The cryptocurrency market is thriving in the market and professional traders continue to trade and new traders are showing interest in the crypto trade market. But, many of them can have confusions about where exactly to start with cryptocurrency trading, what exactly is trading? how to make sure we trade safely and securely?
Now let’s take some time to explore what cryptocurrency trading is, how to engage in it and to offer a basic guideline on how an aspiring trader can get started in cryptocurrency trading.
Crypto trading is different from investing; the former involves the buying and selling of digital assets on an exchange or via an over-the-counter platform in the hope of earning a profit.
You can sell the crypto that you possessed or engage in futures and options contracts or contracts for differences (CFDs) trading. The two refer to are primarily a form of financial trading commonly known as trading on margin. These are financial tools, which enable someone in the crypto trading to make a bet on a certain digital currency without having it.
If you feel that a given cryptocurrency will be worth more in the future, you buy – a process known as going long. On the same note, you can go short (sell) on the fact that you have it because you think it will fall in value. The provision indicates that you stand to gain in the event the price rises, falls or holds steady, provided you are right on your forecast.
Once you have stirred deeper into trading and chosen the particular trading plan best for you, the next important step to take is to look for an exchange to trade. Fees, popularity, potential on-and-off ramps, functionality, reputation, and the health of the firm’s balance sheet are all essentials to consider when choosing a crypto exchange. Best known crypto exchanges provide various tools that help to learn cryptocurrency trading, plus they offer depositing/withdrawing test accounts so that people can practice trading without real money.
Go to the crypto exchange of your preference and create an account for yourself, and it is suggestible to go through the procedure of Know Your Customer (KYC) verification, however, it is not compulsory. It can require the user to input details about their identity, capture a photograph of themselves, and attach documentation to prove their address. To complete your identity verification, it may only take several minutes or it might take hours, one, or several days. The time players have to wait will differ depending on the platform types.
Once you are through the identification process, take money to buy the Cryptocurrency of your choice from the marketplace, or, if that option is available, connect your bank account and proceed. Otherwise, if you already have some of the popular cryptos, you can directly transfer them into the exchange.
If you desire to invest in a cryptocurrency that has a relatively constant price level, then you should consider investing in a stable coin such as USDT or USDC. Thus, in a BTC/USDT, to buy BTC you would have to trade for USDT. It therefore means that before placing an order for a buy or a sell, you should look at the market pairs and try to find out that market that you wish to trade with is paired with your required digital currency.
If you’re interested in trading, I believe that it is important to know as much as possible about it before you really start. If your research focus is on investment or trading, then strategies should be your primary area of consideration. Trade risk: Look for tips on how you can decrease your exposure to risk while trading.
It is based on the identified categories that the type of trader that an individual desires to become that will determine the investment strategies to be adopted. For example, passive approaches are years of buying investment and dollar cost averaging (DCA). Buy and hold refers to the act of actually acquiring coins and holding it for a period with the perception of its value increasing and therefore the expectation of reselling it in future for a higher value. However, when referring to the style of trading known as ‘Dollar Cost Averaging’, this is the method of investing the same amount of digital currency at regular intervals or for an equal dollar value over a period of time regardless of the price.
Two of the effective and easily executable strategies that have been known to be active trading strategies for beginners include arbitrage and scalping. This means that scalping involves buying a cryptocurrency and watching its price move throughout the day before selling it as soon as the price starts to climb above the buying price. On the other hand, Arbitrage trading is defined as the process of making a profit with a disparity that exists in between the different markets. For instance, the existing bitcoin in one trading platform can be sold at a particular price, but the same bitcoin bought in a different trading platform may be at a higher price.
In addition, study various benefits of manual trading and automated trading and weigh this two options to identify the right type of trading to engage in. Automatic trading involves the utilization of a robot which handles the purchase and selling of the cryptocurrency in bid to make profit. Manual trading refers to a scenario where you conduct trade on your own without involving any automatic trading application.
In order to execute its operations effectively, it needs to conduct an analysis of the market to determine the most suitable products for investing in. It can be achieved through the price trends, observation as to what other people are trading, the associated risks, and the best trading pairs. Also, look at the projects and the brain behind the working coins in your list.
It may select big-market capitalization coins such as bitcoins and ethers or high risk, medium or small coins.
Begin actively trading the cryptocurrency of your choice employing your trading strategy. This can be done manually or more conveniently by an automated trading system which is quite simple for a rookie trader to operate. For novices, you may wish to begin by investing a little money so that you can get some idea of how things work and then invest plenty of money later. On the other hand, if this option is available in the particular exchange in question, the user can engage in the simulation trading, especially by using a demo account.
Suggested outcome for one of the trading activities: It might be worthwhile to transfer some of the profits back to a non-custodial wallet. It may be useful if you do not want to put return all your gains to a trade at risk and lose it. Platform also good for traders who keep the coins for a medium or long time horizon.
Exchange wallets or accounts are not very secure as compared to non-custodial wallets because you do not fully control your money. However, if the Cryptocurrency is intended to be used in trading activities, it can still be stored on the exchange wallet.
Having registered, residents can deposit fiat money into their accounts only after the specified period. Bank transfers electronic/ wire transfer or any standard money transfer service can be used to deposit fiat on most centralized exchanges.
If you do hold or Purchase any crypto, you can deposit your selected coins directly into the exchange wallet. Remember to always send your coins to the associated address: to transfer bitcoins to the recipient’s bitcoin address, ethers to the recipient’s Ethereum address, etc. Such mistakes mean that sending crypto to wrong addresses quantity can lead to losses.
There are two main types of trading pairs: A few of the common types include the crypto-to-crypto trading pairs as well as the crypto-to-fiat trading pairs.
Crypto-to-crypto trading pairs include two distinct coins – one is the base coin, and the other is the quote coin with ETH/BTC as an example. Let the current price of one Ethereum (ETH) be $0. 05 Bitcoin (BTC), which indicates that in order for you to trade, you have to swap 0. For instance, conversion from Bitcoin to Ether: exchanging 05 BTC to purchase one ETH. This pairing uses BTC as the base unit in which the value of ETH is measured.
Fiat currency paired with cryptocurrency trading pairs refer to trading pairs that have an associated cryptocurrency and fiat currency such as the BTC/USD trading pair. This means that the use of $40,000 signifies that one Bitcoin currently known within the market as BTC is equivalent to $40,000.
Through the order book, one can obtain a live view of the buy and sell orders that the traders have issued in a specific exchange market. It offers information on the volume of buyers and sellers at which quantity can be bought and sold respectively for a particular cryptocurrency.
An order book is split into two main sections: the buy orders (bids) offers and buy limit orders A bid list contains the orders from the buyers who are willing to purchase the cryptocurrency at a specific price, with the order that has the highest bid price listed at the top, while the orders with the lower bid price are listed below.
It’s order from the sellers who want to sell the cryptocurrency at a specific price and the prices are arranged in ascending order from the lowest seller price.
A market order is also an easy form of an order in this case where you can buy or even sell a crypto coin instantly at the price available in the market. For instance, the existing bid price of the 1 bitcoin may be $35,000, while the ask, or the selling price for the same coin, could be $35,010 within the order book. For instance, if you want to use market order to buy bitcoins, then your order to buy would match the lowest sell order, which is 35010 dollars. Market orders are a type of sell order; if you were to make a market order for bitcoin, your order would be cleared against the best bid at $35,000.
Limit order is an order that allow one to buy or sell a crypto as and when it reaches a set price or the best price available in the market. For instance, if you need to purchase one bitcoin for $35000 or lower, you can place a basic buy limit order of $35000. If the price of bitcoins gets to $35000 or any time shorter than that, your limit order gets filled and you get to purchase the bitcoins at the $35000 price. So, if the price never reaches $35,000 then the order is not filled.
In conclusion, cryptocurrency trading refers to the buying and selling of digital assets through exchanges or over-the-counter platforms with the purpose of making profits. Trading, on the other hand, consists of finding a good exchange to open an account, fund, research on trading strategies, select a cryptocurrency and begin trading using either manual or automated systems. The ability to store one's profits safely and understanding trading pairs, order books, market orders, and limit orders is important in navigating successfully through the cryptocurrency market.