Because cryptocurrency is volatile, many investors love to trade it. Trading crypto can offer higher returns than traditional investments if you can time the market correctly.
One of two goals for cryptocurrency traders is to either accumulate Bitcoin or make a profit. It’s easy to see your portfolio increase in USD, but it’s much more difficult to see your Bitcoin value increase in a crypto bull market. You can track the Bitcoin value of your portfolio by trading altcoins against Bitcoin via exchanges such as Coinbase Pro.
You run the risk of losing your cryptocurrency to the market by actively trading it. It’s common for traders to lose their money trading cryptocurrencies because they are so volatile.
What is Crypto Trading?
Crypto trading is the act of trading cryptocurrency via a contract-for-different (CFD) trading account. CFD trading allows you to place bets on Bitcoin (BTC), price movements without having the underlying currencies.
You can buy cryptocurrencies (long) or sell them (short) depending on whether you think they will increase in value. You only need to make a small deposit (margin trading crypto) to be able to trade in the underlying market. Both instruments are leveraged. Leveraging trading crypto increases both your earnings and your losses, but your profit or loss will still be determined by the size of your investment.
Investors can also use cryptocurrency options to lower risk and increase market exposure. Crypto options trading is a “derivative” financial instrument whose value derives from another asset, in this case, the underlying cryptocurrency.
There are many ways to trade cryptocurrency. To trade cryptocurrencies, one must have a good understanding of the subject. It is important to be aware of the risks associated with cryptocurrency trading and the laws applicable based on where you live.
Here are the five steps for trading cryptocurrency.
If you don’t already have cryptocurrency, you will need to open an account with a crypto broker. eToro, Gemini, and Coinbase are some of the top cryptocurrency brokerages. Each of these options offers a simple user interface with a wide range of altcoins.
You will need to provide personal identification information to your crypto brokerage to open an account. This is similar to opening an account at a stock brokerage. You will need to provide your Social Security number and address as well as your date of birth, email address, and date of birth when opening an account.
These are the main things to keep in mind when searching for the right trading platform.
- Years of activity: A sign of stability or credibility is the length of time an exchange has been open for business.
- When choosing which platform to use, it is important to know what supported cryptos are available. Day traders who are interested in altcoins might find it easier to use a smaller exchange that supports more cryptos and has more trading pairs than an exchange that offers fewer options.
- Fees: These are the transaction fees that exchanges charge sellers and buyers when they execute trades. To monetize their businesses, all cryptocurrency exchanges charge a transaction fee. The exchange may charge a transaction fee or no fee for trades above $10,000. This is to encourage large-scale trades.
- Deposit methods: Similar to a brokerage account, users must finance their exchange account using capital. While many exchanges permit wire transfers and bank transfers, fewer allow credit card funding, PayPal transfers, or gift card transfers.
- User reviews: It is a great way to find out which exchange you should choose by visiting different crypto communities and looking at user feedback.
- Liquidity is the liquidity of an exchange’s, or exchange liquidity refers to the speed and ease with which an exchange can convert one asset into another, without changing its price. High liquidity crypto exchanges can quickly buy and sell assets with minimal difference between the ask and bid prices.
A quick tip: To help traders compare crypto exchanges more closely, CoinMarketCap and Cryptowisser are reliable resources that allow them to compare various platforms based on liquidity, trading volume and supported cryptos.
After you sign up with a cryptocurrency brokerage, you will need to connect your bank accounts. Many crypto brokerages allow you to fund your account with wire transfers or debit cards. The cheapest way to fund your account is by wire transfer. It’s available for free on Coinbase or Gemini.
Most cryptocurrency traders invest in Bitcoin and Ether. Trading using technical indicators is possible, however, because these cryptocurrencies are more predictable than smaller altcoins.
Many crypto investors invest a portion of their capital in altcoins. Although they are riskier than larger-market-cap cryptos, smaller mid-market cryptos offer greater upside potential.
Day traders can use many strategies to profit from short-term volatility in crypto markets. Crypto day traders should have a winning strategy that is backed up by research and well-planned plans for when they enter and exit positions.
Several websites offer the opportunity to follow and copy successful day traders. Here are the top trading strategies for crypto day trading.
Arbitrage is when crypto traders purchase a cryptocurrency from one exchange and then sell it on another exchange for a greater profit.
Arbitrage opportunities can be created by cryptocurrency pairs. Arbitrageurs can profit from the difference in the crypto pair that consists of Bitcoin and a less-known altcoin. Arbitrage, a complex financial process that is usually automated using price-monitoring software to keep the prices of digital assets stable between exchanges, is complicated.
Notice: Crypto trading pairs can be traded directly on an exchange. Arbitrageurs can make a profit when the price of a crypto pairing consisting of Bitcoin and a lesser-known altcoin fluctuates between exchanges. Arbitrage, a complex financial process that is usually automated using price-monitoring software to keep the prices of digital assets stable between exchanges, is complicated.
A trading bot is an automated software tool that investors use to purchase and sell financial instruments at predefined times or when certain conditions are met. This maximizes profits. The purpose of crypto trading bots is to increase profits, reduce losses, and minimize risk.
The process of trading on crypto exchanges is simplified by using bots that analyze price movements and exchange fees. They also offer opportunities to make a short-term profit. Bot trading software has been an integral part of stock exchange brokerages for decades. Day traders who are familiar with software programming and APIs may be able to use this tool to their advantage.
The long straddle (also known as the buy-straddle, option-straddle, or simply straddle) involves the purchase of both an order and a put. In a long straddle, both the call and put orders are placed on the same cryptocurrency, with the same strike price and expiration date.
Because of the volatility in the crypto market, long straddles are a popular choice for crypto trading. This strategy allows crypto day traders to bet on the price change of crypto assets. The day trader makes money regardless of whether the price moves in the long straddle. The trader will lose if the price does not move.
Notice: A strike price refers to the price at which a derivative contract can be purchased or sold after it has been exercised.
You might consider automated crypto trading using a platform such as Coinrule if you are looking for a strategy to trade crypto. Trading bots can help you achieve the best possible results for your investment goals. Automated trading allows you to make money quickly, diversify your portfolio, and hold your coins.
It is possible to trade cryptocurrency on certain platforms and use automated trading with other traders.
You will need to store your funds on an exchange if you are actively trading cryptocurrency. A cryptocurrency wallet is necessary if you intend to buy your cryptocurrency for long-term storage.
There are two types of cryptocurrency wallets: software wallets and hardware wallets. While both are secure, hardware wallets offer greater security as they keep your crypto offline on a physical device. Many investors trust Ledger to hold their crypto assets. There are many options available on Android, Google Chrome, and iOS for software wallets that you can use free of charge.
Ezekiel Chew is a top forex and crypto trader who earns 6 figures per trade and trains bank traders behind the scenes. He shares his knowledge about crypto trading and the secrets to success.
Ezekiel believes that there are three essential elements to successful cryptocurrency trading.
1. First, you need to be able to read charts. Price action is the most popular way to learn how to read charts. This is the method that professional traders use. Once you can read charts, you can identify the reasons the market is moving up or down and which strategy you should use to move in that direction.
2. You can trade with a proven strategy or a combination of strategies. A proven strategy has been extensively back-tested and proven to work consistently. Only this way will you be able to keep it going even during difficult times.
3. A solid trading system is essential. A trading system that is not just technical but also business-oriented. Contrary to popular belief, trading is more than just about strategies. The system also plays a significant role in becoming a successful trader.