Key Insights
- Crypto trading continues to gain traction as a major form of financial investment.
- This is due to its volatility, which allows traders to rake in immense profits within short timeframes.
- Before jumping into the market, it is important to understand the types and strategies involved with this market.
- Choosing the right exchange and applying the right risk management strategies are important to success as a crypto trader.
Trading crypto has become one of the biggest activities in the world when it comes to finance.
The crypto market has become the perfect hotspot for investors looking to capitalize on the volatility of digital assets.
Whether you’re a complete beginner or someone looking to improve their trading skills, here’s a complete guide about how to trade crypto from start to finish.
What Is Crypto Trading?
Before jumping in and learning how to trade crypto, it is important to understand what it is and why it is so interesting.
At its core, crypto trading involves buying (or selling) assets like Bitcoin or Ethereum at set intervals.
This is done to profit from their price movements, which often happen within as little as a few minutes.
Traders typically speculate that the price of an asset will go up and then buy—or they speculate that the price of said asset will come down and then sell for profit.
Investors typically do this for both long- and short-term markets, with strategies tailored to their needs.
Unlike regular stock trading, the crypto market is open 24/7.
This means that the opportunities to make a profit from them never end.
The decentralized nature of these assets also means that no central authority controls them.
In essence, crypto is transparent, accessible, and open to everyone.
Types of Crypto Trading
There are several ways to approach crypto trading. Each of these ways has its own set of strategies, and it might help to become familiar with them:
1. Spot Trading
This form of trading is the most straightforward method of approaching the market.
Spot traders simply buy or sell crypto for immediate gains. This means that you exchange your fiat money (or another crypto) for some digital asset and hold it when you believe the price might rise.
The reverse happens when spot traders believe that prices might fall.
Spot trading is great for beginners, considering how it involves basic buy/sell orders.
2. Margin Trading
Margin trading is a lot like spot trading, but with extra steps. The same buy/sell procedure applies to this form of trading, except that traders have the option of borrowing funds to amplify trades.
This means that investors can trade more than what they currently have by borrowing from an exchange or from another trader.
While margin trading increases the amount of profit you can make, it also comes with higher risks.
For example, if the market moves against a trader’s position, they could lose more than their initial investment.
This means that it is important to understand how leverage works before jumping into margin trading.
3. Futures Trading
This form of trading is fairly common and allows traders to buy or sell certain cryptocurrencies at a specific price—at a specific date in the future.
This means that it allows traders to speculate on price direction without needing to own the underlying asset.
Traders can also short-sell and profit from price declines as well.
However, futures traders are a lot more complex than margin or spot trades and should only be attempted by experienced traders.
4. Swing Trading
Swing trading involves taking advantage of price “swings” in the market.
In this form of trading, participants typically hold assets for several days or weeks. They do this to capitalize on the market’s short-to-medium-term trends.
Like futures trading, swing trading requires strong technical analysis and can be quite profitable if done right.
It is also much more accessible than day trading, especially for traders who can’t monitor the markets all day.
5. Day Trading
This form of trading involves making multiple trades within a single day. This allows traders to make profits from small price movements and involves committing a great deal of time.
Day traders must also understand technical analysis deeply, considering the volatility of the crypto market.
Considering the technical requirements of becoming a day trader, this form of trading is not recommended for beginners.
How to Start Trading Cryptocurrency?
If you’re ready to start placing trades, here’s a step-by-step process to get involved.
1. Choose the Right Exchange
The first and most important step to getting started is choosing the right exchange to conduct your trades.
Some of the most popular exchanges include Binance, Bybit, Coinbase, Kraken, and Bitfinex.
It is important to consider these factors when choosing an exchange:
- Make sure the exchange has strong security measures in place. Some of the most important ones to look out for include 2FA and insurance for your funds.
- Consider the fees the exchange charges for tasks like deposits and withdrawals.
- Make sure that the platform has high liquidity, so you can easily buy and sell your assets without slippage issues.
Make sure that the exchange is easy to use in terms of user interface and user experience. This is especially important if you’re just starting out.
2. Set Up a Wallet
Crypto exchanges typically offer in-built wallets for users. However, you might choose to move your funds off the exchange for added security.
Consider choosing between hot wallets (which are software-based wallets connected to the internet) and cold wallets (which are hardware wallets completely isolated from the internet).
You should keep in mind that hot wallets are easier to access but more vulnerable to hacks, while cold wallets are the exact opposite.
If you’re a long-term holder, consider keeping your assets in a cold wallet.
3. Understand Crypto Market Analysis
You should understand how to analyze the crypto market before making any trades.
Consider learning the basics of:
Fundamental Analysis
This form of analysis involves predicting the future performance of cryptocurrencies based on things like the news, market demand, or adoption, for example. This form of analysis is more suitable for long-term investors.
Technical Analysis
This approach to trading is great for short-term investors and is more focused on price patterns and indicators like the RSI and the MACD.
Mastering both forms of analysis helps to make informed decisions and avoid unexpected price movements across the market.
4. Develop a Trading Strategy
Aside from the aforementioned, it helps to have a well-defined strategy to be a successful trader. Some of these strategies include:
Buy and Hold (HODLing)
This strategy involves buying crypto and holding it indefinitely. HODLers typically keep their assets for years in the hopes that they grow in value over the long term.
The strategy involves low maintenance and a lot of patience.
Scalping
The scalping strategy involves attempting to make profits by executing many small trades over a timeframe as a way to accumulate gains.
This form of trading involves constantly monitoring the market, making decisions quick, and can be very profitable (or otherwise) with the right (or wrong) approach.
It also involves a great deal of technical analysis on the trader’s end.
In the end, traders should always make sure that their strategy fits their risk tolerance.
5. Start Trading with Small Amounts
As a beginner, it makes sense to start trading with small amounts. Only invest what you can afford to lose, and use proper risk management (like stopping losses) to limit your losses.
Overall, with practice, anyone can become a successful trader.
