In the context that we are trying to explain today, which is the financial market, these assets you see being traded can be anything from bonds and stocks to cryptocurrency, margin products, and many more.
It might be a bit overwhelming at first to hear these terms for the first time, but don’t worry; we’re here to explain everything you need to know before diving into the exciting world of investing or trading in cryptocurrency.
Investing in Cryptocurrency
In the same way that the traditional banking system provides a choice of alternatives for investing your money, such as stocks, bonds, and mutual funds, the world of cryptocurrency also provides a multitude of investment options.
Crypto holders can invest in cryptocurrency by purchasing tokens and depositing them on a cryptocurrency exchange. Once the assets have been deposited, you can explore your options with trading, staking, receiving a fixed deposit rate, or earning a savings rate.
Each investment opportunity entails a certain level of risk and return. Some, such as staking, necessitate a more in-depth understanding of decentralized finance than others. To know more about What Is Staking In Crypto, And How Can It Benefit You? Make sure to give the article a read.
To start, let’s explore what crypto trading is.
What is Crypto Trading?
Just with any traditional trading venture, your end goal in crypto trading is the same; to generate a potential profit or obtain additional market exposure from buying a stock at its lower price and then selling high.
So the concept with trading, in general, is to buy low and sell high, and the same goes for crypto trading; however, the volatility of the market makes it tricky for the average trader, so knowing the tips and strategies to the market is what will make the difference.
The Cryptocurrency Market
Before we dive into the hows, it’s essential to know how the cryptocurrency market works.
Cryptocurrency markets are decentralized, which means that, unlike traditional currencies, they are neither issued nor endorsed by a centralized body such as a government. Instead, they exist throughout a computer network that can be purchased and sold on exchanges and held in ‘wallets.’
Cryptocurrencies exist only as a shared digital record of ownership maintained on a blockchain. When a person wishes to send crypto units to another user, they do so through a digital wallet. The transaction is not considered final until it has been validated and uploaded to the blockchain via the mining process. This is also how most new cryptocurrency tokens are created.
What Exactly is Blockchain?
A blockchain is a publicly accessible digital registry of recorded data. This is the transaction history for each unit of cryptocurrency, which demonstrates how ownership has changed over time. Blockchain records transactions in ‘blocks,’ with new blocks added to the front of the chain.
Blockchain technology provides unique security features that traditional computer files do not.
Blockchain files are secure technologies, as they are permanently stored on numerous computers throughout a network – rather than in a single spot – and are typically readable by everyone on the network. This makes it both transparent and difficult to change, as there is no single weak point susceptible to hacking or human or program error.
How to Start Trading Cryptocurrency
Here are the steps to take to begin trading cryptocurrency.
1. Create a Crypto Exchange account
If you don’t already have cryptocurrencies, you’ll need to open an account with a cryptocurrency exchange.
You must supply your crypto brokerage with personal identifying information to open an account, just like you would with a stock brokerage.
2. Fund your account
After you’ve registered with a cryptocurrency brokerage, you’ll need to link your bank account. Different exchanges will provide additional choices; however the majority of crypto brokerages accept bank payment via debit cards and wire transfers. Wire transfers are often the most cost-effective way to fund your account.
3. Pick a token to trade
Choosing the proper crypto to invest in can be difficult, but it plays an essential role in your profits. The majority of active cryptocurrency traders put most of their funds into Bitcoin and Ethereum. These cryptocurrencies move more reliably than smaller altcoins, making trading with technical indicators easier and more suitable for traders seeking reduced risks.
Other cryptocurrency traders invest a portion of their wealth in smaller cryptocurrencies. Although small and mid-cap cryptos are riskier than large-cap cryptos, they have more significant upside potential. In addition, many small altcoins have grown more than 1,000% in a couple of months, making them appealing options for risk-averse investors.
4. Choose a trading strategy
There are numerous ways to trade cryptocurrency. The list is lengthy, and each technique has its own set of risks and rewards.
Begin by determining the amount of time you’re willing to commit to your investments and work your way down from there. Once you’ve decided on a plan, you may start trading using the capabilities of your crypto exchange.
Let’s take a look at some of the most popular strategies among traders.
Day Trading
This trading process includes traders entering and leaving positions on the same day. A trader’s goal in engaging in such a trade is to profit from intraday price swings in a cryptocurrency of their choice. For a successful transaction, investors frequently rely on technical indicators to determine entry and exit points for specific crypto.
Range Trading
Range trading is similar to day trading in that market trends are also used to forecast the future of cryptocurrency values. The primary distinction is that range trading might be restricted to an hour or last a month.
Essentially, range trading extends on the concept of day trading by increasing the time frame. Of course, this raises the risk of the process, but it also boosts profitability significantly.
Scalping
This trading method entails increasing trading volumes in order to profit. Despite the risk, a wise trader observes the margin requirement and other crucial guidelines to avoid negative trading experiences. Scalpers examine the crypto asset, past patterns, and volumes before deciding on an entrance and exit position within a day.
Arbitrage
Arbitrage is a trading method in which a trader buys cryptocurrency in one market and sells it in another. The ‘spread’ is the difference between the buy and sell prices. Traders may be able to book profit due to the differential in liquidity and trading volume. To take advantage of this opportunity, you must register accounts on exchanges where the values for the cryptocurrency you are trading at differ significantly.
5. Store your cryptocurrency
If you’re actively trading crypto, you’ll need to keep your funds on the exchange in order to access them. If you intend to keep your cryptocurrency for the medium to long term, you might want to purchase a cryptocurrency wallet.
Benefits of Trading Cryptocurrency
No time constraints
Trading cryptocurrency, unlike trading equities, is available all year and may be done at any time of day or night.
The biggest advantage is that trades do not have to idle overnight. Instead, you can take advantage of the best opportunity when it becomes available, whether it is midday or three a.m.
Volatility of cryptocurrencies
Although the cryptocurrency market is still in its infancy, it has seen substantial volatility as a result of massive short-term speculative interest.
Cryptocurrency volatility is part of what makes this market so intriguing. Rapid intraday price changes can present traders with a variety of opportunities to go long and short, but they also come with heightened risk. In this situation, volatility is a double-edged crypto sword. It can be beneficial to a trader, but it can also be harmful.
So, if you decide to venture into the cryptocurrency market, make sure you have done your homework and built a risk management strategy.
Trading Vs. Investing
Profits in the financial markets are sought after by both traders and investors. Their approaches to achieving this goal, on the other hand, are entirely different.
In general, investors want to create a return over a more extended time, such as years or even decades. Because investors have a longer time scope, their expected returns on each investment are typically higher.
Traders, on the other hand, attempt to profit from market instability. They join and exit positions more frequently, and they may seek lower returns on each trade (since they constantly enter several transactions).
Start to research each of these options to see which one suits you and your funds best.
Understand When to Take a Step Back
You will eventually misread the market when looking for bottoms or cryptocurrency seasons. Every trader makes mistakes from time to time, and there is no need to compensate by instantly increasing the bet size to make up for the losses. That is precisely the opposite of what you should do.
When you don’t get the desired results, take a couple of days off. The psychological impact of losses is substantial and will impair your ability to think properly. Even if an obvious chance presents itself, pass it up and try to look at the bigger picture.
As the saying goes, true traders are not the most gifted but rather those who have survived the longest.
This is a contributed post.
Original source: https://steadyoptions.com/articles/how-to-trade-cryptocurrency-a-guide-for-beginners-r682/