If you want to understand cryptocurrency trading, you have come to the right place. There is a ton of information on the internet that can easily overwhelm anyone, including experienced traders. To help you with that, we’ve covered cryptocurrency trading in two parts. In this article, we have covered the basics and in the next articles, we will come up with some technical terms used in cryptocurrency trading.
What is Cryptocurrency?
Simply put, cryptocurrency (also known as digital currency, cryptography, virtual assets, or digital assets) is a digital form of currency. Like traditional currencies, they can be used to pay for goods and services. Just as traditional forms of currency can be traded against each other on the forex market, cryptocurrencies can also be traded for specific pairs on dedicated platforms called cryptocurrency exchanges.
The difference is that unlike traditional currencies like the US dollar, cryptocurrencies are often not controlled by a single entity. It is also secured using complex cryptography combined with a new form of online public ledger called a blockchain.
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Table of Contents
- What is Cryptocurrency?
- What is Cryptocurrency Trading?
- How to Trade Cryptocurrency for Beginners
- Steps for Cryptocurrency Trading
- Store your Cryptocurrency
- Basics of Cryptocurrency Trading
- Cryptocurrency Trading Techniques
- FA vs TA
- Benefits of Cryptocurrency Trading
What is Cryptocurrency Trading?
Speculating the price movements of virtual currencies through contract-for-difference (CFD) trading accounts or buying and selling underlying coins through exchanges is known as cryptocurrency or cryptocurrency trading. CFD trading is a type of derivative that allows you to bet on Bitcoin (BTC) price movements without owning the underlying currency.
For example, you can go long (buy) if you think the value of a cryptocurrency will go up, and short (sell) if you think it will go down. Both are leveraged products. This means that only a small deposit, known as a margin trading crypto, will give you full exposure to the underlying market. However, profit or loss is still determined based on the total size of the investment, so cryptocurrency-leveraged trading magnifies both profit and loss.
Additionally, cryptocurrency options are used by investors to reduce risk or increase market exposure. Crypto options trading refers to “derivative” financial instruments that derive their value from the price of another asset.
Before even thinking about embarking on cryptocurrency trading, it is important to have a thorough understanding of the assets and technology involved. Bitcoin is the soil on which thousands of other cryptocurrencies have grown.
Like stocks and other financial markets, trading cryptocurrencies can be complex, involving many different components and requiring knowledge. Bitcoin was the first cryptocurrency launched in 2009 and remains the largest cryptocurrency in terms of market capitalization and circulation.
Over the years, however, a whole industry of other digital assets emerged that could be traded with a profit. All other non-BTC cryptocurrencies are called altcoins, the largest of which is Ether (ETH).
How to Trade Cryptocurrency for Beginners
There are many different approaches to cryptocurrency trading. To start trading cryptocurrencies, you must first have a good knowledge of the subject. It is also important to understand the risks involved and the laws that may apply by jurisdiction and you should make decisions accordingly.
Steps for Cryptocurrency Trading
Sign up for a Cryptocurrency Exchange
Unless you already own virtual currency, you must open an account with a virtual currency exchange. Some of the best crypto brokers include Coinbase, eToro, and Gemini. All three of these services have easy interfaces and a wide selection of altcoins to choose from.
To open an account with a cryptocurrency broker, you will be required to provide personal identification information, similar to a stockbroker. When creating an account, you will be required to provide your address, date of birth, social security number (in the US), Aadhar no. or PAN No. (in India), email address, etc. This is known as the Know Your Customer (KYC) requirement.
Fund Your Account
After signing up with a crypto broker, you need to connect your bank account. Most cryptocurrency exchanges accept debit card bank deposits and wire transfers. Bank transfers are usually the cheapest way to fund your account and are available on Coinbase and Gemini.
Pick a Crypto to Invest
The majority of cryptocurrency traders invest in Bitcoin and Ether. However, trading technical indicators are possible as these cryptocurrencies behave more predictably than smaller altcoins.
Many cryptocurrency investors invest part of their funds in altcoins. Despite being riskier than large-cap cryptos, small-cap cryptos have greater upside potential.
If you are looking for a crypto trading strategy, you can try crypto automated trading with software such as the Coin rule. Crypto trading bots implement processes designed to give you the best possible returns based on your investment objectives. You can use trading to make quick money, keep your coins, and diversify your portfolio. You can also actively explore cryptocurrency trading on some sites while automating your trading on others.
Store your Cryptocurrency
If you want to buy virtual currency and hold it for the medium to long term, you should buy a Bitcoin wallet. So, you will need to keep some funds on the exchange in case you are an active trader.
Software wallets and hardware wallets are two types of cryptocurrency wallets. Both are secure, but hardware wallets are the most secure because they store your cryptocurrency on a physical device that is not connected to the internet.
Basics of Cryptocurrency Trading
The value of Bitcoin is determined by a market that never sleeps, moment by moment. As an autonomous digital asset whose value is determined by the public market, Bitcoin presents a unique volatility challenge that few currencies face.
It is therefore important for beginners to understand how the cryptocurrency market works. That way, you can safely navigate the cryptocurrency market and get the most out of your participation in the crypto trading economy.
Bitcoin trading, in its scope and complexity, has expanded its investment portfolio by using various trading pairs to take advantage of the market, from simple transactions to payments in fiat currencies like the US dollar. Of course, as the size and complexity of cryptocurrency trading increase, so does the trader’s level of risk.
Cryptocurrency Trading Techniques
There are two main methods of analyzing and evaluating cryptocurrencies. This technique has been around for generations and has been successfully implemented in traditional financial investments. Fundamental Analysis (FA) and Technical Analysis (TA). They are often used complementary, but both can be used independently.
Fundamental Analysis (FA)
FA is a trader’s technique that determines the value of an asset using both economic and financial factors that affect a particular asset. FA can be used to determine if an asset is overvalued or undervalued at its current valuation. If you can answer this question, you can decide whether to invest, when to hold an investment, and for how long.
Fundamental analysis of cryptocurrencies involves the assessment of two key factors: on-chain and off-chain indicators. On-chain metrics include network hash rate, wallet addresses (active and idle), network applications, token/coin issuance rate (inflation/deflation), network fees, and transactions.
Off-chain indicators basically include community engagement, exchange listing, government regulation, etc.
Technical Analysis (TA)
Technical analysis is a trading discipline based on the idea that traders can predict future price movements of an asset based on past price movements. TA achieves this using various technical indicators such as trading volumes, moving averages, trend lines, candlesticks, and chart patterns. By the end of the technical analysis, traders should have identified trading opportunities and potential entry points.
Cryptocurrency technical analysis for any trading schedule, from scalping and day trading to long-term investing.
FA vs TA
Depends entirely on the trader profile. Do you want to be the type of trader who likes to move in and out of positions multiple times a day (day trader)? Then technical crypto technical analysis will be your best friend. Do you prefer to do your research and make informed bets instead, every time (eg swing traders)?
For example, FA can be used to determine whether an asset is worth investing in. What FA doesn’t reveal, however, is when is the right time to invest. To do this, you have to resort to technical analysis. Conversely, if you use TA to calculate future price movements for a particular asset, you can use FA to see if the price trend you are observing will continue.
So, there are benefits to using either of the two techniques at different points in your investigation, but for a more complete picture, use both.
Benefits of Cryptocurrency Trading
24-Hour Trading: Unlike stock exchanges that open and close at specific times, there are no cryptocurrency market closures. Trade cryptocurrencies 24/7 or use trading bots to keep your trades always running.
Volatile Market: This can be seen as both a negative and a positive characteristic. Traders (not investors) thrive on market volatility. The crypto market has an abundance of this and it means that as a trader you get better trading opportunities in the cryptocurrency market as opposed to the stock market.
Privacy & Anonymity: Crypto Trading gives you access to a decentralized cryptocurrency exchange. These allow you to trade self-managed assets (only you own your digital money) without submitting your identity online. Of course, if you don’t mind sharing your data and having another party hold your digital assets, there are centralized trading platforms.
The Multitude of Assets: Despite its relatively young history, the crypto market has developed so quickly that traders now have access to similar trading instruments such as futures, options, leveraged tokens, swaps, and CFDs (Contracts for Difference). Long or short, call or put, look no further. All derivatives currently available on the exchange have already been ported.
Easy Account Opening Process: Virtual currency has low barriers to entry. You can easily create an account on the exchange and start trading in minutes. That’s how fast it is to jump on board.
Risk management is also an important aspect of trading. Before you enter into trading, it is important to know how much you can afford to lose if cryptocurrency trading goes against you. This can be based on many factors such as Your Trading Capital. For example, a person may only want to risk losing his 1% of total trading assets in total or per trade.
Trading is itself a dangerous endeavor. It is almost impossible to predict future market activity with certainty. Ultimately, it’s important to make your own decisions based on the information available and your own judgment and make sure you’re properly educated.
Furthermore, trading strategies vary greatly from person to person based on preferences, personality, trading capital, risk tolerance, and more. Trading comes with great responsibility. Any person involved in a transaction should assess their own personal circumstances before deciding to trade.
Further Reading: Click on the below link to read relevant articles.
What is cryptocurrency trading and how does it work?
Cryptocurrency trading is the exchange of digital currency between traders. This allows you to profit from price fluctuations caused by supply and demand. Trading cryptocurrencies is both risky and rewarding due to volatility. However, risk can be mitigated through hedging or diversification.
What are Cryptocurrency Trading Platforms?
Cryptocurrency trading platform allows investors to participate in cryptocurrency trading. You can buy and sell these cryptocurrencies by opening an account and executing trades.
How Is Crypto Different From Stocks and Forex?
The main difference between cryptocurrency trading and stock or forex trading is the underlying asset in terms of generating income.
How to trade crypto?
The first is to purchase digital currency in its original form. Since crypto is completely digital, we store it in a crypto wallet. Another option is to trade CFDs. This allows you to go long or short your cryptocurrency of choice without taking ownership.