Almost always, very successful traders have made cumulative profits over several years through perseverance, careful research, emotionless decisions, realistic approaches, and a lot of time and patience.
- Trading cryptocurrencies is highly speculative
- Cryptocurrency traders are completely responsible for the holdings of their cryptocurrencies
- Comprehensive research and observation are part of any successful trading strategy
- Cryptocurrency prices are highly volatile and therefore subject to strong fluctuations
In this lesson, you’ll learn everything you need to know before you start trading cryptocurrencies.
How does cryptocurrency trading work?
As you already know from Lesson 1 of the Bitpanda Academy for Advanced, cryptocurrency brokers and cryptocurrency exchanges are the first choice when starting to trade cryptocurrencies.
Bitpanda is the leading digital asset trading platform in Europe, offering users both a cryptocurrency broker – Bitpanda – and a cryptocurrency exchange – Bitpanda Pro.
Direct platforms would be a third possibility, but we will not dwell on them in more detail. They are online marketplaces for peer-to-peer trading between buyers and sellers without fixed market prices, which obviously carry inherent risks and are not recommended. Trade cryptocurrencies responsibly
On the Internet there are numerous websites that offer the entry into trading with crypto currencies. Nevertheless, it cannot be emphasized often enough that ongoing research is essential in crypto trading, and this includes choosing a platform that is best suited to your own needs. Any experienced trader will recommend this to you. Mount Everest, not Mount Gox
In lesson 11 of the Bitpanda Academy for Beginners, we wrote about the hack of Mt. Gox. The hack of the crypto exchange Mt. Gox is considered the largest malicious attack on a cryptocurrency exchange since the emergence of Bitcoin and ended with Mt. Gox filing for bankruptcy in 2014. We mention this incident again here, because when dealing with crypto currencies, it is always important to be particularly careful when trading on an exchange and when speculating with crypto currencies.
Before you start investing in cryptocurrencies, it’s important to make sure your balances – both fiat currencies and cryptocurrencies – are kept safe, as we describe in this Bitpanda Academy article. Proceed with caution
We all know a friend of a friend who is a Bitcoin millionaire, owns five Lambos, and supposedly got rich overnight through speculation. In real life, things usually behave a little differently. Almost always, very successful traders have made cumulative profits over several years through perseverance, careful research, emotionless decisions, realistic approaches, and a lot of time and patience. In doing so, they have also learned from mistakes when trading crypto currencies and have steadily and responsibly increased their balances. However, the path to successfully trading cryptocurrencies is much more like climbing Mount Everest than waking up suddenly one morning as a millionaire.
Once you’re sure that your understanding and knowledge of cryptocurrencies and blockchain technology is sufficient, your search for a reputable cryptocurrency exchange that meets your needs can begin.
As a user who wants to trade on a crypto exchange for the first time, the first thing you should do is find out whether the exchange of your choice has implemented state-of-the-art security systems. Furthermore, it is important to read through current user reviews and to research all information about the API technology used and the team behind the Exchange, as well as to analyze traditional financial indicators including the performance of the Exchange in the past and present. Then, there are a number of other factors that you should consider when choosing the exchange that works best for you. Ongoing market research
As a trader, it is essential to keep up to date with the current status and news on the international crypto markets. For trading decisions, you should always know about the latest technological developments of the cryptocurrencies you want to trade and about current trends and upcoming forks as well as regulatory issues and developments.
This is the only way to react to unexpected developments in good time. The required information can be found in articles in reputable and relevant crypto publications and media, on social media channels and attending events on the subject of crypto currencies.
Before you start trading, you should be absolutely sure that in an emergency you are prepared to lose all the funds you have used for trading. Yes, you read that right. We don’t want to be pessimistic, but you really need to be aware of all the risks that cryptocurrencies pose as an investment. Never invest more in trading than you can afford to lose. High volatility and value of cryptocurrencies
Virtually all cryptocurrencies, some more than others, are subject to high price fluctuations called “volatility”. Therefore, cryptocurrencies are often affected by acute, sudden and often unpredictable price falls and price increases.
The high volatility, as well as the fact that cryptocurrency trading takes place internationally 24 hours a day, 365 days a year without borders or intermediaries, means that you need to be willing to take the time to watch your assets closely. A cryptocurrency has value as long as the market attributes value to that coin. If this is no longer the case, the price of the coin will fall or even crash sometimes. Exchange Hacks and Regulation
Despite constant security improvements and innovations, exchanges are still exposed to the risks of hacks and scams. Cryptocurrency trading is not regulated by any central entities, such as governments or banks. Therefore, all cryptocurrency traders and investors are solely and themselves responsible for monitoring and executing their own trades, as well as keeping their balances safe – even in cases of negligence and fraud. Secure access and transfer of cryptocurrencies
Be absolutely sure that you understand everything about the function of private and public keys as well as wallet addresses. One of the strengths of blockchain technology is its high security. But the fact that, for example, transactions on a blockchain can never be reversed also means that once your coins have been transferred to an address, that transaction is final and can no longer be canceled.
Your cryptocurrencies will also be irretrievably lost if you lose the private keys of your wallets, so you need to keep them safe. Also, make sure you double- and triple-check every transaction you make on the blockchain to avoid mistakes. True to the motto: Trust is good – but control is better. Invest within the scope of your own possibilities
Investments in cryptocurrencies as well as trading with them are classified as highly speculative. Accordingly, investments in crypto currencies are also fraught with a high risk. Research and create a plan before you start investing.
It goes without saying that the amount you invest should in no way affect your personal financial situation or negatively affect your life in any way. You should divide your invested balance into different projects, always monitor these projects and make adjustments in time so that you can trade successfully. Losses from errors
Despite research, close observation of trends and developments in the market, almost no crypto trader manages to avoid temporary losses caused by unsuccessful trades, volatility or emotional decisions. Sometimes you will find yourself in a situation where you have to end certain trades prematurely after a rational decision. Then it is important to weigh your losses and learn from your mistakes in crypto trading and understand how it came about.