The popularity of cryptocurrency has never been as widespread as before. With Bitcoin gaining more popularity, crypto enthusiasts are on the move to buy bitcoin. While the crypto world is evolving, people are looking for more direct, controllable ways to invest and trade. In the process, cryptocurrency trading became an option for people to diversify assets.
The question now stands, what exactly is cryptocurrency, and how can you start your journey? There are thousands of sources and information on the web. Let this guide help you in understanding cryptocurrency trading for beginners! There’s no reason you shouldn’t explore this opportunity with the proper knowledge on your hands.
What is cryptocurrency?
Cryptocurrency is a digital currency secured by cryptography. Think of it this way: If you have fiat money or physical currency, cryptocurrency is the intangible counterpart. It’s a currency unlinked to countries, like the traditional paper money we all know.
Cryptocurrency exists on its network and security innovations. Computerized records and databases store transactions between owners of crypto.
One important thing to note about cryptocurrency exchange is decentralization. Unlike traditional fiat money, in crypto, the currency doesn’t undergo intermediaries. When dealing with crypto, you are directly transacting with the other party.
No bank, financial establishment, or government agency exists as a middleman in the transactions.
Types Of Cryptocurrencies
In the world of trading, there are popular currencies as references for cryptocurrency. Here are some of the currencies for initial purchase and trading.
The currency with the largest market capitalization is Bitcoin. Bitcoin is the first cryptocurrency launched in 2008 by somebody or a group of people. Satoshi Nakamoto is famous for bringing forth the world’s first peer-to-peer currency. Right now, Bitcoin still makes up around 75% of the entire market for cryptocurrency.
Altcoins are alternative cryptocurrency coins to Bitcoin. Bitcoin dominates the market in terms of share and total market capitalization. Any other cryptocurrency apart from Bitcoin is considered an alternative.
As such, you can think of Altcoin as a category rather than an actual cryptocurrency. Ethereum, Ripple, and any new crypto coin is an Altcoin.
Tokens are considered units of representation in cryptocurrency trading. While coins and digital money hold more direct values, tokens are slightly different. Tokens are assets that users can exchange for something else.
Since tokens are assets, they can be anything. Cryptocurrency coins are digital coins. Tokens can be NFTs, security tokens, and the like. Moreover, tokens are built on an already existing blockchain.
What is Cryptocurrency Trading?
Let’s go back to basics as beginners of crypto trading. Trading is the act or art of exchanging goods and services. The most basic form of trading with fiat money is buying something. You give money to another person; you get something of value with your payment.
In cryptocurrency trading, it’s the same concept. However, the medium or methods will slightly vary in contrast to typical daily exchanges. Consider this as an example of how to trade cryptocurrency.
First, you open an account online on platform websites that provide trading space for crypto. These are cryptocurrency trading sites. Cryptocurrency trading platforms require fiat money first or existing crypto. Afterward, you can buy and sell with other traders within the platform.
Each trading platform is different, so read first before making an account. While others may accept fiat money as a top-up, other platforms only accept cryptocurrency. Look out for some platforms that offer wallet features for easier cryptocurrency trading. It may come in handy for you too.
Crypto trading strategy: Do you need it?
In any type of exchange and swap, it’s best to have a strategy at hand. The goal is to have high returns from your initial input. Whether you are using platforms or other mediums, you need to focus. Find a method or cryptocurrency trading strategy that works for you.
You are not only after the returns. You’re aiming to have a portfolio representative of your trading activities. Think of it as a way of discipline to ensure a slow master of cryptocurrency trading.
There are two main techniques for cryptocurrency trading. These are Fundamental Analysis and Technical Analysis. More often than not, you will end up combining both techniques. Depending on how you want to build your strategy, it’s a mix of both.
First, we have Fundamental Analysis (FA). This strategy involves evaluating economic and financial factors. By assessing these factors, you get to have a sense of the asset’s value. Factors will fall either as off-chain metrics or on-chain metrics.
- Off-chain metrics examples: government regulations, user analytics, socio-political landscape
- On-chain metrics examples: Wallet address, network application, and inflation/deflation
Then, there’s Technical Analysis (TA). This strategy roots in predictive behavior based on current standing. TA analyzes trading volume, candlesticks, chart patterns, and other technical aspects of cryptocurrency trading.
Now, let’s assess some strategies for trading cryptocurrency for beginners:
Day trading and Scalping
Day trading cryptocurrency strategy focuses on the volatility of assets. If you’re familiar with the phrase “buy low, sell high,” it’s the focus of this strategy. The little gains from multiple transactions accumulate at the end of the day.
Day trading requires daily exchanges during the day, and sometimes it can get overwhelming. Additionally, to make day trading easier, set up an automated trading function.
On the other hand, the scalping strategy focuses on minute trading. This strategy focuses on brief moments (specific times) of trading. Both strategies involve maintaining and improving the win/loss ratio gradually.
Swing trading extends much longer than a day trade. In contrast to day trading, the focus of swing trading is the BTFD strategy. BTFD means “buying the f- dip.” Traders take advantage of ongoing and incoming trends.
Coupled with extensive TA and FA, swing traders sell high and buy low. Swing trading can take longer than a couple of days to a few months.
Position trading (HODL)
The first two strategies in cryptocurrency trading are short-term. With position trading, it requires more time to build profitability. In HODL, you will most likely take months or years to close.
You are “Holding On to Dear Life,” or holding to stocks for as long as possible. When you see a profitable position fit for your end goal, that’s when you close.
Margin trading (trading with leverage)
Lastly, there’s margin trading or a more nuanced method of trading. Margin trading adopts the method of traditional stock market trading. Traders who trade in margins amplify levels of either loss or wins.
Traders put in a margin to stake a position and involve risking around leverage. The leverage comes from the initially borrowed capital. It takes seasoned traders to trade and profit from margins and allowable leverage. In conclusion, margin trading requires experience and it is not suitable for beginners.
Risk-management for Crypto Trading
All investments and trading activities involve risk. There is no such thing as a risk-free venture when putting money at stake. Even more so when you involve digital currency like cryptocurrency. As such, matters like risk management become a crucial point for all investors and traders.
For each desirable outcome, there can be an equal or even greater undesirable outcome. There are many factors that you can’t control despite cryptocurrency trading strategies. Crypto trading isn’t a vacuum where you can control every element in place.
If you want to start as a conservative investor, other instruments are available. Bonds, stocks, and investment funds are present everywhere. However, if you want to succeed in trading, note these risks in your daily trading:
The most determinant risk in cryptocurrency trading is market risk. Depending on how the crypto market fares, you can’t expect all trades to go smoothly. Remember, you’re not the only one trading, and the economic atmosphere influences marketplaces.
Sometimes, it’s easy to sell crypto; other times, it’s not. When you find it unusually challenging to exit or close, it’s a risk in liquidity.
Governments can urgently impose regulations on the crypto market. When that happens, policies and changes affect market jurisdictions. You may end up losing funds because of an imposed rule.
There is no such thing as a perfect trading platform. For example, websites can crash and take hours to restore. Additionally, apps may not load and show you the latest data. It’s a risk in the operational aspect of trading.
The collapse of various systems severely impacts trading activities. Think of the 2008 global financial crisis. The global issue halted a lot of trading activity for investors worldwide. Systems risks are closely tied to market risks.
Portfolios are like snapshots of your activity. Every trader wants to put their best foot forward. Typically, there will always be more than one asset per trader. Remember, in investing and trading, you never put all your eggs in one basket.
Portfolio management comes in handy for easier tracking and recording of activities. There are many tools aiding traders to make multiple activities more manageable. Measuring the numerical success or loss is a challenge when noting more assets.
Portfolio management is a “to each your own” matter for every trader. There are software and mobile apps for online traders to access for efficient trade management. Moreover, you’re not only noting data and statistics. You will also be noting multiple strategies that work for each asset.
For such complex amounts of information, it’s impossible to remember and store these things alone. Invest in or utilize tools at your disposal for better portfolio management. Simplify things and focus on greater profitability by disseminating this work to different tools.
How to Trade Your Cryptocurrency?
It’s not difficult to access platforms to start cryptocurrency trading. In recent times, investing and trading have been accessible to many people. There are many young traders and versatile investors who are part of the game.
Follow these steps for your cryptocurrency trading:
Make a cryptocurrency brokerage account
First, open a brokerage account for cryptocurrency. This step is the same manner as opening a brokerage account for stock trading. Once you have an account, a market is more accessible to you.
Each exchange allows users to trade various currencies. From Bitcoin, Ethereum, Litecoin, and others, you can choose between hundreds of currencies available. All you need to do is sign up, fill in the details, and register. Prepare to provide more personal details to ensure verification of your account.
Note these top-performing brokerages for cryptocurrency: eToro, Coinbase, XTB, and IC Markets. Each brokerage has its stand-out features. Everything falls on the ease of use of each site or platform.
Fund your account
Second, you need to top up your brokerage account. To start trading, you need to put in the money first. Buying and trading cryptocurrency costs some money fees. Nevertheless, you don’t need to worry about accessible ways to fund the account.
There are many methods for you to choose from. Fund your account by connecting a debit card or bank account to the brokerage account. Others also use wire transfers to top up initial amounts for crypto purchases.
Each brokerage has a different fee structure. Ensure that you learn what types of fees apply to each platform. Most of the fees come in for the maintenance and service of the platform.
Pick crypto to invest in
Third, it’s time to select the digital currency you will invest in. Each brokerage platform will have a list of available currencies for exchange. Popular cryptocurrencies such as Bitcoin and Ethereum will be part of large market lists.
Nevertheless, there are still hundreds of other small to medium currencies available. From the list of currencies, pick your purchase. Pay for the purchase of the currencies and then you can start cryptocurrency trading.
Regularly, there will be ICO or Initial Coin Offerings. These are new coins introduced to the exchange. Many coins have been successful in creating trading markets. Don’t overlook the viability of higher returns from these ICOs.
Choose a strategy
Now, it’s time to develop your style of trading and technique. The goal is to apply and try out strategies to make each cryptocurrency more profitable. The cryptocurrency market is highly volatile and it takes swift movements and spot decisions. Everything depends on how you play out your trades whether short-run or long-run.
There are already typical cryptocurrency trading strategies present for you to try. Moreover, many resources can help you develop your strategy. You will find endless videos, blogs, and resources over the web. Nevertheless, discipline and experience will always be the best teacher in trading.
Consider automated crypto trading
If you simply don’t have the time everyday to trade, it’s best to automate functions. There are platforms like Coinrule that allow for automated crypto trading.
In automated trading, you can set price limits, actions, and multiple settings. Bots will enact and trade for you when you’re not around. There are various levels of automated trading, from aggressive to conservative.
Automated trading makes things more efficient for traders. Since each investor and trader is different, routines will be different. With automated functions, you can diversify your portfolio, gain fast, and hold or sell currencies. Automated trading requires a less hands-on approach for beginners who want to build strategy first.
Store your cryptocurrency
Lastly, you need to store your cryptocurrency for personal access. There are two ways to store cryptocurrency: software wallets and hardware wallets.
Software wallets are digital wallets where you can store digital currency. Software wallets are available on various devices for downloads. You can access cryptocurrency funds on your mobile phone. All you need to do is ensure and verify the security details of the wallets.
In contrast, there are hardware wallets available for crypto assets. Ledger is a brand that offers state-of-the-art wallet features for crypto storage. The wallet is a sleek flash-drive-like device. Many investors use Ledger to store and monitor assets. in real-time
As you keep on trading, you will find more ups and downs in cryptocurrency. There are endless opportunities to trade and make money from this intangible asset.
Cryptocurrency trading is not for the faint-hearted as it’s unpredictable. This type of trade involves a lot of risks as well. It’s a new industry trying to take root against traditional financial agencies.
Nevertheless, being new means plenty of room for growth and establishment. A big industry that values as much as 3T USD is a great opportunity for people. It all boils down to personal strategies and management.
Cryptocurrency is a good investment for people who are prepared for both aspects. If you want to win big, you need to invest big. However, don’t sweep aside the possibility of a huge loss. Invest what you are prepared to lose, but be keen on spotting profit opportunities.