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The best guide for cryptocurrency trading
You are not late to the party. In the last few years the interest in crypto trading has surged. The opportunities are many, but so are also the downfalls. We, Cryptoholics, guide you to the best way of cryptocurrency trading.
There are many different ways of trading, many of which have their root in regular trading of stocks. Fundamental and technical analysis are two of the most common ways of trading stocks. This also applies to crypto. At Cryptoholics.com, we will guide you to the best ways and tools that you need to start trading crypto.
Cryptocurrency Trading — What Is It, And How Does it Work?
Interested in cryptocurrency trading but don’t know where to start? You’re not alone. Since the launch of Bitcoin in 2009, the cryptocurrency market has exploded — and people want in on the action. But the world of crypto can be a confusing place if you’re brand new.
Cryptoholics covers all things related to cryptocurrency trading for beginners. We have everything you need to know about investing in cryptocurrencies, interacting with the market, and making smart investment strategies.
What Is Cryptocurrency Trading?
Cryptocurrency trading is the act of buying and selling cryptocurrency on an exchange. The idea is that by speculating on price movements, you can cash in on short-term fluctuations.
You can either trade one type of cryptocurrency for another — for example, by converting Bitcoin (BTC) into Ethereum (ETH) — or you can trade cryptocurrency into fiat money, which is a currency that doesn’t have inherent value. Most national currencies are fiat money, such as GBP, USD, and EUR.
Buying and Selling Cryptocurrencies Via a Crypto Exchange
Unlike CFD trading, you need to own the underlying asset if you want to trade cryptocurrency via a crypto exchange. There are more than 6,000 cryptocurrencies, and not all of them are available from every exchange. Fortunately, big names such as Binance and eToro offer a huge variety of assets.
You can buy your chosen currency from the exchange itself and store them in your digital wallet, where you can hold them until you choose to sell.
Using a cryptocurrency trading platform isn’t for everyone. The account fees can be high, and many platforms can seem confusing at the start.
If you’re a beginner, consider looking for an exchange that offers a cryptocurrency trading simulator. It acts as a mini cryptocurrency trading course to help you get to grips with the technology.
CFD Trading on Cryptocurrencies
Another popular form of cryptocurrency trading in the UK is trading a contract for difference (CFD). This leveraged financial product enables you to speculate on price movements without having to own the underlying asset.
Let’s say you’ve noticed that the price of Bitcoin Cash (BCH) has climbed rapidly over the last couple of days. You want to invest in BCH but don’t hold any Bitcoin Cash tokens.
The solution? CFD trading on cryptocurrencies.
When you buy a contract for difference, you enter into an agreement between a buyer (you) and a seller (the CFD provider). The contract states that you will pay the seller the difference between the current value of an asset and its value at a fixed point in the future.
If the difference is negative, it means the asset’s value has decreased, and you’ll be out of pocket. If the asset’s value has increased, however, the seller will have to pay you the difference.
You have two options when buying a CFD. You can either ‘go long’ if you think a currency will gain value or ‘go short’ if you think it’s going to lose value.
How Do Cryptocurrency Markets Work?
For many people, one of the most attractive aspects of the cryptocurrency market is the fact it’s decentralised. It’s not under the rigid control of a central body such as a government or bank.
Decentralised finance (known as DeFi) is becoming increasingly popular. Some people are growing way of centralised financial services and markets due to unnecessarily high fees and the potential for exploitation.
The crypto market isn’t affiliated with a particular country, so there are no cross-border fees when making crypto transactions online. The market is 100% digital, consisting of a network of wallets and exchanges.
New transactions within the market get stored on the blockchain — a virtual register that logs and encrypts sensitive data.
What Moves Cryptocurrency Markets?
The cryptocurrency market is known for its volatility. Back in 2017, the first market-wide bull run sent the prices of major assets soaring, in some cases by over 30,000%. This sort of fluctuation is almost unheard of on the stock market. So, what moves the cryptocurrency markets?
The relationship between supply and demand is the most important factor that moves crypto markets (and any market, for that matter).
Let’s use Bitcoin as an example. The total number of BTC tokens has capped at 21 million, and there are currently around 19 million in circulation. As the supply gets smaller, the demand for tokens is likely to increase, thus driving up the price of BTC.
A cryptocurrency’s market capitalization rate, commonly known as a market cap, is a handy way to measure the popularity of an asset. A market cap is a number that tells you how much fiat money has been invested in each crypto.
You can work out the market cap by multiplying the price of one token by the total number of tokens in circulation. For example, let’s say the price of an altcoin is $50, and there are 20 million tokens in circulation. We’d multiply 50 by 20 million, which gives us a market cap of $1,000,000,000.
Many people look to the media for cryptocurrency trading tips, and the portrayal of different cryptos in the media has a huge role in moving cryptocurrency markets.
The influence comes from traditional media outlets and social media — like when Elon Musk drove the Dogecoin boom with a single Tweet.
The most popular cryptocurrencies typically integrate well with existing technologies, such as exchanges and wallets. When PayPal reported it would support Bitcoin, Litecoin, Ethereum, and Bitcoin Cash, the integration had a noticeable effect on the prices of all four cryptocurrencies.
Events such as crypto updates, regulatory unrest, security hacks, and the coronavirus pandemic can also cause the crypto market to move.
How Does Cryptocurrency Trading Work?
Cryptocurrency trading works by enabling you to speculate on price movements. You will need to open an account with a regulated brokerage or exchange to start trading cryptocurrency.
What Is the Spread in Cryptocurrency Trading?
The spread refers to the difference between the buying and selling price of an asset, also known as the offer and bid prices.
When you initiate a trade, it’s called opening a position. Every time you do this, both of these prices will be quoted. You can choose which of these you want to trade at, depending on whether you want to open a long position (trade above the market price) or a short one (below the market price).
Like CFD trading, spread betting is a way of speculating on whether the price of a currency will rise or fall.
What Is a Lot in Cryptocurrency Trading?
Because the value of different cryptocurrencies can vary hugely, it’s common to trade in lots. These are batches of crypto tokens used to standardise the size of each trade.
What Is Leverage in Cryptocurrency Trading?
Leverage is a way of taking advantage of price movements while gaining greater exposure to the cryptocurrency market. You can put down a deposit (margin) representing a fraction of the full trade while your provider loans you the shortfall.
When the trade closes, your potential profit or loss is calculated based on the full trade. It means you could earn back more than you stake — but you could also lose more than you can afford.
What Is Margin in Cryptocurrency Trading?
Margin is another word for deposit. The amount of money you put down on a leveraged position is expressed as a percentage of the full trade.
What Is a Pip in Cryptocurrency Trading?
Pip stands for ‘price interest point’ or ‘percentage in point.’ It refers to the smallest possible price movement, usually quoted as 1/100 of 1% (e.g., $0.0001).
What Is KYC/AML?
KYC stands for ‘know your customer,’ and AML stands for ‘anti-money laundering.’ You’ll probably see these abbreviations on your chosen trading platform. They refer to regulatory processes that require financial firms to onboard, verify, and monitor their customers.
Cryptocurrency Trading Steps
Step 1: Create an Account at a Cryptocurrency Exchange or Broker
To start trading cryptocurrency, you’ll need to create an account at a reliable exchange or broker. If you want to trade a particular asset, check that your chosen platform offers this before opening your account.
You’ll need to provide some personal details and verify your identity to create your account online.
Step 2: Deposit Money into Your Account
Once you’ve created your account for your chosen cryptocurrency trading software, you’ll need to add funds to your digital wallet. You can do this by connecting your bank account and transferring money across.
Step 3: Choose Which Cryptocurrencies to Invest in
The next step is to decide on the assets in which you want to invest. Big names such as Bitcoin and Ethereum are always popular choices, but many altcoins could prove profitable investments.
Step 4: Decide on Your Trading Strategy
The right cryptocurrency trading strategy for you will depend on factors such as your experience level, your appetite for risk, and the amount of time you can devote to trading.
Step 5: Store Your Cryptocurrency Safely
The way you store your cryptocurrency will depend on whether you want to trade frequently or hold long-term positions. If you’re going to be regularly trading, you’ll need to store your funds within your trading platform.
If you want to hold, it’s best to set up a secure hardware wallet that enables you to store your cryptocurrency on your device, even when you’re not online.
Cryptocurrency Trading Strategy
A cryptocurrency trading strategy is designed to maximise your chance of making a profit. Examples of trading strategies include:
- Day trading, when a trader buys and sells a cryptocurrency within the same trading session
- Scalping, when a trader opens and closes a series of very short-term positions (usually every 1 to 15 minutes)
- Position trading, a long-term trading strategy that involves holding positions for weeks or months
- Swing trading, a strategy that relies on profiting from opportune price changes (swings)
Cryptocurrency Trading Summary
Cryptocurrency trading can be an excellent way to capitalise on this fast-moving market. With thousands of cryptos at your fingertips and the ability to trade 24/7, it’s an increasingly popular method of investment — even for people with no trading experience.
Although the learning curve can be steep, we hope our cryptocurrency trading guide has helped you take the first step towards a crypto strategy that works for you.
Cryptocurrency Trading for Dummies: FAQs
What Drives the Price of Cryptocurrencies?
The difference between the supply of and demand for cryptocurrency is the biggest factor that drives the price of cryptocurrencies. When more people want to buy the asset than sell it, the price increases to reflect the scarce supply. When more people want to sell than buy, the price will drop.
What is Cryptocurrency?
Cryptocurrency is a digital asset that’s stored online. It encrypts sensitive information to create an anonymous record of trades and transfers.
What is a Blockchain?
A blockchain is a digital ledger that stores data in the form of blocks. The technology acts as a chronological database. Each block of data can be linked together to create a record of information, such as cryptocurrency transactions. It’s accessible to anyone with the computing power to decrypt the data.
How Much Does it Cost to Trade Cryptocurrency?
The cost of cryptocurrency trading will depend on your chosen brokerage. Different platforms charge different fees depending on factors such as the size of your trade.
Do You Pay Tax on Cryptocurrency Trading?
If you made a profit of more than £12,000 by trading cryptocurrency, you would need to pay capital gains tax in the UK.
Is Cryptocurrency Trading 24/7?
Unlike the stock market, the crypto markets are open 24/7. That means you can trade at any time of the day or night.
What are Cryptocurrency Trading Bots?
A cryptocurrency trading bot is a form of algorithmic cryptocurrency trading that automatically makes trades on your behalf. The bots use artificial intelligence (AI) to respond to market changes on a second-by-second basis.
The use of auto cryptocurrency trading bots is quite controversial, as some traders believe they can inflate the market unfairly.
What Crypto to Buy?
The best crypto to buy depends on whether you want to make quick trades or hold long positions. If you choose to hold your cryptocurrency, you should choose an asset you believe has great long-term potential.
Keep an eye on the cryptocurrency trading signals to find assets with strong underlying technology, robust regulatory compliance, and a clear growth plan.