Guide on How to Trade Cryptocurrencies

The emerging market for cryptocurrencies such as Bitcoin, Ethereum, Ripple, Litecoin, and EOS has tremendous potential.

As with stocks, commodities, and foreign currencies, these digital assets can be traded on cryptocurrency exchanges and institutional platforms such as Binance or Coinbase.

People who want to benefit from high levels of uncertainty and frequent price fluctuations will love cryptocurrency trading. This guide is intended to assist those who are new to trading cryptocurrencies in learning how they can start making money by crypto trading.

Recommended: Watch the video on How to Read Crypto Charts

What is crypto trading?

The act of buying and selling cryptocurrencies on an exchange or contract for difference (CFD) trading account to speculate on the price movements of cryptocurrencies. Contracts for Difference (CFD) trading is a form of derivative trading that permits participants to speculate on Bitcoin (BTC) price fluctuations without actually owning Bitcoin (BTC).

How to Trade Cryptocurrency?

Many different approaches exist in terms of how to trade cryptocurrencies. To start trading cryptocurrencies, one first needs adequate knowledge of the subject. It is also critical to know the associated risks and the laws that can apply based on one’s jurisdiction, and decisions should be made accordingly. For a quick overview of how to trade cryptocurrency online, check out the step-by-step explainer outlined below:

Step 1: Choose an exchange

One cannot buy or sell bitcoins without opening an account at a trustworthy exchange.

Step 2: Deposit funds

Making a deposit is the second step in crypto trading.

Step 3: Investigate the market

Investigate where to invest in cryptocurrencies to determine the potential returns. Start by searching for digital assets that are either inexpensive or anticipated to increase in value.

Step 4: Select the cryptocurrency

After locating the appropriate market, you must select the crypto you want to trade.

Step 5 – Trade Crypto

The final step is to select a trade size (minimum $10) and click “Open Trade” to initiate the transaction.

How Does Crypto Trading Work?

Now, we will see how crypto trading works. You should take the time to examine each section to avoid any problems thoroughly.

●    Crypto Trading Pairs

First, remember that when you do crypto trading, you will be trading on crypto pairs. Each pair can include two or more different monetary systems, such as fiat currency and cryptocurrencies.

On cryptocurrency exchanges, it is common practice to exchange digital assets that cannot be legally exchanged for US dollars for stablecoins, such as Tether.

Understanding how the BTC/USD pair operates is a good starting point for anyone interested in trading cryptocurrencies. When Bitcoin is traded against the U.S. dollar, the most advantageous conditions for trading Bitcoin’s future value can be found.

●    Crypto Trading Orders

After selecting a cryptocurrency pair to trade, the next step is to place your order. Utilizing a market order, which enables you to complete a transaction at the next best available price, could be advantageous for novice traders.

After gaining a greater understanding of the market, limited orders can help buy and sell bitcoin. This allows you to specify an exact price for the fulfillment of your purchase. When placing an order to buy or sell cryptocurrency, you must also indicate the amount you wish to spend. This represents the most you are willing to lose on this wager.

Investment in Cryptocurrencies Vs. Trading

You should familiarise yourself with the distinctions between crypto trading and investing. In what ways do these two items differ? Although these terms are frequently interchangeable, they have distinct meanings. Both are motivated by a desire to increase their wealth. The crucial distinction between them and other investment options is the time horizon over which their expected returns are calculated.

Frequently, trading operations are expected to yield results within a short to medium amount of time. Multiple timescales, from seconds to weeks, are feasible. The time horizon of an investor or trader is often months or years. A long-term trading strategy was the best choice when first getting started. As a result, it’s recommended that you allot extra time than usual to analyze any upcoming financial commitments thoroughly.

Crypto Trading Strategies

You must have a proper strategy for making money from crypto trading. A person without a crypto trading strategy will engage in illogical transactions. Typical elements of a trading strategy include the steps to be followed before executing a trade, the period during which the trade should be executed, the conditions under which the transaction should be finalized, and the amount of cash committed to the trade.

Scalping, day trading, swing trading, buy and hold, and arbitrage are the five primary strategies for trading cryptocurrency. While we explain the theory behind various crypto trading methods, we do not provide practical guidance on implementing them. Always perform your research before purchasing, selling, or trading cryptocurrencies.

1.   Scalping

Scalping is a common strategy among the Bitcoin trading community. This technique allows investors to capitalize on the market’s propensity for frequent, modest price swings. The objective is to accumulate a substantial sum by gradually accumulating little gains.

Scalpers often use leverage to improve their trading volume and limit their risk exposure with tight stop losses. The trading sector has one-minute, 15-minute, and 30-minute time frames. Typically, they complete their tasks in less than an hour.

2.   Day Trading

Day trading involves opening and closing positions inside the same trading session. Day traders attempt to profit from stock price swings during a single trading day. While scalpers often begin and conclude their trades on the same day, day traders frequently do so on consecutive days. Day trading in cryptocurrencies includes taking advantage of the market’s frequent significant price movements.

For day trading, technical analysis is utilized to develop trading strategies. Due to the needed time and effort, only experienced traders should undertake day trading or scalping.

3.   Swing Trading

This trade is used for transactions lasting more than a day but less than several months. This strategy is frequently referred to as a medium-term trading technique since traders have more time to analyze their options than they would with day trading or position trading.

As you will not have as much freedom as you would with a shorter-term approach, you can make trading choices more objectively and with less emotion, making this an excellent alternative for novice traders.

4.   Buy and Hold (Position Trading)

Position traders can hold their positions open for weeks or months. It might take many weeks or even years. Traders that use this method often disregard short-term market fluctuations instead of concentrating on longer-term trends. In this kind of transaction, daily, weekly, and monthly intervals are of the utmost significance. Position traders do fundamental research to further account for market trends, historical patterns, and other factors influencing future market price movements.

5.   Arbitrage Trading

The phrase “arbitrage trading” refers to purchasing and selling cryptocurrencies on several exchanges to profit from price variations between marketplaces—the trader profits from the poor price correlation between crypto assets traded on two or more platforms.

Conclusion

Given the volatility and unpredictability of cryptocurrency markets, they can appeal to short-term traders. You should now be better prepared to participate in safe cryptocurrency trading. Numerous strategies for exceeding the competition have been studied. The best strategy depends on your personality and the period you choose.

Scalping will be a valuable strategy if you are prepared to sit in front of your trading chart for extended periods and enter and exit several transactions regularly. Alternatively, if you want to trade on the side while juggling other duties, you can find swing trading or other longer-term technique more suitable.

Learn about: How to Read Crypto Charts