How to trade NEO

What is NEO?

NEO is the native cryptocurrency of the NEO network, a blockchain platform that enables users to build decentralised applications, or 'dapps' – software programs that run across a number of computers. The network aims to make blockchain technology more widely available by creating a digital exchange for assets.

The NEO network was founded in 2014 by Da Hongfei and Erik Zhang, although it was originally called Antshares. The Shanghai-based network was rebranded as NEO in 2017 – a Greek word that means 'new' or 'modern' – to promote the ethos of bringing the physical world into a digital space.

The platform uses two different cryptocurrency tokens: NEO and NeoGas (GAS). The base asset is NEO, which represents 'shares' in the NEO market. The coin gives holders voting rights and pays dividends in the form of GAS tokens. These alternative tokens are used to pay the transaction fees of the network, construct the blockchain and create dapps or smart contracts.

How does NEO work?

The NEO network works through a smart contract ecosystem, or 'smart economy'. For a transaction to be completed with NEO, two or more parties enter into a NeoContract – the network’s version of a smart contract (a legally binding agreement written in code).

What are digital assets?

Digital assets are programmable holdings, or 'belongings', which exists as binary code in the digital space. With the growth of the internet, some focus has been drawn away from traditional assets – such as properties and commodities – and toward digital assets, which do not have a physical form. Examples of digital assets include patents and copyrights, databases cryptocurrencies.

This concept might seem abstract, but digital assets operate in much the same way as conventional assets, as they must have value and be able to be owned by a party.

The NEO network facilitates the exchange of digital assets without the need for intermediaries, through smart contracts.

What are NeoContracts?

NeoContracts are the network’s version of smart contracts, customisable agreements written as code on the NEO blockchain. They represent an agreement between two parties – enforced via computers and paid for using GAS tokens – that is executed automatically.

In China smart contracts are legally binding, provided they meet the requirements of the government’s ‘Digital Signature Act’, a means of digital identification. In 2016, NEO’s parent company Onchain partnered with Microsoft China to ensure that digital identity was fully integrated into the network and the blockchain was completely transparent.

With most traditional exchanges, third parties are required to validate the authenticity of each party, which can cost a lot of time and money. But NEO is decentralised, so contract execution is approved by the other network participants or 'nodes' – cutting out the need for a third party. NeoContracts cannot be tampered with as any action must be approved by the majority of NEO users before it is recorded on NEO’s blockchain – a public ledger of all the transactions on the network.

What is consensus?

Consensus is how NEO, like many blockchain networks, verifies transactions. But unlike many other systems, NEO participants are able to designate certain nodes (network users) to act as bookkeepers. These bookkeepers have to maintain a certain balance of NEO tokens in order to qualify for the position.

If two-thirds of the NEO nodes agree on a bookkeeper’s version of the blockchain, consensus is achieved and the transactions the bookkeeper has validated are approved. If a bookkeeping node fails to convey the correct information to the wider group, causing the consensus process to fail, they will be replaced. The process of consensus works as follows:

The NEO network claims that its consensus protocol has the potential to handle up to 10,000 transactions per second,¹ compared with the Ethereum network’s 15 transactions per second.

Four steps to trading NEO

1. Decide how you want to trade NEO
2. Develop a trading plan and outline your strategy
3. Create a risk management strategy
4. Open and monitor your first position

Decide how you want to trade NEO

There are two ways that you can take a position on the value of the NEO token: buying it, or trading on its price movements.

When you buy NEO, you would purchase the cryptocurrency outright, with the expectation that it will increase in value and you can sell it on for a higher price. If you buy NEO tokens, you would get voting rights and receive dividends in the form of GAS tokens. To do so, you would need an account with a cryptocurrency exchange – this process can take a long time and there may be costs involved to maintain the account.

If you decide to trade NEO instead, you do not take ownership of the underlying coin, but speculate on its price instead. You can do so by using derivative products such as contracts for difference (CFDs). Both enable you to take a position on markets that are rising and falling in price – known as going long and going short.

Find out more about the benefits of trading cryptocurrencies

When you trade CFDs, you are entering into an agreement to exchange the difference in the price of NEO from when the position is opened to when it is closed. The profit or loss you make would depend on whether your prediction of the market direction was correct.

Learn more about CFD trading

CFDs are both leveraged products, which means that you only need to put down a small deposit in order to gain full market exposure. While leverage can magnify your profits, it can also magnify your losses, making it important to have a suitable risk management strategy in place

Develop a trading plan and outline your strategy

Before you take a position on NEO, it’s important to create a trading plan that will help give your time on the markets purpose and direction. Your plan should be unique to you, but they generally include:

• Goals. Your plan should look at daily, weekly and monthly targets for your trading and outline exactly what you are hoping to get from each position
• Markets. You should make a list of all the markets you are interested in, or would feel comfortable trading – whether this is just NEO, other cryptocurrencies or different asset classes
• Risk. Your plan should also include your risk profile, including how much capital you have available and how much you would be willing to risk on each trade

You should also establish a trading strategy that will outline exactly how you will enter and exit trades. When you’re choosing your trading strategy, considerations would include which style of trading you prefer, whether this is day trading, scalping, swing trading or position trading.

Create a risk management strategy

The cryptocurrency market can be extremely volatile – prone to large swings in price – which can make for an exciting trading environment but also increases risk.

This makes it important to be aware of the risks involved in trading NEO, especially if you are trading with leverage. Creating a strategy that will help you manage your risk and reduce unnecessary losses is a crucial step for any trader. This should include attaching stops and limits to your positions to help you protect your trades.

Open and monitor your first position

It is now time to open your first position on NEO. If you’ve decided to trade NEO, rather than buying it through an exchange, you can go long or short. If you think that the price of NEO is going to rise, you would open a position to ‘buy’, and if you think that NEO is due to decline, you would open a position to ‘sell’ the cryptocurrency.

Your decision about which position to take should be informed by research and analysis into the market, as well as the strategy you have put in place.

Once you have opened your position, it is important to monitor its progress and keep up to date with anything that could impact the price of NEO.

What moves the price of NEO?

Like most financial markets, the price of NEO is determined by supply and demand. But as cryptocurrencies are decentralised, NEO isn’t affected by the same economic and political concerns as fiat currency systems.

Some of the key factors that influence the price of NEO are:

1. NEO supply
2. Public perception
3. Mainstream adoption
4. Other cryptocurrencies

NEO supply

At the time of writing there were 65 million NEO in circulation,² but the supply of NEO tokens has a hard cap of 100 million, which were pre-mined during the creation of the network.

The finite nature of NEO means that people could attribute more value to the coin. Scarce resources, such as gold, tend to be considered more precious because supply cannot be increased to meet rising demand, which drives the value up.

So, if the NEO platform becomes more widely used, there could be increased demand for the token and the price would rise.

Public perception

The public perception of NEO has been largely shaped by how easy it is to access – it can be bought and sold on a range of cryptocurrency exchanges.

But negative media coverage about NEO, or cryptocurrencies in general, could play out across the market. The price of NEO is heavily reliant on how many people use it, so news of regulation or problems on the network could cause the market to decline.

Keep an eye on key cryptocurrency events and announcements with our news and trade ideas.

Mainstream adoption

For many onlookers, NEO’s potential is far greater than that of other cryptocurrencies due to its relationship with the Chinese government. Despite increasing crackdowns on cryptocurrencies, the government has showed acceptance toward local ventures that are willing to work within the regulations, such as NEO. So, as one of the largest economies in the world, with a population of more than 1.4 billion, the support of China could massively increase NEO’s audience and lead to widespread adoption.

If NEO became the platform of choice for Chinese developers, the price of the token would likely increase. However, if the platform did not attract significant interest from tech companies, it could negatively impact the value of NEO.

Other cryptocurrencies

NEO has been dubbed the 'Chinese Ethereum' as the similarities between the two networks are extremely apparent: both are based on smart contract development and aim to make blockchain technology available to as many people as possible.

Although NEO is not as developed as the Ethereum network, it has the advantage of being part of China’s evolving technology sector and having a relationship with Chinese regulators. If the NEO network was to become more widely used than Ethereum, the market price of the cryptocurrency could rise.

NEO trading summed up

Trading the cryptocurrency market requires a lot of planning and preparation. Here are some key points to think about before you trade NEO:

• NEO is the native cryptocurrency of the NEO network, a blockchain platform that is designed to build a network of decentralised applications
• The platform uses two different cryptocurrency tokens: NEO and NeoGas (GAS)
• The NEO network facilitates the exchange of digital assets without the need for intermediaries, through smart contracts
• NEO participants can designate certain nodes to act as bookkeepers
• Before you take a position on NEO, you should take time to decide whether you want to buy or trade the cryptocurrency and build a trading plan
• When you trade NEO, you can manage your risk with stops and limits
• Key factors such as supply, public perception, mainstream adoption and the popularity of other cryptocurrencies can impact the price of NEO

¹ Neo.org, 2018
² CoinMarketCap, 2019