Cryptocurrency trading has become all the rage in recent years as people from all over the world buy and sell digital assets for incredible profits. The sudden rise in the value of Bitcoin and other tokens has made them popular among traders. Trading involves speculating on price using market analysis.
This tutorial will teach you how to trade cryptocurrency. It will explain how traders make price predictions and what platforms are used to place trade orders. Price speculation is a time-consuming process that will require you to keep up to date on market news and developments.
What Is Cryptocurrency Trading and How Is It Different From a Standard Purchase?
Cryptocurrency trading involves speculating on the price movements of digital currencies using online brokerage platforms. It is completely different from buying and holding cryptocurrencies via an exchange. Holding cryptocurrencies on an exchange has its advantages, such as the ability to take out loans using your assets as collateral, but it’s not the same as trading derivatives.
Trading does not require you to own any digital assets. It generally involves buying and selling cryptocurrency derivatives offered by brokers to capitalize on the fluctuating market. For the uninitiated, derivatives are securities that derive their value from an underlying asset. They are used to hedge risk and speculate on the price of the tethered asset. Traders can use broker platforms to instantly buy and sell crypto derivatives, making it a much faster way to make profits than holding cryptocurrencies on an exchange.
There are three ways traders can use broker firms to cash in on the price fluctuations of cryptocurrencies:
- CFDs–A Contract for Difference (CFDs) is an arrangement that allows traders to bet on an asset’s price movement without having to buy or own the asset. For example, you can buy CFDs when the price of a digital currency is dipping and sell it when its value goes back up, then keep the difference.
- Futures–A futures contract gives a trader the option to buy a digital asset at a set price and sell it at a specific future date. The contract has a binding expiration date, and like CFDs, traders make profits from the price difference.
- Options–Options are like futures, but they are non-binding. They’re a popular choice because they allow traders to close their position at any moment or let it lapse if the market moves in an unexpected direction.
The first step to becoming an effective cryptocurrency trader is to find a trustworthy broker platform that is registered in your jurisdiction and is subject to legal oversight. Using a reputable broker will protect you and your assets from fraud, theft, and scams.
Trading platforms offer different features to traders depending on variables like location and risk profile. The type of derivatives a platform offers and how much leverage it gives will determine your risk exposure. With all this in mind, it’s important to come up with a trading strategy in advance to make sure you get the best out of cryptocurrency trading.
New traders often copy trading strategies used by seasoned traders. Profitable investing requires insight, discipline, luck, and most importantly, experience. It’s a smart approach to mirror the strategies of experienced investors. However, it’s also important to remember that veteran traders have deeper pockets and a wider margin for error. They typically have safety nets in place to prevent them from suffering catastrophic losses. Blindly copying experienced investors could be to your detriment, so tread carefully.
Where Can I Start Cryptocurrency Trading?
There are many platforms for cryptocurrency trading, and new ones pop up every day. We’ve compiled a shortlist of some of the best ones below. Online Brokers
Choosing an online broker to trade with is the first step to getting started with cryptocurrency trading. With a few exceptions, broker platforms don’t typically sell cryptocurrencies. They offer derivatives—contracts whose value is based on the market price of an underlying cryptocurrency. Benefits of Using a Broker to Trade Cryptocurrency Trading
Brokers are platforms designed purely for cryptocurrency trading. You don’t need to buy cryptocurrency to get started. Trades are done with contracts, and they can be funded with fiat currencies or cryptocurrencies.
There are many benefits to using brokers, such as the option to use leverage trading to increase your market exposure. Some brokers offer as much as 100x leverage, which can be used to place high volume trades without having access to huge amounts of capital.
Brokers, or at least reputable ones, are registered and compliant with financial regulators. That means better security for traders and legal protection if the platform does anything shady. Brokerage firms also charge lower fees and offer a variety of advanced tools to assist traders in making informed trade decisions. Derivatives Exchanges
When most people hear “crypto exchange”, they think of platforms where you can buy or sell cryptocurrencies. That’s exactly what these platforms offered during the early days of cryptocurrencies. They have added many more features and services over the years, including the ability to trade derivatives.
Platforms like Binance, OKEx, Bitmex, and Huobi are all great examples of derivatives exchanges that offer CFDs, futures, and options. They also allow leveraged trading. Benefits of Using an Exchange for Cryptocurrency Trading
While an exchange can never fully match a broker in terms of trading features, they still have plenty of advantages.
For example, exchanges let users buy and hold cryptocurrencies, which is something brokers don’t typically do. They also tend to carry a wider variety of cryptocurrencies, which translates to more robust deposit and withdrawal methods for traders. Better variety also gives traders a greater selection of crypto trading pairs.
Exchanges tend to be easier to use, which makes them ideal for newbie traders. Most exchanges offer the same derivative contracts you can find on broker platforms. They also support leverage trading for traders with an appetite for big risks.
Access the world’s most popular Crypto assets including Bitcoin, ETH, LTC, XRP
Automatically copy top-performing Crypto traders
Deposit using PayPal + 9 other deposit options available (not available to US users)
Cryptoasset investing is unregulated in most EU countries and the UK. No consumer protection. Your capital is at risk. CFD crypto trading is unavailable for clients residing in the UK and US.
The world’s largest cryptocurrency exchange with over 2bn daily users
Innovative trading platform offering enormous range of crypto coins
Supports over 60 methods of payment including PayPal
Trade without the need for a crypto wallet
Multiple combinations of cryptos available to trade
CFDs are derivatives and can be risky; losses can exceed your initial payment and you must be able to meet all margin calls as soon as they are made. When trading CFDs you do not own or have any rights to the CFDs underlying assets.
Our Step-by-Step Guide on Cryptocurrency Trading
To help you understand how crypto trading works, we’ve created a handy step-by-step guide.1. Combine Fundamental and Technical Analysis
Whether you are trading in traditional stocks, forex, or cryptocurrencies, two strategies are typically used to obtain information: fundamental analysis and technical analysis.
- Fundamental analysis–This type of analysis tries to determine the intrinsic value of an asset. It works on the premise that the market may have incorrectly priced a cryptocurrency due to internal or external factors, but it will eventually “correct” itself. Traders use this information to create a strategy that will yield profits.
- Technical analysis–This type of analysis looks at historical trends, patterns and ranges to predict the future price movement of a cryptocurrency. It’s essentially the study of an asset’s current and previous prices using indicators such as moving averages, relative strength index, Bollinger Bands, etc.