What is Cryptocurrency Trading?
Cryptocurrency Trading is the buying and selling of digital or virtual currencies via a cryptocurrency exchange platform with aim of making a profit from the change in the value of the underlying asset. There are lots of cryptocurrencies being traded in the crypto market, with the popular ones being Bitcoin, Ethereum, Dogecoin, Litecoin, etc.
It is difficult and non-advisable to go into crypto trading without having proper knowledge and understanding due to its volatility to prevent loss and frustration.
How does Cryptocurrency Trading work?
Cryptocurrency Trading is not controlled or facilitated by a central authority or server, this means it is a decentralized network. Trading only consists of the buyer and seller i.e. a peer-to-peer transaction (P2P) and the transactions are made through a cryptocurrency exchange. The history and data on every transaction are recorded on the Blockchain through a process called mining.
Cryptocurrency Trading isn’t also limited by time, it runs every 24 hours for 7 days, so trading takes place at any time. However, the use of risk management tools is effective during hours when you can’t monitor the trade yourself.
A risk management tool helps you forecast and regulate your loss and profit in a trade. For example, you can set the maximum loss you can put up with in a trade and it stops the trade whenever it’s about to exceed. This aid to prevent the loss of trading capital.
Steps to trading Cryptocurrency
- Pick a good cryptocurrency exchange platform
- Register a trading account – Submit all requested identifying information
- Finance your account with cryptocurrencies
- Choose cryptocurrencies to buy or invest in – it is always advisable to buy varieties of assets instead of placing all your capital in just a single one.
- Choose a trading strategy.
- Start your trading – Automated trading or active trading can be implemented. Also as a beginner in crypto, it is always advisable to start with a demo account to get familiar with the real trading environment and perfect mistakes.
- Save your cryptocurrencies in a crypto wallet.
Kinds of Cryptocurrency Trading Strategies
1. Arbitrage Trading:
This involves buying Cryptocurrency from one market and selling it in another to get profit from the difference in price value on both crypto exchanges.
2. Day Trading:
This involves entering and exiting a trade on the same day to make profits from the intraday price changes.
3. Buy-and-hold (HODL):
This involves buying and holding an asset for a very long time to profit from an increase in the asset’s value over an extended period.
This involves frequently entering and exiting a trade within short intervals, usually seconds or minutes, with the aim of accumulating the small profits from the little price movements in each trade to produce larger amounts over time.
5. High-Frequency Trading (HFT):
This involves generating algorithms that help in the swift entering and exiting of multiple trades in very short time frames.
Techniques of studying the crypto market before entering a trade
1. Technical analysis: This involves analysing the historical trends of the cryptocurrency, like the past pattern of price changes and trading volume, in order to understand the market and forecast how the prices will alter in the future.
2. Fundamental analysis: This involves analysing the market using external factors that are likely to affect the value of the asset, like the sum of investors, the creators, and other economic factors.
Two methods of trading cryptocurrency
1. CFD (Contract for Difference):
This method involves a contract between two individuals regarding the price change in a chosen asset. They agree to exchange the difference in the price of the asset from when the position was initially opened to when it was closed. There is no ownership of the cryptocurrency, you only gamble on its price trend in the market. This usually involves a broker.
2. Buying Cryptocurrency through a crypto exchange:
This method involves owning an amount of the cryptocurrency and storing it in a digital wallet with the aim of making profits if the price value of the asset increases.
List of the best apps for Cryptocurrency Trading
- Coinbase: Good trading app for beginners.
- Cash App
Register for a Cryptocurrency trading course and learn more!