Nowadays it seems that each and every person is more or less familiar with cryptocurrencies. Whereas just a couple of years ago, you could learn about crypto on dedicated websites and forums, as of now, it is discussed on state media, financial publications, and common blogs. So why have digital assets become so mainstream? Cryptocurrency holds the future, simple as that! It has managed to fit into not only the financial sector, but also into a wide spectrum of industries such as IT, healthcare, retail, tourism, automotive, and more.
But it is one thing to hold a cryptocurrency, and another is to handle it properly. While there is an option to simply buy a digital asset and keep it in your crypto wallet, the better solution is to get started in trading crypto. We will tell you where exactly Bitcoin trades, as well as the basics of cryptocurrency trading, how to properly trade crypto and much more in this article. In case you are not sure how to begin, you may find this information valuable.
What a cryptocurrency is
It is necessary to get to the bottom of the terminology before we figure out how to trade crypto.
Cryptocurrency (also referred to as digital currency, or virtual/digital asset) is a virtual form of money. It can be used to purchase goods and services in the same way as common currencies, known as fiat. Like how the traditional forms of currencies can be traded against one another on the forex, cryptocurrencies can also be traded against specific pairs on specialized platforms called cryptocurrency exchanges.
The difference is that unlike conventional currencies such as the U.S. dollar, cryptocurrencies are often not controlled by a single entity. They are also secured using complex cryptography coupled with a new form of online public ledger called a blockchain.
Cryptocurrency trading and investing
As you learn how to buy and trade cryptocurrencies, you must differentiate between crypto trading and investing. What is the difference? Which is better? The two terms are often used interchangeably, but they are different.
They are only similar to the extent that the end goal is the same – gaining profit from your activities. They are different in that results from trading activities are generally expected within a short to medium-term period. This could be anything from minutes or hours to a few days or weeks.
With investing, the trader is in it for the long haul. We’re talking about months all the way to years or even more.
Newcomers often don’t know what to choose. They also wonder where to set off when it comes to crypto. One must realize that when trading cryptocurrency, it is essential to have a trading strategy on hand to facilitate income. However, whether you choose investing or trading, there will be a considerable amount of time that you will have to spend studying the market.
At this point, very few traders quit, never having tried their hand at trading cryptocurrency. For this purpose, we strongly recommend the most helpful trade on Binance with the help of a trading bot by RevenueBot platform. Our bot follows a ready-made strategy so that it can bring passive income to you.
Stock and crypto markets: similarities
Both trading and investing tools are more or less the same. This is especially true for technical traders who rely on tools like charts to analyze the market. It is up to you to use the same tools for technical analysis on any of the markets.
Trading and investing strategies. In the stock market, traders can choose to day trade, swing, or position trade. They can also opt to buy and hold their assets for the long term. Similarly, traders and investors in the crypto market can do the same things.
Similar market products. The stock market has been around for generations, leading to innovative products such as derivatives and techniques such as using leverage to inflate gains (and losses.) Those same products and techniques have been ported over to the new age cryptocurrency market. You can now trade Bitcoin futures, options, and leveraged tokens. You can use leverage on most of your trades on most leading cryptocurrency exchanges, such as Binance, Bitfinex, or BitMEX.
Why trade cryptocurrencies?
It seems to many aspiring traders and investors that cryptocurrency is much more difficult to deal with than traditional finance. But that’s not entirely true. The stock market and the crypto one have a lot in common, as we said earlier. So why opt for crypto trading?
- 24-hour trading. As opposed to the stock market that opens and closes at specified times, there is no closing of the cryptocurrency market. You can trade cryptocurrencies 24/7/365 or even use trading bots and let your trades run all the time.
- Market volatility. This may be seen as both a negative and a positive feature. Traders (not investors) live off market volatility. The crypto market has this in troves, and this means that as a trader, you will get better trading opportunities with the cryptocurrency market as opposed to the stock market.
- The multitude of assets. Despite its relatively young age, the crypto market has advanced so much so fast that traders now have access to similar stock market products, including futures, options, leveraged tokens, swaps, CFDs (contracts for difference). Whether you want to go long or short. Every kind of derivative currently available on the stock market has already been ported over. If not, it’s coming soon.
- In crypto, there is a shallow barrier to entry. You can easily create an account in an exchange and start trading in a matter of minutes.
Cryptocurrency trading techniques
There are two basic methods that are used to evaluate and analyze cryptocurrencies. For generations, these methods have existed and have been used successfully for traditional financial assets. These are Fundamental Analysis (FA) and Technical Analysis (TA). Often they are used complementary to each other, but it is possible to apply either independently.
Types of trading in crypto
During spot trading, an asset is bought or sold instantly. The value at which the transaction takes place is called the spot price. Hence, both parties must have the asset at hand when entering into a transaction on the spot market.
The spot market is made up of two kinds of traders:
Makers – these are the initiators of a trade. As a maker, you list a potential trade on an exchange. For example, they plan to sell their Ethereum coins. To do that, they open a trade at a particular price point, inviting a potential buyer to fulfill the order. Makers also bring liquidity to the marketplace.
Takers – these traders act as a potential buyer. These traders “take” already existing orders and fulfill them.
Crypto derivatives market
The cryptocurrency derivatives marketplace consists of financial instruments whose value is based on a virtual currency’s value. Like its counterparts in traditional stock markets, there are many derivative products in the crypto industry.
Cryptocurrency trading strategies
A trading strategy is simply a plan that you will follow when executing your trades. It will comprise the kind of assets to invest in, the frequency of your trades, and your investments’ size.
In this section, we will discuss some of the most common crypto trading strategies. Although keep in mind that you can always create your personal strategy that works for you. It could be based on these broad strategies or something completely new.
Why do you need a trading plan?
Keeps emotions at bay. One of the biggest challenges facing traders is the interference of feelings and emotions. These become an impediment when an asset’s price starts trending in the opposite direction to a bet. In cryptocurrency, this happens so frequently that it easily leads to an emotional roller coaster. Successful traders have learned to keep trades free of emotions by sticking to their trading plans.
Risk management. Having a trading plan effectively forces you to do the research necessary to create one, and part of that research is the risk factor to consider for every trade. Risk identification is the first step toward risk management. Identifying risk is the first step to managing it.
Some of the popular strategies
- Day trading. A day trader will make multiple trades within a day, buying low and selling high within little gains that compound to large sums by the end of the day. Typically, sometimes it gets hard to perform this manually. To succeed in this strategy, you will need to consider automating your trades using crypto trading apps or bots.
- Scalping (a trading strategy in which traders profit off small price changes) is a part of day trading but typically involves concise trading periods. Think minutes.
When either day trading or scalping, many trades will result in both wins and losses.
- HODL. A trader/investor will typically buy or invest in an asset when the price is low and sell when the price is high, not unlike the other strategies. The only difference is the long time periods between opening and closing a position.
Trades set up through this strategy could take months and sometimes years. A crypto trader would invest in a coin or token and hold it even when the prices are plummeting. Such a trader would thus be called a ‘Hodler.’
- Margin trading. Margin trading is not a trading strategy but rather a trading method. Adopted from the traditional stock market, it involves a trader using borrowed capital (a leverage) to open positions on a trading platform. Using leverage yields potentially large profits, yet the risks of incurring high losses of the deposit increase as well.
Where to trade cryptocurrencies
There are hundreds of cryptocurrency exchanges in the market today. Whichever option you choose comes down to your preferences. Some people seek usability, some need plenty of trading tools, and others need both. Here are a few examples of cryptocurrency exchanges for both experienced traders and beginners.
Whoever is interested in cryptocurrency, at least once heard about the Binance crypto exchange. No wonder, because Binance is the leading marketplace in terms of market cap. It is possible to trade in Bitcoin and other digital assets on the platform. It is Binance that can be used as a cryptocurrency exchange for beginners, thanks to an extensive knowledge base.
Among the benefits of the Binance are the following:
- Fiat currency supported. This means that you buy crypto with a bank card. Barely any stock exchange offers to do this.
- Leverage up to 10x in margin trading and 125x in derivatives.
- 5 distinct programs for investing, staking and earning on the liquidity provision.
In addition, you can trade on Binance with the help of a trading bot.
ByBit is a crypto exchange focused on futures trading. Based in Singapore and launched in 2018 the derivatives exchange gives users the ability to trade crypto perpetual contracts with up to 100x leverage.
The exchange offers only 5 crypto assets for users to margin trade. You can only fund you account with digital currency and not fiat currency. This combination of a focus on futures trading and crypto only funding makes ByBit more suited to more experienced crypto traders and speculators, and less suitable for crypto newcomers or those looking for an exchange with a diverse range of assets available for purchase and trade.
In order to ensure a more comfortable experience on the exchange, feel free to use the services of a trading bot from Bybit.
FTX stands as one of the most sought-after crypto exchanges at the moment, which is also one of the youngest. The platform was launched in 2019, incorporated in Antigua and Barbuda, and headquartered in the Bahamas.
There are several reasons why it’s become so popular in such a short space of time. First, the FTX exchange already supports over 300 cryptocurrencies, which is a huge number compared to some of its competitors.
FTX also offers advanced trading functions such as margin and futures trading, which can be appealing to experienced traders. The makers of this exchange claim that it is built for skilled traders.
Similar to the last two platforms, FTX has its own trading bot.
As a result, we have described in detail what cryptocurrency trading is all about. Moreover, we have listed its advantages in relation to the traditional stock market. After that we explained what trading strategies exist and how you can profit by means of trading. The only thing left is to engage in trading. Each person decides for himself how to do it.