Polygon Price Drivers: How to Trade POL

While some traders focus on the most popular cryptocurrencies to trade - such as Bitcoin (BTCUSD), Ethereum (ETHUSD), Cardano (ADAUSD), Solana (SOLUSD), and Litecoin (LTCUSD), others might prefer to diversify their portfolio with other types of tokens, such as Polygon (POLUSD).

Let's delve into the forces that can drive the price of its token, POL. We'll then explore how to trade POL.

TL;DR

• Polygon (formerly known as Matic Network) acts as a bridge between Ethereum and other blockchain networks such as Binance Smart Chain, Avalanche, and Solana.
• Polygon is a combined framework and protocol that tackles scalability issues for Ethereum-compatible blockchains.
• The POL token is the lifeblood of the Polygon network, fueling transactions and powering various functionalities.
• In mid-July 2024, POL was the 21st biggest coin by market capitalisation.
• The price of Polygon (POLUSD) can be influenced by various forces.
• It can include user activity, Ethereum's scalability struggles, broader market sentiment, and any news specific to Polygon, among others.
• Staking Polygon, buying POLUSD coins and trading POLUSD with Contracts For Difference (CFDs) are ways to get exposure to POLUSD.
• When it comes to actively capturing POLUSD's price movements, day trading and swing trading are two widely used trading approaches.
• On 4 September 2024, a major update of the main net occurred, with the MATIC token becoming the POL token, which now becomes the gas and staking coin of the Polygon network.

What Is Polygon?

Launched in 2017, Polygon emerged as a crypto game-changer for Ethereum. This user-friendly platform tackles Ethereum's scalability challenges by offering a powerful suite of tools for infrastructure development to empower developers to build a vast array of applications. By enabling a multi-chain ecosystem, the Layer-2 Polygon network paves the way for a more robust and interconnected Ethereum, primed for the future.

To dive deeper into the Polygon network, check out our article, "What Is Polygon?".

Polygon’s Historical Price Highs and Lows

Polygon (POLUSD) has experienced significant price fluctuations since its launch. Here's a breakdown of its historical highs and lows since it was launched:

• Launch in April 2019: $0.00445
• Lowest Price Reached in May 2019: $0.00322
• Highest Price Reached in December 2021: $2.83

What Are the Main Drivers of the Polygon (POLUSD) Price?

Understanding the key drivers behind POLUSD's price fluctuations is an important step for a trader wanting to grasp the underlying dynamics of this market. Let's take a closer look at the factors shaping the value of POLUSD:

• Network Activity: Changes in the overall usage of the Polygon network can impact POLUSD prices. A surge in transactions, active users, and decentralised applications (dApps) built on Polygon could signal increased demand for the token POL, potentially pushing its price upwards. Conversely, a decline in network activity could indicate waning interest, potentially leading to a price drop.
• Technological Developments on the Polygon Network: The Polygon team is constantly innovating and introducing new features to the network. Upgrades that can improve scalability, security, or transaction processing speeds attract more users and developers, fueling positive sentiment and potentially driving the price of POLUSD. Conversely, any delays or setbacks in development could dampen investor confidence and impact the price.*
• Ethereum Performance: Polygon provides a scalability option for the Ethereum network. As Ethereum endures high congestion and transaction costs, Polygon could gain by providing a quicker and less expensive alternative. As a result, Ethereum's strong performance and growing transaction fees or network demand might indirectly help POLUSD by emphasising the need for scaling solutions. However, substantial breakthroughs in Ethereum's scalability may diminish dependency on Polygon, affecting POLUSD's price.
• Overall Crypto Market Sentiment: The cryptocurrency market is still relatively young and susceptible to broader market trends. When the overall sentiment towards cryptocurrencies is positive, with large players such as Bitcoin seeing price gains, POLUSD and other altcoins can benefit from the spillover effect. In contrast, pessimistic sentiment in the crypto market might drive down the price of POLUSD, even if the Polygon network is working well.
• Crypto Regulation: Regulatory developments from governments and financial institutions can significantly impact the cryptocurrency market. Clear and supportive regulations can provide a more stable environment for investors, potentially boosting confidence in POLUSD. However, strict regulations or crackdowns on cryptocurrencies could create uncertainty and negatively impact the price of POLUSD. The approval of a Bitcoin ETF in early 2024 has boosted the price of Bitcoin and other tokens in the following months.

*The next major update to watch out for will be on 4 September, 2024, where the mainnet will be upgraded and the POLUSD token will become the POL token, which will be the gas and staking coin of the Polygon network.

Advantages and Disadvantages of Trading Polygon

Here are some of Polygon’s strengths you should be aware of:

• Breaking Down Barriers Between Blockchains: Polygon bridges the gap between blockchains, offering seamless interoperability with Ethereum. Additionally, it's designed for limitless scalability, ensuring smooth operation even with a surging user base.
• Polygon Offers Relatively Quick Transactions: Polygon delivers swift transaction processing with an average block confirmation time of 32.7 seconds in mid-July 2024.
• Low Transaction Fees: Polygon's typical transaction fees are around $0.01 as of mid-July 2024, but they can evolve in time.

In addition to knowing about some of the advantages of choosing Polygon as a cryptocurrency to trade, you should also know about some of Polygon’s weaknesses:

• POL Has Limited Use Cases: Unlike some cryptocurrencies like Bitcoin or Litecoin, POL's primary function lies within the Polygon ecosystem. It fuels network operations like governance, security, and transaction fees.
• Strong Ties To Ethereum: Polygon's Layer 2 architecture hinges on the Ethereum network. While this integration offers security and other advantages, it also means that severe disruptions to Ethereum could hinder Polygon's functionality.

Trading vs Investing in Polygon

Your approach to Polygon (POLUSD), which usually depends on your risk tolerance and goals, mostly comes down to trading vs investing.

Investors take a long-term view, seeking to profit from POL's potential growth over time. They might hold the token for months or even years. In contrast, traders aim to capitalise on short-term price fluctuations, potentially entering and exiting positions within minutes or days to exploit market inefficiencies for potential profits.

For those invested in the Polygon ecosystem, there are three main ways to enter the Polygon market and buy, sell and trade this crypto:

• Invest in POL by Buying Tokens: Cryptocurrency exchanges function like online marketplaces where you can buy and sell POLUSD using various payment methods. You can use fiat currencies like US dollars (USD) or Euros (EUR) or even other cryptocurrencies like Tether (USDT), Ethereum (ETH), or Bitcoin (BTC).
• Trading Polygon with Contracts for Difference (CFDs): These financial derivatives let you take a position on POLUSD's price action, whether it's going up or down with long and short positions, without directly owning any tokens. While this offers the potential for profit in both market directions (bullish and bearish), it also comes with the risk of amplified losses due to leverage.
• Staking Polygon: The Polygon blockchain secures its network through a Proof-of-Stake (PoS) consensus mechanism. Users who stake POL tokens in dedicated wallets help validate transactions and earn rewards in return.

How to Trade Polygon (POLUSD) with CFDs (Step-by-Step)

If you’re thinking about trading Polygon (POLUSD) with Contracts for Difference (CFDs), here's a step-by-step guide to get you started trading:

1. Learn the common trading terms and financial terms to understand what trading is and how it works.
2. Choose the right time frame for your trading.
3. Pick your trading style.
4. Decide how to analyse POLUSD price using technical analysis, fundamental analysis, and behavioural finance.
5. Consider risk management tools.
6. Craft your trading plan.
7. Select a CFD provider like Plus500.
8. Try your trading strategy and the CFD provider’s trading tools on a demo account.
9. Take time to learn how to trade cryptocurrencies with Plus500.
10. Switch to a real trading account.
11. Fund your account.
12. Place your POLUSD trade.
13. Monitor your POLUSD trading positions.
14. Regularly review your trading strategy.

What Are Some Trading Mistakes to Avoid Before Getting into POLUSD Trading?

Don't let common trading mistakes derail your POL trading journey. Understanding key mistakes and how to avoid them can increase your chances of success. Here are some of the most frequent key trading mistakes to deal with:

• A lack of knowledge, research and preparation.
• Not having a trading plan.
• Having unrealistic trading goals.
• Constantly chasing high-performance strategies to maximise your profits.
• Ignoring volatility and liquidity.
• Not taking fees into account.
• Not knowing how to trade in unfavourable markets.
• Falling for Fear of Missing Out (FOMO) and not learning to control emotions when trading.
• Overtrading.
• Not knowing what risk management is.
• Not understanding your trading mindset.
• Using too much leverage.
• Not staying updated on the latest news and market insights.

Equipped with your understanding of Polygon (POLUSD) price drivers, start trading POLUSD CFDs on Plus500.