Cryptocurrencies and the blockchain are transforming many industries and garnering a lot of interest from the general public. Many organizations and high-volume investors are joining this space with the aim of making investments and earning from them. With this increased attention, newer entrants are thinking about starting trading. How can you profit from trading if you are in this group? Is trading for you?
If you are considering trading, it is important to learn the basics of cryptocurrency trading to avoid unnecessary losses. Thus, it is good to know at least how the cryptocurrency market works, how to choose a cryptocurrency trading platform, know the basic trading strategies and use some cryptocurrency tracking apps.
What Is Trading?
Cryptocurrency trading involves speculation regarding the movement of cryptocurrency prices through the use of a trading account, or through buying and selling cryptocurrencies on trading platforms. Traders who use these instruments can either go long or go short.
Going long is when a trader buys an asset because they think it will rise in price, with the hope of selling for a higher price. When employing this strategy, the trader makes money from the difference between the buying price and the selling price. In simple terms, it means buying cheap and selling expensive.
Going short, on the other hand, is when a trader thinks the price of an asset will go down so they sell it, hoping they can buy it again later at a lower price. Therefore, they make money from the difference of selling expensive and buying back at a lower price.
Traders typically trade cryptocurrencies through an exchange. The trader needs to create an account with their exchange of choice, put up the full value of the asset to open a position, and store the assets or tokens in their own wallet. They can then watch the market and decide on when to sell the tokens. The exchanges also have an extensive list of tokens, allowing clients the option of trading with various ones.
Trading also involves a bit of a learning curve, as traders have to first understand the involved technology and get to know how to make sense of the available data. Failure to have knowledge may result in massive losses for traders.
How the Cryptocurrency Market Works
The market moves according to supply and demand. There are many factors that can affect the supply and demand such as market capitalization, total number of coins, media coverage, forks, technological updates, integration, and key events.
For instance, when large organizations adapt the use of cryptocurrencies, their price is influenced positively, while security breaches affect the price negatively. Additionally, a lot of media coverage on these tokens spreads awareness in the masses, who might flock to buy more, increasing the price. The market is therefore surrounded by uncertainty, as small events can affect the price movement.
Since the market is decentralized, these factors have a greater impact on the price of cryptocurrencies as opposed to traditional currencies that are regulated and owned by a central bank.
There are different trading options available, such as trading platforms, exchanges, and atomic swaps. If you are a beginner, it is recommended to start with small amounts to test different trading strategies and software. This helps users to better understand the cryptocurrency price chart and be in a position to make trading decisions.
The most popular price chart is the candlestick which clearly shows users exactly where the market turned, helping them identify different patterns that might help predict the reaction of the market. The chart has several patterns and indicators which help traders understand these patterns.
Trading via atomic swaps is where traders exchange crypto without using a third party exchange. Users have full control and ownership of their private keys. Atomic swaps can take place through off-chain channels and are directly carried out between separate blockchains with different native coins. The first atomic swap took place between Litecoin (LTC) and Decred (DCR) in September 2017.
When trading on exchanges, there are factors to consider, such as availability of the exchange in all countries, reputation of exchange, exchange fees, and safety. The safest exchanges require identity verification and two factor authentication to sign in.
To start trading on an exchange, you have to create an account with the exchange, which is a straightforward process. An exchange typically has several payment methods that it supports, such as wire transfer, debit card and bank transfer to allow users to send fiat, which they can exchange for crypto of their choice.
The first step after joining an exchange is to purchase some Bitcoin (BTC) or Ethereum (ETH). After that, you can do trading with other altcoins. To learn more about the altcoin of your choice, you can use CoinMarketCap with information on most coins and tokens currently available. You can see the exchanges where the coin is traded, historical and current price charts, links to blockchain explorer and to other websites. A trader can then open an account on one of the exchanges.
The exchanges have various tabs where users can learn about available coins, and altcoins that can be traded at the exchange. Once a user chooses one of these assets, they can have the option of buying or selling. The transaction might not happen immediately due to various reasons, but users can check the orders page to verify the status of their trades. The account section allows them to view their tokens at any given time.
Choosing a Cryptocurrency Trading Platform
Trading platforms allow traders to have a smarter and faster way of trading. The increase in the number of trading platforms makes it a little difficult for newbies in the industry to choose the best for their needs. One of the first things to consider as a trader is the goal as some want to trade short term while others are there long term.
The next step is to check the regulations and security of the platforms. Regulations differ across trading platforms, especially due to country laws. Some platforms do not support users from certain countries therefore traders need to choose the right platforms that they can use without any hurdles.
Another factor to consider is the insurance fund, which allows investors a relief if they incur a loss that is not due to their actions. Platforms with a good insurance fund allow traders ease of trading with the knowledge that they are protected from certain market conditions. It is also integral to choose a fiat exchange, since not all exchanges allow the exchanging fiat for cryptocurrency. Such platforms allow users to transfer their fiat from bank accounts or through wire transfer. They are the best to use when starting out trading for traders without Bitcoin or Ether.
It is also important to check the asset price across trading platforms since it can vary across different platforms. Traders might also want to consider the interface of the platform, trading tools available, technology for margin trading, security, availability of mobile applications, the reputation of the exchange in the industry, and more.
Looking at these factors allows the trader the options that are best suited for their trading needs. The user interface is important to enable the trader to use the platform with ease while different trading tools make for an easier experience for traders, especially when they have limited knowledge on the market.
DEXFIN Exchange offers many advantages for traders, for example:
- Discount on fees: Get up to 50% off of fees when trading on the DEXFIN Exchange.
- Affiliate commissions: Obtain up to 40% from the fees generated through affiliate links.
- Airdrops: Receive diligently selected airdrops when holding 10,000+ DXF.
- Exchange: Easy exchange between DXF and USD, Euro, CZK, LTC, BTC, ETH, USDT, USDC.
- IEO and tokenization: Use DXF to buy tokens newly listed on the DEXFIN Exchange during their pre-sale phase, and tokens of new tokenized projects, with a large discount.
- Staking: BTC, DXF, USDT, VR (4.8% to 20% p.a.).
- Simple to use: Modern, simple interface, easy to use.
- European exchange: Secure European platform.
After settling for a trading platform, traders decide on trading strategies to use. There are many crypto trading strategies, but they are suited for different individuals. There is no strategy that does all the work for a trader, as hard work and hours of reading charts are the best moves to understand the market and make the right trading decisions.
In trading, there are three basic components that are important to note and can help traders choose the right strategy:
- Liquidity: Liquidity involves the ability of a trader to buy or sell an asset without affecting the price of that asset. It is the tradeoff between the price the trader can sell the asset for and how quickly they can sell it.
- Volatility: Volatility reflects the state of the market and the price movements.
- Volume: Volume is the amount of coins or tokens available to buy or sell.
A trading strategy is an extensive plan traders use for all trading activities to guide them in the trading process. It eliminates many unnecessary decisions and processes, mitigating financial risk and shortening their decision-making process. The trading strategy also defines how a trader reacts to market changes without being emotionally involved in the process. It is recommended to choose a fitting trading strategy to make a profit and minimize losses.
A comprehensive trading strategy can include the asset classes to trade, tools and indicators to use, factors to dictate position sizing, trading schedule, and triggers for entries and exits among others.
There are two basic trading strategies:
- Active trading strategy involves day trading, swing trading, trend trading, and scalping.
- Passive trading strategy typically means buying and holding for long periods of time.
Day trading is the most common and involves entering and exiting positions on the same day. Day traders aim to make a profit on same day price movements. In cryptocurrency trading, day traders are those that enter and exit positions within 24 hours or fewer. Although the strategy can be profitable, it is often stressful, demanding and has high risks for traders.
Swing trading is more long-term and involves entering and holding positions for longer periods of time(e.g. several days). Traders who use this strategy benefit from market volatility. Swing trading can benefit beginners as they have a longer period to make trading decisions using technical and fundamental factors as well as gradual price changes.
Trend trading involves holding a position for a few months and making decisions based on directional market trends. Traders using this strategy can enter a long position during an uptrend or a short position during a downtrend.
Scalping involves taking advantage of small price movements repeatedly. Traders using this strategy do not hold their positions for long periods, and can open and close a position within seconds. Although traders’ profits can add up over time with this strategy, it requires a deep understanding of the market’s mechanics, hence it is more suitable for advanced traders.
Buy and hold strategy is where traders intend to hold an asset for a long time, regardless of market fluctuation before selling.
Index investing involves buying a class or type of tokens instead of a specific coin and eliminates the risk of betting on a single coin.
Using Cryptocurrency Tracking Apps
Traders can benefit from tracking apps that update them on price movements at all times and help them make decisions based on their trading strategy. Some of these apps are:
Trading on a Budding Market
Cryptocurrency trading is a quickly developing market with a lot of technological advancements available for all interested traders. To get started in trading, a trader needs to understand the market and research extensively before settling on a platform, strategy or token to trade with. Lack of knowledge can lead to a lot of loss and discourage a trader from trading. The changes in prices of the cryptocurrency can be abrupt, requiring traders to be keen on capitalizing on all market changes. Additionally, knowledge of factors that affect price movement can help traders adjust trading plans to avoid the risks involved with trading cryptocurrencies.
If trading is not for you, you can still make a profit from crypto by buying and holding (hodling) a promising crypto asset. Or you can make interesting passive income by means of staking your assets. With staking at DEXFIN Exchange, you can make up to 20% per year.