How To Trade Cryptocurrencies?
Learn how to get started with trading the exciting cryptocurrency markets.
Trading Cryptos For Beginners
For traders who want to benefit from new market opportunities while they are still in their infancy, keeping an eye on them is essential. These changes can occasionally take the shape of entirely new markets. Even before the creation of Bitcoin in 2009, cryptocurrencies existed.
However, it wasn’t until this well-known digital currency began breaking records and reaching highs of $10,000 in November 2017 that traders began to realize the vast potential underlying the growth of these quick-moving markets. Even though more people are participating, the markets are still developing, extremely volatile, and full of opportunities for the trader willing to learn about them.
Understanding the various options is the first step in starting to use cryptocurrencies. The three most popular ways to participate are listed below, regardless of whether you think cryptocurrencies will increase in value over time or you just want to profit from daily double-digit moves.
1. Buy and hold
Early Bitcoin investors have made millions of dollars since the currency’s introduction. In late 2017, a $100 Bitcoin investment made in 2010 would have been worth over $5 million. This explains why some investors view cryptocurrencies as a long-term opportunity, especially when combined with the cutting-edge technology used.
However, deeper comprehension of the underlying technology is necessary to purchase and maintain Bitcoin and other cryptocurrencies. You first need an account with an online exchange to purchase cryptocurrencies. However, since there are no banks involved, it is your responsibility to store and maintain the security of cryptocurrencies.
Clients lost access to hundreds of millions of dollars after Mt. Gox, the first exchange to make Bitcoin available to the general public, went bankrupt, and traders lost faith in unregulated exchanges. Because of this, private digital wallets are frequently advised, allowing the owner to fully control the security of their cryptocurrency.
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2. Trade on an exchange
Speculating on the price of Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and other cryptocurrencies through an exchange is another way to get involved in cryptocurrency trading. The price of Bitcoin has skyrocketed, and as a result, there are now an equal number of cryptocurrency exchanges.
Before beginning, the most crucial task for any trader is to assess the security being offered by the exchange. Due diligence is advised before opening an account and transferring funds to these exchanges because they are not regulated like financial institutions due to the unregulated nature of the cryptocurrency markets.
A trader who is serious about trading cryptocurrencies on an exchange should consider the leverage levels and payment options in addition to the security concern. Check to see if the exchange offers margin trading, also known as leverage, before attempting to control positions that are larger than their starting capital.
Though some exchanges do provide the option, the range of available leverage can be quite wide. Since not all exchanges currently allow you to make deposits by simply using your card, a thorough examination of the available payment options is also necessary. When cards are accepted, the fees can be so high that traders would be better off using a slower but more economical bank transfer.
3. Trade with a broker
For those trading cryptocurrencies with a regulated broker is the most popular option for those looking to profit from cryptocurrency price fluctuations without having to deal with the hassle of a digital wallet or worrying about the security of their funds.
When it comes to security, funds with any UK regulated broker are protected up to £50,000 for the unfortunate event of an insolvency. It is worth noting that some brokers offer higher protection than that at no extra cost.
Leverage is the broker’s second advantage when trading. Trades can now be made on a variety of cryptocurrencies with exceptional leverage thanks to the growing number of cryptocurrencies being offered by conventional brokers. No matter how much or little money you have to start with, this is a great way to increase your winnings. Bear in mind, though, that leverage has two sides and should only be used sparingly to prevent further losses.
4. Trading examples
Let’s take a look at a couple of examples to find out how trading Bitcoin and other cryptos works in practice.
Example of trading Bitcoin
Your research in the cryptocurrency markets suggests that the price of Bitcoin will go higher. You open a long position (buy) of 0.1 Lot on Bitcoin (BTC/USD) at $40,041. This corresponds to one-tenth of a Bitcoin and your profit or loss is calculated as the difference between the opening and closing price divided by 10.
In a few days the price rebounds and reaches $44,560. You decide to close your position and lock in your profits. Well done! You made $451.90.
After conducting thorough research, you’re convinced that the most recent rally in Bitcoin prices is about to fizzle.. You decide to place a trade confident that the BTC/USD price is going down in the near future and sell 0.1 lots of Bitcoin (BTC/USD) at $45,550. This corresponds to one-tenth of a Bitcoin and your profit or loss is calculated as the difference between the opening and closing price divided by 10.
After three hours fresh buying from large institutional investors push the price to new heights at $48,100, where your stop loss order is triggered. Your loss is the difference between the opening and the closing price. As a result, after stop loss order gets hit, your loss is $255 before commissions.
Example of trading Ethereum
Let’s suppose that after analysing the market, you’re confident that Ethereum prices are about to go up and hit a new high. Your technical analysis suggests that a good entry point is around $2900. You open a trade and buy 1 lot of ETH/USD, which corresponds to one Ethereum.
Despite your conviction, Ethereum’s price reverses and trails lower towards the $2,600 mark. You decide to exit the trade and close your position. Your loss is the difference between the opening and closing price. As a result, after closing the trade you lose a net of $300 before commissions.
In an alternative scenario, your analysis points that Ethereum prices are about to crash after news about a big wallet hack break. Your market view is that prices are about to drift lower and you open a trade and sell 1 lot of ETH/USD, which corresponds to one Ethereum at $3,300.
As the news about the hack spreads, Ethereum’s price sinks lower towards the $2,900 mark. Your take profit order at $2950 gets hit and your position gets closed. Your gain is the difference between the opening and closing price. As a result, after closing the trade you gain $350 before commissions.