlestick means that on this “Day”, the price of USD/JPY closed higher than what it closed on the day before unless we are talking about the most present candlestick on a candlestick chart. In this case, the candle will be green or red depending on whether or not the price on a “Day” opens relative to the previous day. If it opens higher, then in realtime the candle will appear green.

The following image, provided by Investopedia, demonstrates the anatomy of a candlestick on a chart.

The topmost part of the candlestick indicates the highest price achieved by the pair during the day; the second topmost is which price the pair opened or closed the day at; the body of the candle extends only as far as the fluctuation in price during the day. The bottom of the body indicates the subsequent open or closing, and then finally, the bottommost part of the candle represents the lowest price attained during the trading period.

Analyzing these sorts of charts are necessary to get a better grasp for Forex trading but are also extremely necessary for learning how to maneuver any financial market. Learning the functionality and basis of a candlestick chart will be invaluable in your overall trading.

The second chart that should be understood is the basic line chart. With (Hopefully) newfound knowledge in Candlestick Charts, understanding basic line charts will be easy. Line charts are primarily useful in Forex trading for a preliminary overview of price action. If there are 4 trading screens open across your trading desk, you may not want to know the exact details associated with price action that candlesticks provide. Sometimes you simply want to know the general direction. Basic line graphs are excellent for that purpose.

A line graph displays data in a similar manner as a Candlestick Chart. A basic line graph/chart will overview the price of a certain trading pair over a certain time period. However, it will only ever demonstrate a singular parameter through the chart: which is the close price of the trading pair. Here is the same trading pair we viewed earlier with a candlestick layout, except now replaced with a basic line setup.

Here you can see we have a very broad overview instead of exact closes, opens, and daily movements, and sometimes that’s the only thing you want when looking at a trading pair. This chart is extremely simple in terms of composition: on the Y-Axis, we have the price of the range of prices the trading pair has previously attained, and then on the X-Axis we have our variable of time, which is in months for this specific graph.

Reading Forex charts is essential, and with this basic understanding, you should have the capability to make very brief and preliminary inferences, such as “This trading pair has been declining in price for over 2 months now”, or “This trading pair dipped down today after increasing for over 3 weeks, maybe now is a good time to trade upward.” Of course, nothing is set in stone, however, comprehending Forex charts will allow you to reach a level of knowledge in trading and analysis that can be very helpful in making profit.

How to Make Money Trading Forex Making money on the Forex Markets is done through the form of trading by completing a variety of transactions in the market between currencies and accumulating profit through the price movements that are underwent everyday.

When trading Forex, you are purchasing one currency while at the same time selling another currency. You can make money in trading when you do one of the following:

Buy a position that increases in value and then selling that position for a profit In this case you’re betting that the trading pair you’re purchasing will increase in value. Sell a position on a trading pair that decreases in value (Similar to short selling) and then purchasing that position back after it has decreased. In this scenario, you’re betting the trading pair you’re selling (Also known as borrowing) will decrease in value so that you can cover or “repay” your broker back at a cheaper price, therefore yielding a profit. The following example will walk step by step how you make money with forex: You open a Forex trading account with $1000 in it. You buy $500 and keep the remaining half of your account in cash (A wise strategy is never to empty your entire account into a single position) – the trading pair AUD/USD (Australian Dollar for United States Dollar) at .71 AUD (This means you’re purchasing $500 worth of Australian dollars using the United States Dollar).

For sake of argument let’s assume margin is not enabled, and let’s also say the price of AUD/USD increased to .72 which is equivalent to 1.4%. The next day we see this increase and we sell our $500 worth of the position; our $500 has increased by 1.4% (Not taking into account fees) which is approximately $507 total. $507 – $500 = $7 profit. In this case, you’ve just made money with Forex!

The difficult part and the sections that take dedication and time to master are determining the position size to take in your account when to cut losses, when to take profit, and so on.

Now, the million dollar question is which positions do you take in order to turn a profit on your portfolio? To make profit trading Forex, you look at that question with a very subjective perspective. There is no singular secret sauce that can prove profit in Forex trading, especially with the market at this large of magnitude, the market is a zero-sum game: when someone loses money, someone makes money and vice versa. Dedication and a sincere amount of diligence and work can return a profitable environment for Forex trading, however, and can increase the frequency at which you place profitable positions.

What is a Forex broker? Let’s apply once again to our previous example of arriving at an airport in the United States with GBP. We want to exchange our GBP for USD so that we can use it in the country, so we go to a currency exchange at the airport. This currency exchange is an example of a broker. A broker is a provider of an asset, in this case, a provider of foreign currency, that will sell you something in exchange for a fee; this is where you go when looking for where to trade Forex.

At an airport, the currency exchanges are considered to be brokers. Let’s say we converted our 1000 GBP to 1300 USD and upon arriving back in the UK saw that we could convert our USD to 1050 GBP. We notice on a large scale we could theoretically continue this conversion all for a profit (In this case, of 50 GBP).

The fluctuation in price for all global currencies are consistently fluctuating; they are changing by the second. At the moment, 1 USD could be equal to 100 Japanese Yen, but that doesn’t mean tomorrow it will be worth that exact amount. As a result, trading has erupted on the mainstream as a potential for moving back and forth between currencies to obtain a profit.

The problem is, moving from country to country just to exchange currencies for profit is tedious, plus the fees required for flights, food, hotels, etc. would make economically no sense when applied for the profit potential available. As a result, Online Forex brokers, serve as portals where users can buy and sell currencies in their real-time value from anywhere in the world. Through these brokers, you can then buy and sell global currencies such as USD no matter if you’re at a United States airport, or in a coffee shop in the Netherlands.

Check out our forex broker page to find out everything you need to know about how to trade Bitcoin on forex brokers. How to Choose a Forex Broker (What to Look For) Trading on the foreign exchange market can be an incredible opportunity to make profit straight from any technological device, however, the platform for which you trade Forex can be the difference between a winning and losing portfolio. Picking the right Forex broker and finding the right forex trading sites is essential.

Look for a broker that matches your trading style: if you intend to use heavy amounts of margin, look into a broker with low margin fees. Brokers with high regulatory respect and connection is a great sign. The higher the security, the more safe and risk-averse your funds are with this particular broker. High liquidity and volume on a broker mean that there is a higher chance of your order being executed where you want it to. Find proper team members who have been well vetted through experience in foreign exchange brokerage. Top 5 Forex Brokers eToro – eToro is a licensed broker and exchange that is regulated by the FCA. The exchange initially only opened accounts for residents of the UK, but has now expanded to feature account registration and hosting for users on a global scale. This includes residents of the US and AU. Forex trading on eToro can be done very quickly and safely under the proper discretion. eToro enables trading on margin, and is one of the most secure options as far as Forex brokers goes. Check out our eToro review to find out everything you need to know about the exchange.

Pros:

Fast and easy initial account creation Margin enabled Great selection of payment methods, including credit cards and PayPal Mobile trading app for Android and iOS Social trading and copy trading is enabled Wide range of different assets to choose from Cons:

Account verification for a validated brokerage account can be time consuming

Visit eToro

Plus500 – Plus500 is a regulated CFD broker that enables the exclusive trading of Forex CFDs, which are essentially contract representations of different foreign currency exchange pairs. Plus500 is not enabled in the US, however, it maintains a strong presence in the UK and AU due to its very sophisticated and user-intuitive framework.

Pros:

Regulated brokerage and registered Margin is enabled for valid accounts Range of different assets to trade Intuitive trading portal Enabled in a variety of jurisdictions Cons:

Account validation process can take time Exchange not allowed in the US

Visit Plus500

80.6% of retail CFD accounts lose money

24Option – 24Option is an additional CFD brokerage that enables the trading of a variety of different Forex pairs. 24Option maintains an additional educational center that is available for new users and those looking to learn more about trading. 24Option maintains a large variety of different assets including cryptocurrencies, forex, and more.

Pros:

Regulated CFD forex broker Margin is enabled for the accounts on 24Option Overseen by legal entity, offers security Trading portal is easy to use, straightforward process Cons:

Verification is required, can take time Can be a complex platform to get the hang of at first

Visit 24Option

OANDA – OANDA is one of the most used and trusted foreign exchange currency brokerage platforms in the world. The exchange offers very quick and guided registration that still requires verification, but is streamlined with a very responsive support team. OANDA runs a variety of different product offerings including Forex trading pairs for a variety of markets, and enables margin trading.

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In Wake of ‘Major Failure,’ Bitcoin Code Review Comes Under Scrutiny

“Shock” is perhaps the word that best describes the mood ever since one of bitcoin’s most severe bugs was discovered and patched last week.

As the community reels over the vulnerability that was hiding in the code for two years, and that could have been exploited to print more bitcoins than the 21 million is hard-coded to be produced, developers are wondering: Is there a way to prevent such a severe bug from being added to the code again?

Bitcoin Code Review

Days after the discover, there hasn’t been any formal proposals. But that’s not to say the event hasn’t prompted discussion about how bitcoin works and how similar bugs in the cryptocurrency’s most popular software implementation, Bitcoin Core, can be identified and resolved in the future.

It’s an important question, too – What if a malicious actor had found the exploit first? What if there are other hidden bugs in the code right now?

To this point, pseudonymous bitcoin subreddit moderator ‘Theymos’ urged the community not to forget the bug.

He argued it was “was undeniably a major failure” in a widely-circulated post, adding:

“If all of Bitcoin Core’s policies and practices are kept the same, then it’s inevitable that a similar failure will eventually happen again, and we might not be so lucky with how it turns out that time.”

That said, there’s an argument to be made that Bitcoin Core, powered by an open network of global participants, now has a more robust process for code review than at any time in the technology’s history.

Right now, the implementation has more developers than ever contributing to the open-source codebase. And it is tested quite a bit; by one estimate, tests make up nearly 20 percent of the codebase.

The community’s ‘fault’ Still, developers argue more could be done to make sure the digital money works smoothly.

Theymos thinks one avenue would be to build “more sophisticated” tests tailored at locating severe, but hard to find bugs, like the one last week. “Perhaps all large bitcoin companies should be expected by the community to assign skilled testing specialists to Core,” he continued, adding:

“Currently a lot of companies don’t contribute anything to Core development.”

Bitcoin Core contributor James Hilliard stressed much the same, suggesting that developers can increase the “amount” and “quality” of testing. Though, this might be easier said than done. Bitcoin Core contributor Greg Maxwell agreed in Theymos’s thread that testing is important, but the quality and detail of the tests is important.

“Directing more effort into testing has been a long-term challenge for us, in part because the art and science of testing is no less difficult than any other aspect of the system’s engineering. Testing involves particular skills and aptitudes that not everyone has,” Maxwell said.

This sort of expertise is hard to find.

“Bitcoin development is largely bottlenecked by code review and there are not a large amount of people out there who are able to do that,” Hilliard told CoinDesk.

Yet, many others believe the responsibility shouldn’t only rest on developers. A common sentiment shared was that as a decentralized project with no leaders, keeping bitcoin free of errors is a shared responsibility.

“My main problem with a lot of the backlash is people pointing at specific developers to assign blame. The entire project is open, there is no ‘membership’ and users have just as much of a responsibility to audit code as developers actively contributing,” pseudonymous bitcoin enthusiast Shinobimonkey told CoinDesk.

Such a sentiment was shared by Bitcoin Core maintainer Wladimir van der Laan who tweeted, “It was wrong that the buggy code was merged. Yes, we screwed up but the ‘we’ that screwed up is very wide. The whole community screwed up by not reviewing consensus changes thoroughly enough.”

Chaincode engineer John Newberry agreed. Even though he didn’t write the buggy code, he argued that as a developer in the bitcoin world, he played a role in the error, too, by not looking closely enough.

He went as far as to say that the code in question had looked funny to him. Yet, he assumed others had already checked.

“Instead of verifying for myself, I trusted that people smarter and wiser than I am had it covered. I took it for granted that someone else had done the work,” he stated.

Multiple Bitcoin Cores Still, some argue there will always be a risk of bugs.

“There’ve been bugs in bitcoin before and there’ll be bugs again. It’s just software. There’s nothing magical to it,” tweeted Blockstream COO Samson Mow.

Along these lines, there’s another popular idea floating around.

Today in bitcoin, there’s one main bitcoin software, Bitcoin Core, run by 95 percent of bitcoin nodes. (At least that’s according to one count – interestingly, there’s no way to see every bitcoin node, because some nodes want more privacy and don’t advertise their existence to the rest of the network.)

One idea, then, is to make more bitcoin code implementations. That way if one implementation has a disastrous bug that crashes the network, the other implementations could still be fine, keeping bitcoin as a whole running.

And to a certain degree, this already exists. There are lesser-known code implementations, such as Bitcoin Knots and Btcd. Elsewhere in the cryptocurrency world, this is becoming the norm. For instance, ethereum has two dominant implementations, geth and parity, each of which can be used by anyone running the software.

Still, many bitcoin developers worry that adding more than one implementation could introduce problems that would be even worse than last week’s vulnerability.

“What many people do not realize is that having people run different implementations makes it easier for attackers to partition the network,” Bitcoin Core contributor Andrew Chow argued in a conversation outlining the pros and cons.

As such, developers don’t necessarily agree on exactly what needs to be done.

Theymos perhaps put it best when he said:

“I don’t know exactly how this can be prevented from happening again, but I do know that it would be a mistake for the community to brush off this bug just because it ended up being mostly harmless this time.”

Metal shield image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Staking Isn’t Just a Way to Earn Crypto Money – And It Shouldn’t Be Jake Yocom-Piatt Jake Yocom-Piatt Jun 22, 2019 at 09:30 UTC  Updated Jun 22, 2019 at 09:32 UTC OPINION Jake Yocom-Piatt is the project lead for Decred and the creator of btcsuite — an alternative full-node Bitcoin implementation written in go whose source code has been used in several notable projects.

Staking is money you don’t want to miss out on — simple as that, right?

While most cryptos today are trading 70 -90 percent below their all-time highs, staking is making what looks like easy money, scoring coin holders up to 30 percent rewards. More and more people are paying attention, with staking touted as the best way to make semi-passive returns in a bear market.

Coinbase is launching staking support, and new staking coins are cropping up to compete with the established players like Tezos, Dash and Decred.

It’s not really that simple. Staking is getting attention for all the wrong reasons, and it’s time to re-examine its role.

Misconceptions around how it works and why it exists will have lasting consequences if expectations aren’t set now. Projects that implement any form of proof-of-stake (PoS) need to plan for long-term sustainability, not just the immediate future.

If You’re Going to Stake, Stake Right Staking is evolving from being a semi-passive reward, to becoming a powerful incentive for participating in governance. Projects that plan for the future will figure out how to incentivize active participation, while those who elect a set of governors based on the quality of their kickbacks won’t last.

Choosing to stake on the right projects for the right reasons is the best way to earn rewards.

Proof-of-Work (PoW) was introduced on bitcoin as a block validation method to timestamp transactions without the need for a trusted third party. PoW has an established track record with bitcoin securing its network using energy. People began exploring PoS as a way to use less energy to do validation “work.”

PoS is more accessible and decentralized, empowering coin holders, who “stake” coins to “forge” blocks by maintaining an online wallet or node.

Staking started as just another method for recording transactions securely, but it’s constantly evolving. Some implementations are a hybrid with PoW, while others add delegates who either receive votes from, or are empowered to act on behalf of, the group.

Staking for Rewards vs. Staking for Participation As Zaki Manian, co-creator of Cosmos, pointed out in an interview with CoinDesk, “[P]art of the dynamics of proof-of-stake is how frequently do people just vote to give themselves more money?”

In this scenario, coin holders collect exorbitant rewards without putting in any work.

Staking has been erroneously portrayed as the crypto version of a bond. While there are projects that don’t require any more work than staking funds for a reward, this approach is ultimately unsustainable and will get participants who thought they could “park and earn” into trouble.

It’s not unusual for projects to employ a toothless charade for centralized parties to claim they’re not in control. These systems are often overly complicated and characterized by confusing procedures and non-binding voting, which in practice discourage voter participation and lead to voter apathy.

When it comes to participation, several staking projects have voting on treasury spending — projects like Dash, Decred and PIVX are paving the way in governance where the community participates in project-level decision making. Decred’s participatory voting feature, for example, allows token holders to vote on everything from protocol decisions to choosing to hire its PR firm.

Today, staking spans a gamut of implementations beyond locking up funds, from ensuring the security of a blockchain to changes in consensus rules. PoS doesn’t necessarily imply governance, but its incentive structure combined with governance has radical implications for participation.

Staking for Rewards and Power With the right incentives, staking can not only return rewards, but also give you input on a project’s future direction. When staking your coins, they usually go through a lock-up period while voting — rules on this vary from project to project.

After voting, you get your coins back as well as a staking reward.

If you vote against the project’s interests, while you’ll still get the immediate staking reward, over time you’ll feel the negative market effects of bad decisions like an all-expenses-paid stakeholder’s ski trip to Switzerland. In a system that gamifies decision-making and other processes, voting on decisions has a longer-lasting effect beyond earning an immediate staking reward.

Staking governance is powerful because it embodies a philosophical underpinning of the crypto movement: the belief humanity’s accepted forms of large-scale decision-making aren’t working well.

Staking aims to put that into practice — in crypto in the near term and on a societal scale in the distant future. This means eliminating corrupt intermediaries in favor of peer-to-peer interaction, and shirking representative democracy in favor of direct voting.

Individual sovereignty is tantamount; if you have skin in the game (i.e. are financially invested), you should help determine the direction of that game. But with that comes the responsibility of making informed decisions, and not necessarily trusting anyone else is going to make them for you. If you want to participate in staking long-term, you need to understand a project well enough to stake it.

If you want to have a say in how a project is run, you need to stake one that incorporates your sovereignty as a user. To participate, you need to keep up on changes to its consensus rules and actively vote for what you believe is best for it.

Staking can yield significant rewards, but to simply receive compensation for voting sets up a poor alignment structure. Coin holders must understand the responsibility that comes with locking up their coins and use it wisely — and only then enjoy the fruits of their labor.