A Comprehensive Guide to Cryptocurrency Trading
You have finally decided to start cryptocurrency trading, and you are already excited about how you will be spending your millions soon. Crypto trading is an attractive market for investors, but success doesn’t come easily. It is risky, just like all other investment opportunities. That means you must learn the basics, trading strategies, and how to invest your money safely.
In this comprehensive guide, you will learn everything you need to know to get started and steer your cryptocurrency trading business to success.
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|---|---|---|---|---|---|---|---|
| Broker | Instruments | Regulation | Min Deposit | Leverage | Reward | Review | Site |
| HYCM | FCA, MiFID, SFC, DFSA | $100 | 1:20 | N/A | N/A | Trade Now | |
| easyMarkets Review | ASiC, CySEC | $25 | 1:2 | $2,000 | Read Review | Trade Now | |
What’s Crypto Trading?
Cryptocurrency is simply digitally-encrypted money. It is a decentralized, unfixed, digital currency that is stored and validated by the blockchain. Unlike other currencies, cryptocurrencies are not fully regulated by financial institutions or governments. An example of cryptocurrency is Bitcoin. It was developed in 2009 in response to the housing market crash and the banking crisis.
Cryptocurrency trading involves taking a financial rank on the price direction of a specific cryptocurrency against the dollar (crypto-dollar pairs) or against another cryptocurrency in a crypto-crypto pair. This process requires you to speculate on currency price movement and buy or sell the underlying coin through an exchange.
Contracts for difference (CFDs) accounts are a popular way to trade cryptocurrencies. This is because they allow greater flexibility, use of leverage, and grant you the ability to take both short and long positions.
Benefits of Cryptocurrency Trading
Trading cryptocurrency can be emotional, stressful, and somewhat addictive. Despite these challenges, most investors choose to trade in Bitcoin, Ethereum, and other cryptocurrencies daily looking for the ultimate gem and hoping it will soon shoot to the moon. Here are the benefits associated with this kind of business.
Market volatility
The cryptocurrency market is relatively new. However, it experiences a significant level of volatility because of the huge amounts of short-term speculations. For instance, between 2017 October and 2018 October, the price Bitcoin increased to $19,378 and fell to $5851. While other cryptocurrencies seem to be comparatively stable, new technologies are often associated with speculative interest.
Generally, the volatility of cryptocurrencies makes this market so attractive to investors. Fast intraday price movements can offer a broad range of opportunities for investors to go short and long. However, these trading activities come with an increased risk. It is recommended to learn the risks associated with these markets and develop a risk management strategy before you start trading.
Market hours
The Crypto market is open 24 hours a day, seven days a week, as there’s no centralized governance of the market. That means transactions take place between the traders on exchanges across the world. But there are periods of downtime, particularly when the market is adjusting to an infrastructural update.
Better liquidity
Liquidity refers to how easily and quickly a cryptocurrency can be converted into money (cash) without impacting its market price. This is an essential aspect of crypto trading as it brings about better prices, faster transactions, and accuracy for technical analysis.
The cryptocurrency market is considered more liquid as the transactions are dispersed across multiple exchanges. Thus, the comparatively small trades have a significant impact on the prices. This is another reason the crypto market is very volatile.
The ability to either go long or short
The moment you purchase a cryptocurrency, you’re buying the asset up front, hoping that its value will increase. However, when you trade on the price of the cryptocurrency, it is possible to take advantage of the markets that are falling in terms of price and rising as well. This is usually referred to as going short.
Leveraged exposure
CFD trading is a somewhat leveraged product. So, it allows you to open a position on ‘margin’. This is a deposit worth just a fraction of the value of the trade. That means you’re likely to gain extensive exposure to the crypto market while tying up on a small amount of your capital.
The amount of profit or loss you make from your trades will reflect the value of the position at the specific point it closed. Trading on margin gives you the chance to make significant profits from a small investment. Unfortunately, this concept also amplifies losses, including some losses that could exceed your deposit for a specific trade. This is the primary reason you should analyze the total value of the leveraged position prior to trading CFDs.
Choose the Right Cryptocurrency Broker
Here are the critical things you should consider when choosing a cryptocurrency trading broker.
What are the weekend hours like?
This is one of the essential details that distinguish cryptocurrencies from all other trading markets such as futures, equity, and forex. Crypto brokers operate on weekends. There’s virtually no difference in buying Bitcoin at the end of the week as opposed to the mid-week, particularly during peak.
However, there’s a catch. Though the cryptocurrency exchanges may be available during weekend hours, your preferred broker may not. Even there is a considerable movement within your preferred cryptocurrency market during the weekend hours, and your broker isn’t available, you may not be in a position to respond in any way.
Think about hedging
Most brokers are probably not keen on revealing if they are hedging on cryptocurrency traders. But this is critical information that you should know when choosing a cryptocurrency trading site. But why is it important to consider hedging?
As a trader, you need to be in the clear regarding the specific policies for risk management that your broker follows. Generally, cryptocurrency markets are very volatile, and a broker who isn’t hedged is susceptible to various losses incurred by the traders. Naturally, these costs will warrant compensation through fat spreads and extra costs for traders. Therefore, it is best to sign up with a broker that will always share the relevant details with you.
Commissions and Trading on Margins
Another critical thing you must consider when trading cryptos is that their prices are nearly similar to equities that they’re to actual currencies. That means your broker might be charging you a commission in addition to a widespread on every trade you make. This is likely to raise the costs a bit much for your liking.
As with equities, the margin conditions with cryptos are significantly more than they’re with CFDs or forex. Consequently, the leverage is always up to 10X. The level of margin rate for traders boils down to the specific trading strategies and risk management options they subscribe to.
Is the Market Data Authentic?
In addition to analyzing the impact of market data on spreads, the market data for crypto CDF prices is a good indicator of how the overall quality of the product is likely to be in the future. For instance, BTC-e was very popular before Feds shut it down. It was the first bitcoin exchange that incorporated forex trades, and so, they made their exchange accessible through MT4 and supplied cryptocurrency liquidity for brokers.
After its shutdown, all brokers that depended squarely on BTC-e were left with no hedging options or even any market data to put a price or their cryptocurrency CFDs.
Availability of short sale
For most traders, shorting is a vital strategy option. If this option isn’t available, it would be a big breaker with potential brokers. Most brokers tend to provide ‘long’ as there are just a few hedging solutions, especially when opening short trades.
Generally, investing in Bitcoin and other cryptocurrencies can be a lucrative venture. However, you must implement an effective strategy. And choosing the right cryptocurrency broker is part of that effective crypto trading.
Choose a Cryptocurrency Wallet
A crypto wallet is simply a software that holds the cryptocurrency keys to send and receive different blockchain cryptocurrency tokens. The program public and private keys to ensure secure communications with other blockchain crypto ledgers. Also, it allows users to check their crypto balances.
Choosing the right cryptocurrency wallet could mean the difference between a safe crypto trading experience and a bad one that could see you losing everything you invested. Secure crypto trading requires you to choose the right crypto wallet. Here are the essential things you should consider.
Single or multi-currency wallets
There are hundreds of cryptocurrencies with unique ecosystems and infrastructures. Investors interested in using different cryptocurrencies don’t have set up a variety of wallets. Instead, they should choose a multi-currency wallet that can be used with the specific cryptocurrencies they intend to use. Such a wallet allows you to hold varied types of crypto assets and exchange between them.
Transaction fees
The cryptocurrency transactions are usually lower compared to rates associated with the traditional banks. Sometimes, you will be required to pay certain types of crypto transactions to network miners. These are processing fees. Note that some transactions don’t have fees at all, and you can set your fees.
It’s worth mentioning that choosing low fees means your transaction will definitely get a low priority. In this case, you may have to wait for several hours and sometimes days to confirm the transaction. To ensure that all your transactions are processed on time, you may need to pay higher fees.
Security
The most important factor you must consider when choosing a cryptocurrency wallet is keeping your money secure. So, do some research, and get to know how safe your preferred cryptocurrency wallet is before you start using it.
Note that blockchain is the most reliable innovation regarding privacy. This system offers unbeatable security, a reason it is recommended to use wallets that use this tech.
User-Friendliness
This is a critical aspect you must consider when choosing a crypto wallet. Some wallets are hard to operate while others are easy to operate. Keep in mind that user-friendliness may mean the difference between enjoying the crypto wallet and getting frustrated.
Most mobile and desktop wallets are user-friendly. With just a few simple steps, you can set up the wallet. Indeed, they need less effort, and as you continue using your wallet, you will find it more user-friendly. Some wallets have mobile apps.
Every cryptocurrency trader or investor needs a secure, user-friendly wallet. So, it would be best if you analyze the various factors discussed above and choose the right wallet. If you are just getting started with crypto trading, consult with an expert.
Secrets to Successful Crypto Trading
Now that you know what crypto trading is, its benefits, how to choose a broker, and how to pick the right wallet, it’s time to learn various secrets or tips that could make you a successful crypto trader. On the internet, you will find countless articles and guides that promise to make you a successful trader. As much as you want to get everything right, there are some truths you should know about this business.
A more significant number of losers are short-term and intraday traders
This is because most traders rarely prepare adequately and don’t pay attention to trading strategy development. It appears that getting quick results is better than taking the time to learn all the aspects of crypto trading. Unfortunately, studies show that the greatest success in the crypto trading markets is achieved by individuals who opt to trade in the medium-term and long-term.
Successful traders live in the present
- easyMarkets crypto
- Competitive Spreads
- A Variety of Cryptocurrencies
- New Markets to Trade
- Open Account!
Studies reveal that if a trader thinks for a long time about the expected market conditions, they lower their chances of success. On the other hand, traders who think about their reactions to the current crypto price movement in the market can make the necessary changes to their strategies and get better earnings.
Use simple trading methods
Success traders use the simplest crypto trading strategies. They prefer systems that have been developed on the basis of successfully implemented technology. So, the steep path isn’t always the best.
Conclusion
The cryptocurrency market has been in existence since 2009. This is the year, Bitcoin, the most popular cryptocurrency came into being. So many years down the line, cryptos have now become part of the society. If you have always wanted to start a cryptocurrency trading business, this guide will be helpful.