Introduction to Crypto Trading
Crypto trading works on a similar fundamental to the traditional stock market. Traders meet on a crypto exchange where they buy or sell cryptocurrency. Cryptocurrency is a digital or virtual currency that uses encryption for security and is decentralized, meaning they aren’t controlled by corporate, the government, or any other entity. Bitcoin, Ethereum, Dogecoin, etc are all examples of cryptocurrency.
The goal of crypto traders is to purchase crypto at a lower price and then sell it at a higher price, thus making a profit trading crypto. These prices are decided in the market based on the supply and demand of any particular cryptocurrency.
Traders can choose to trade on a software-based exchange or a peer-to-peer (P2P) network. You can also buy and sell newly launched tokens with briansclub cm
Benefits of Crypto Trading
- Cryptocurrency is decentralized which gives traders more freedom and autonomy to trade.
- Crypto Exchange and Trading Platforms have eased the process and have made it more accessible for traders all over the world.
- Investors & Traders find it easier and more cost-efficient to enter into trading crypto than the traditional trading market.
- Trading in different cryptocurrencies helps Traders diversify their portfolios. This may help them compensate for their losses from other investments.
- Market volatility assures that there will be high fluctuations in prices in a short time. Traders are most likely to bag their profit from these fluctuations in a short time.
- Cryptocurrency markets are open 24/7. Traders can trade crypto anytime they want.
- With constant price fluctuations, traders can expect high potential returns.
Types of Trading
Day trading is where a trader has to buy any stock, commodity, or cryptocurrency and then sell it within the same day. Scalping and momentum trading is a few tricks day traders use to analyze the performance of their assets. Scalping is the process of booking small profits on a large number of trades whereas momentum trading allows traders to purchase the assets that show high potential growth on the graph and then sell it before the graph of that asset goes down.
Day traders resort to technical analysis and study graphs to understand the performance of any particular stock, commodity, asset, or crypto and by studying the small price fluctuation, they make their decision whether to buy or sell.
Swing trading also allows traders to take advantage of short-term price fluctuations, but in swing trading, the traders hold for a longer period e.g. few days or a few weeks even. Swing traders use techniques like Trend Following, and Breakout trading to earn profits.
Trend following is where traders buy assets that show upward growth and then sell when trends reverse. Breakout trading similarly is to buy assets when they’re breaking out of their resistance level and selling them when they find a new support level.
Arbitrage trading is where traders make profits from price differences on different platforms. For E.g. the price of any financial product is x amount on one platform and x+y amount on the other. Traders will purchase that product at x amount and sell it on another platform making y as profit. Traders have to react quickly to these price discrepancies to earn benefits.
It is considered one of the low-risk trading techniques as the trader earns from price inefficiencies than future price prediction. But with recent growing technologies, the scope for arbitrage trading has decreased. Traders lack the opportunity to make profitable deals from this trading.
What are the important things that a Crypto Trader must know?
Before deciding to invest any penny into the trading market, it’s important to pay attention to these points as this can save you from potential terrible losses in the future:
- The trader must familiarize themselves with the different cryptocurrencies available and the technology behind them. They should also know the factors that drive their prices in the market.
- A trader, before entering the market, must set clear investment objectives and have an elaborate exit strategy.
- It is important to diversify investments into different cryptocurrencies. A diversified portfolio reduces the loss of bad investments.
- Be aware of the state of crypto regulations in your domicile. Cryptocurrencies are still banned by a lot of countries. Please research the legal and regulatory conditions in your area.
- Keep your digital wallet credentials safe and private. Digital Wallet is where cryptocurrency is stored, so it is important to not share these details with anyone.
- Stay updated about new information related to cryptocurrency, and also pay attention if there’s any change in the regulations.
Risks Associated with Crypto Trading:
- Cryptocurrencies can fluctuate largely in terms of prices in a short time. This is difficult for traders because they cannot predict the future price of any crypto coin.
- Cryptos are still not regulated widely, this possess a risk to traders as they have little to no protection against financial crimes or fraudulent activities.
- The digital wallets and exchanges that allow trading or storing crypto are constantly under the threat of cyber attacks by hackers. Traders have lost a huge amount in crypto due to these cyber attacks in the past.
- Cryptocurrencies lack the oversight that traditional stock markets do. It is difficult to understand whether there’s any fairness or transparency in this trading system.
- Due to a lack of oversight, bigger players in the game, AKA Bulls have been manipulating the market as per their requirements and this is still in practice.
Don’ts of Trading:
- Never invest more money than you can afford to lose. Crypto trading is a risky market so always be careful while investing.
- Avoid investing in coins that are hyped or have sudden and unusual price spikes.
- Never follow unrealistic returns. Projects that are too good to be true might be a fraudulent trap. Beware of such projects and always do thorough research before investing.
- Do not neglect security. Use strong passwords and two-factor authentication to secure your wallet.
- Do not hold on to investments. If a coin isn’t performing as expected you cut your losses and move on.