Cryptocurrency trading: You need to know this

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WRITTEN BY Abel Stokes 85 views date-icon 2024-05-14 11:48:00

Speculating on the price movements of cryptocurrencies using contracts for difference (CFDs) or buying and selling the underlying currency through an exchange is known as cryptocurrency trading. CFD trading is a type of derivative that allows you to trade Bitcoin.

For example, you can go long (buy) if you believe the value of the cryptocurrency will rise, or short (sell) if you believe the value of the cryptocurrency will fall. Both of these trades are leveraged instruments, meaning you only need a small amount of margin to fully access the underlying market, which is called margin cryptocurrency trading. However, since your profit or loss still depends on your total investment, leveraged cryptocurrency trading allows you to maximize your profit and loss.

In addition, investors can use cryptocurrency options to reduce risk or increase market exposure. Cryptocurrency options trading refers to "derivative" financial instruments whose value depends on the price of another asset, in this case the underlying cryptocurrency.

Beginnings in trading

Before you can begin trading cryptocurrencies, you need to fully understand the underlying asset and the technology. Bitcoin is the soil upon which thousands of other cryptocurrencies grow.

Like trading stocks and other financial markets, trading cryptocurrencies can be complex, involve many components, and require a certain level of knowledge. Bitcoin emerged as the first cryptocurrency in 2009 and remains the largest cryptocurrency by market cap and penetration. However, over the years, an entire industry of other digital assets has emerged that can be traded for profit. All digital currencies other than Bitcoin are known as alternative coins, the largest of which are 

This guide explains cryptocurrency trading strategies and introduces you to cryptocurrency trading platforms and applications, trading components, trading techniques, and the role of technical and fundamental analysis in developing a comprehensive trading strategy.

Cryptocurrencies for Beginners

There are many different approaches to trading cryptocurrencies. In order to begin trading cryptocurrencies, you must first gain sufficient knowledge in this area. It is also important to understand the associated risks and laws that may apply in your jurisdiction and make a decision accordingly.

Steps to trading cryptocurrencies

1. Register with a cryptocurrency exchange

You will need to open an account with a cryptocurrency exchange, unless you already own cryptocurrency. The best cryptocurrency brokers on the market are Coinbase, eToro, and Gemini. All three services have clear user interfaces and a wide selection of alternative coins.

To open an account with a cryptocurrency broker, you need to provide personal information, just like with a stock broker. When creating an account, you will need to provide your address, date of birth, social security number (in the US), email address, and other requirements known as Know Your Customer (KYC).

2. Funding your account

After signing up with a cryptocurrency broker, you will need to link your bank account. Most cryptocurrency exchanges accept deposits to bank accounts via debit cards and bank transfers. Bank transfers are usually the most cost-effective way to fund your account, and both Coinbase and Gemini offer this method.

3. Choosing a cryptocurrency to invest in

Most cryptocurrency traders invest their money in Bitcoin and Ether. However, you can also trade using technical indicators, as these cryptocurrencies move more predictably than smaller alternative coins.

Many cryptocurrency investors put some of their money into alternative coins. Although they are riskier than large-cap cryptocurrencies, small cryptocurrencies with a medium market cap have more upside potential.

4. The beginning of trading

If you're looking for a cryptocurrency trading strategy, try automated cryptocurrency trading with software like Coinrule. Cryptocurrency trading robots execute processes based on your investment goals to maximize profits.

You can make money quickly, save coins, or diversify your portfolio with automated cryptocurrency trading, which can provide you with a conservative, neutral, or aggressive investment path. You can even learn active cryptocurrency trading on some sites and automated trading on others.

5. Cryptocurrency Storage

If you are actively trading BTC, you need to store your funds on an exchange so you can access them. For example, if you buy cryptocurrency, you should purchase a Bitcoin wallet for medium to long-term storage.

Software wallets and hardware wallets are the two types of cryptocurrency wallets. Both are secure, but hardware wallets offer the most protection because they store cryptocurrency on physical devices that are not connected to the internet.

Cryptocurrency trading basics

Bitcoin's value is determined by a turbulent market second by second, day by day. As a standalone digital asset whose value is determined by the open market, Bitcoin faces unique volatility challenges that most currencies do not.

Therefore, it is important for beginners to have some understanding of how cryptoasset markets work in order to navigate them safely (even if only occasionally) and maximize their participation in cryptocurrency trading.

Bitcoin trading varies in size and complexity, from simple transactions such as exchanging fiat currencies like dollars, to using various trading pairs to profitably trade the market to grow your portfolio. Of course, the greater the size and complexity of cryptocurrency trading, the more risk traders are exposed to.

At the beginning, let's understand some basic concepts:

1. Cryptocurrency trading structure

Cryptocurrency trading consists of a buyer and a seller. Since there are two opposing parties involved in the transaction, the buyer and the seller, one party is bound to get more than the other. Therefore, trading is essentially a zero-sum game: there are winners and losers. A basic understanding of how the cryptocurrency market works can help minimize potential losses and optimize potential gains.

When a buyer and seller agree on a price, the transaction is executed (via an exchange) and the market valuation of the asset is determined. The buyer usually places an order at a lower price than the seller. In this way, two sides of the order book are created.

When there are more orders to buy a cryptocurrency than sells, the price usually goes up because the demand for the asset increases. Conversely, when there are more sellers than buyers, the price falls. On many exchanges, buy and sell orders are marked with different colors. This is done so that traders can quickly understand the current state of the market.

2. Cryptocurrency order book

You may have heard the trading saying "Buy low, sell high". This phrase is difficult to put into practice because high and low prices can be relative, but it provides a basic understanding of the motivations of buyers and sellers in the market.

Simply put, if you want to buy something, you want to spend as little money as possible. If you want to sell something, you want to get as much out of the transaction as possible. This is usually a sensible move to follow, but there is an additional dimension: buying assets versus selling them.

Buying a long position in an asset (long) means buying an asset and profiting by increasing its price. In contrast, a short position in an asset (sell short) means selling an asset with the intention of buying it back when its price falls below the level at which it was sold and capitalizing on the price drop. However, short selling is more complex than the simple description above and involves selling a leveraged asset with the intention of buying it back.

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