Get Into Cryptocurrency Trading Today
Day trading isn’t for everyone, as there is a lot to consider before jumping in, but it is an interesting field. You need a game plan. And if you thought forex was dynamic, then cryptocurrencies have added some fascinating dimension into the industry.
Most forex brokers are now accepting cryptos, especially Bitcoin, for currency trading.
Cryptos are a higher-risk trading tool, as they are pretty new, compared to fiat currencies. But once you get the hang of it, trading cryptos is fairly easy. So, should you jump in and start trading your hard-mined coins? Well, I think you should check out this guide first before you do that.
What Is Crypto Trading?
Crypto trading involves buying and selling your coins through a crypto exchange platform, or speculating on currency price movement through a Contract for Difference (CFD) trading account.
Just like in forex, CFDs trading allows you to speculate on price movement before buying a specific coin. In short, you can go short (sell) if you believe that a crypto coin will fall in value, or go long (buy) if there is a possibility of a rise in the value of the underlying coins.
So, what drives the prices of these crypto coins?
Like most trading markets, Crypto markets are also driven by supply and demand. The only difference is that cryptocurrency markets are decentralized and are usually free of political and economic factors. Here are some key driving factors:
• Media coverage: Usually, when a currency is mentioned in the news, what follows is an influx of traders focusing on that coin. This often triggers a rise in value. Savvy investors might want to profit from the coin, making other investors panic and engage in a rush sell, which might lead to a drop in value.
• Simultaneous volatility: The cryptocurrency market is associated with sharp rises and deep falls in prices. Interestingly, multiple cryptocurrencies tend to fluctuate in tandem.
• Coin idiosyncrasies: Different coins may also be influenced by their unique factors. For instance, if a big investor supports one of the cryptocurrency, it will likely gain in value.
• Integration: The extent to which a coin integrates into other popular infrastructure like e-commerce payment systems might make them more desirable.
Typically, Cryptocurrency trading is ideal for investors who don’t mind trading with high-risk, high reward instruments. While there are several strategies that traders use to make their investment decisions, the two common ones are chart analysis and speculation.
• Speculation is when an investor thinks the price of a coin will rise or fall as a result of a specific event. It could be any of the above listed influential factors – for instance, a positive news story.
• Chart analysis is a strategy that involves studying historical price movements of a specific coin and then trying to predict how it will turn out. In most cases, a trade would monitor the price changes every few minutes, or even seconds.
How Does Crypto Market work?
As mentioned above, crypto markets are decentralized. What this means is that they are not backed or issued by a central body such as a government. They also exist as a shared digital record of owners. Nevertheless, cryptocurrencies can be bought or sold through exchanges.
What Else Should I Know Before Trading?
Now that we have touched on influential factors and the main strategies that traders use let’s also discuss the mental element of trading.
1. Accept Losses
As mentioned above, cryptocurrencies trading is a highly volatile activity. Some cryptocurrencies might not go as you planned. In short, you should be able to admit losses when they occur. Just take them as part of trading.
Even the pro traders have made wild losses in some of their trades.
What you don’t want to do is chase losses. Some investors may be tempted to try to recover their losses by taking high risks.
Perhaps volatility is the one thing that differential real-world assets and crypto-assets. Here, volatility is when the value of an asset rises or falls rapidly.
It can be a great success for a trader who is selling at a hiked price, but it can also be a great failure for the person who bought a coin just before the sharp drop in value.
In the cryptocurrency market, it is not uncommon for the price of a coin to move up or down by more than 10 – 50% on a given day.
For instance, in early 2018, E-Coin, then a relatively new coin, moved up in value by over 4000% in a span of 24 hours. Sadly, the coin dropped back to where it started.
3. Short Losses
The good thing with currency trading is that you can set a price at which you will exit your trade or a stop loss. Let’s say you bought your Bitcoin at $9000, and you want to prevent a sudden drop in its price.
What you will do is set yourself a stop loss of, let’s say, 10%. So, if the value of a Bitcoin drops below $8,000, the system will automatically sell your investment at $8,100.
Besides taking care of losses, you should set some targets. Basically, you should have a rough expectation of how much return you expect from your trading. Most currency traders look for quick gains, which is usually less than 1% per trade.
This strategy might work for traders with a heavy bankroll. But savvy traders are unlikely to risk more than 1% of their total money on a single trade. So, if your total bankroll is $1000, then you should never place over $10 per trade.
Where Can You Trade Cryptos?
If you have already absorbed most of the above information, you can look for a suitable crypto trading platform.
To choose the right platform, you have to understand your trading goals – for instance, do you want to trade short terms or long term? You should also consider the reputation of the trading platform, Security features, insurance fund, commissions and spread, trading fees, and asset prices.
With that said, there are a few better places you may want to give priority, such as the largest crypto exchange platform, Binance. Other notable platforms are Coinbase, Bitpanda, eToro, Coinmama, OKEx, Bitmex, Huobi, Bitfinex, and Kraken.
Trading Cryptos via an Exchange
To trade cryptocurrencies through an exchange, you need an exchange account. Exchange platforms bring their own learning curve that you need to get comfortable with to make sense of the data.
Some may limit you on how much you can deposit. If you are a complete beginner in the crypto space, you can use a CFD broker account. This way, you can trade against a specified value without actually buying the coins.
But before trading real money, try a demo account. Luckily, most crypto trading brokers offer free demo accounts, which let you test their interface, tools, and other features by playing with money.
Buy & Sell Cryptocurrency Instantly