◼️Introduction to What Is Cryptocurrency Trading For Beginners
✔️. There are a lot of details on how to trade crypto available on the internet that may end up confusing even the professional traders, talk more of beginners. We created this guide to cryptocurrency trading for beginners updated for 2021 in order to make it easier to understand.
✔️. Here we will talk about everything you need to learn before you start trading cryptocurrencies. After reading this information, you will have first hand information on how to buy and sell digital assets.
◼️What is cryptocurrency?
✔️. Cryptocurrency also called digital currency, cryptos, virtual asset, or digital asset all these are currencies in digital forms. They can also be used in the same way we use traditional currencies. Just as fiat currencies can be traded against one another on the platform’s that trade on different traditional currencies (foreign currencies), digital currencies can also be traded in pairs on platforms specialized in cryptocurrency exchanges.
◾ The difference between Fiat currencies and cryptocurrencies
✔️. Unlike traditional currencies like the Canadian dollar, digital currencies are not managed or controlled by any authority. They are secured by using complicated cryptography and a form of online ledger known as blockchain. It is then shared to those who are interested in having a copy.
WATCH HOW BLOCKCHAIN WORKS BELOW
◼️History of cryptocurrency
✔️. Crypto currencies have been in circulation for more than two decades in experimental forms, but the first to be successfully released was Bitcoin.
Satoshi Nakamoto (pseudonym) created bitcoin, in October 2008 released A Peer to Peer Electronic Cash System, its whitepaper known as “Bitcoin: and launched the network in January of 2009.
Bitcoin has created a new crypto coin that can currently be bought and traded on cryptocurrency exchanges globally.
Besides Bitcoin, there are other acknowledged cryptocurrencies like Ethereum and Tether, Ethereum is presently behind Bitcoin in terms of network value; and Tether is the leading stablecoin also in terms of network value.
✔️. Stablecoin is known as a digital asset whose value is connected to the value of a fiat currency to prevent the untamed price increase that is prevalent with other crypto currencies. A great number of successful and professional cryptocurrency traders make use of stablecoins to mitigate their trading plans.
Presently, the number of cryptocurrencies listed on CoinMarketCap are more than 8,000, CoinMarketCap is one of the leading data aggregators for the cryptocurrency market.
◼️ Cryptocurrency Investment Versus Trading
✔️. As you gain knowledge on how to buy and trade cryptocurrencies, you should know the difference between crypto trading and investing. the difference, Which is better among the two? And, how to fully utilize the differences to make your trades more efficient? They may look as if they are the same but they are quite different.
The only similarity between them is the end goal which is making profit from your activities. They are different in terms of time frame, results from trading activities are seen within a short and medium period of time (from a couple of minutes, hours, days or weeks). But with investing, it is a long period (from months to a few years or more).
As a new trader, you will probably go with a trading strategy that is medium to long-term trading and investing, this will require you to spend more time to research and analyze your trades before you embark on it.
◾Crypto market 🆚 Stock market
✔️. We’ve had the stock market around for a long time now, and there are lots of articles on the topic. So what are the differences or similarities between the two?
◾Similarities between the crypto and stock market
▪️ Both Stock trading and investing tools are almost the same. This is true specifically for technical traders that are using tools like charts to analyze the market. You can make use of those same tools to perform TA (Technical Analysis) for trades on any of these two markets.
Assets are designated using traditional currencies. The digital market may be new and unfamiliar with the assets created to append the current financial system. Nevertheless, the denominations in the marketplace are still considered important compared to traditional currencies similar to the stock market.
▪️Both trading and investing strategies are the same. In the crypto market, traders can decide to trade, swing, or position trade. They can also choose to buy and hold their assets for the long term. Also, traders and investors in the stock market can do the same.
▪️Similar market products. The stock market has been here for decades, leading to new products like derivatives and techniques like using leverage to inflate profits and losses. The same techniques and products have been transferred over to the new age digital currency market. Currently you can trade Bitcoin futures, leveraged tokens and options. You can also make use of leverage on most of your trades on most acknowledged cryptocurrency exchanges, like BitMEX, Binance, or Bitfinex. The complete list of virtual asset exchanges with leverage trading here.
✔️. Take note: DO NOT partake in cryptocurrencies trades with leverage unless you have complete knowledge of what you are doing and the risks involved.
◾ Differences between the stock markets and virtual markets
▪️Market volatility. With regards to its long establishment, the stock market is more stable and less fickle. Meanwhile, the crypto market is used to wild price changes. It is quite normal to see a double digit percentage change in a few hours.
▪️Market maturity. Time is an essential factor in trading. The stock market has been around for a longer period of time, meanwhile, the digital market has only been around a decade. That’s to say that the market value and trade volume in the stock market is bigger compared to that of the digital market. The shorter time spent in the market also adds to the wild fluctuation experienced in the crypto market.
▪️Market assets. In the virtual market, you invest in the idea, technology or coin while in the stock market, you invest in the listed company shares by buying their stocks.
▪️Regulations. Because the stock market has been here for ages, there was enough time for regulators to develop and carry out rules and regulations managing the market’s conduct. This helps in the little volatility we earlier talked about. But in the case of the cryptocurrency market, it’s different. Regulators are still in the process of understanding the emerging asset class, and this lack of appropriate regulations are part of the reason for the market’s untamed nature.
◼️Why trade cryptocurrencies?
✔️.Even though cryptocurrencies seem to have more negatives and less positives compared to the stock market, why would you still want to venture into digital assets? Below are a few benefits of digital currency trading.
◾Benefits of cryptocurrency trading
▪️24-hour trading, compared to the stock market that opens and closes at a particular time, the cryptocurrency market is always on standby. You can trade cryptocurrencies at all times or even make use of trading bots and let your trades run round the clock.
▪️Market volatility. This may look both as a negative and a positive feature. In the first section, we talked about the negative, now let’s look at the positive. Traders different from investors gain a lot from market volatility. The digital market has this in it’s assortments, this means that as a trader, you will get greater trading advantages with the cryptocurrency market as compared to the stock market.
▪️Privacy and anonymity. If you’re someone that is fixated on your right to privacy, then cryptocurrency trading will suit you. In the crypto market you are granted access to decentralized cryptocurrency exchanges. These allow you to trade with your own assets without having to submit your identity online. However, there are centralized trading platforms if you have no problem with sharing your information and having the platform storing your digital assets.
▪️The multitude of assets. Not minding the limited time since it entered the market, the crypto market has grown so fast that traders now have access to similar stock market products, that includes options, futures, swaps, leveraged tokens, CFDs (contracts for difference). Going for; ‘call’ it or ‘put’ it, long or short. The different derivatives available on the stock market are currently available in the crypto market or will soon be.
▪️ Easy account opening. In crypto, there is a thin hindrance to entry. Creating an account is very easy and simple in an exchange and to start trading is a matter of minutes. To tell you how fast it is to be on board.
◼️Cryptocurrency trading techniques
✔️. There are 2 primary techniques you can use to analyze and evaluate digital currency. These techniques have been around for decades and have successfully been used for traditional financial assets. They are the Fundamental Analysis (FA) and Technical Analysis (TA). They can be used individually but they are often used to complement one another.
◾Fundamental Analysis (or FA)
✔️. FA this is how a trader makes use of both the economic and financial factors and how they affect a specific asset to determine the value of an asset. With the help of FA, you will be able to determine if an asset is either overvalued or undervalued at the valuation presently. If you can get the correct answer to that question, you can then decide either to invest or not to invest, when, and for how long you want to keep the investment.
Fundamental analysis for virtual currency has to do with evaluating two essential factors; on-chain and off-chain metrics. On-chain metrics have to do with; wallet addresses, network applications, network hash rate, network fees, token/coin issuance rate “inflation or deflation”, and transactions.
However, with digital currency, most of the networks are made public like Bitcoin and Ethereum granting easy access to these on-chain factors.
Off-chain metrics are basically; exchange listings, community engagement, government regulations and more.
◾Technical Analysis (or TA)
✔️. Technical analysis is an aspect of trading that has to do with the idea that a trader could predict an asset’s future price movements, with reference to its historical price action. TA uses a very large number of technical indicators to accomplish this, which includes trade volume, moving averages, trend lines, candlesticks, chart patterns, etc. After a technical analysis is carried out, a trader should have seen trading opportunities and a potential entry point.
Digital currency technical analysis is suitable for every trading timelines, be it, day trading, scalping or long-term investments.
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▪️FA 🆚 TA – which is better?
✔️. Between FA and TA which is better entirely depends on the trader profile. If you want to be a trader that gets in and out of trading positions many times a day (for example day trader)? Then crypto technical analysis will be the best option for you. Or rather do you prefer to do more research and make informed bets every time (for example swing trader)? Then a little bit of both is the way to go.
✔️. As a trader, there can never be too many tools in your arsenal. Using both FA and TA will assist you in identifying the best trading and investing opportunities in the virtual market. The reason is the 2 techniques complement one another in so many ways.
For example, you can make use of FA to determine if an asset is worth investing in. However, what you can not determine with FA is when is the right time to invest. For this purpose, you will have to make use of technical analysis. Same way if you are making use of TA to figure out future price movements for a particular asset, you can also use FA to confirm whether or not the current price trend will continue.
Hence, there are advantages to using any of these two techniques over the other at different times in your research, but it’s advisable to use both in order to get a complete picture.
✔️. Just like the conventional financial instrument markets also in the Cryptocurrency market, there are two classes: the spot and the derivatives markets.
◾Crypto spot market
In a crypto spot market, assets can be bought or sold on the spot, meaning you can get it “on the spot.” When you buy Bitcoins, you get the coins at once, payment is also settled immediately.
Two types of traders makes up the spot market:
▪️Makers are initiators of trades. Makers put a list of potential trades on an exchange. For example, when you want to sell your Ethereum coins, you need to open a trade at a particular price, and invite a potential buyer to take those orders.
▪️Takers on the other hand are traders that fulfill orders. Just like the name, these traders “take” orders that are already there and fulfill them.
Makers create liquidity for the marketplace. Makers and takers are on both sides of the trading of a coin. We have makers for buy or sell orders, and at the same time, takers for both buy and sell orders. Available orders which are yet to be fulfilled are recorded in the order book ledger. For example, if you are a buying taker, you can go through the order book and decide to fulfill (take) an order that is already there or put up an order. The Exchange will automatically pair your purchase order with a sell order that’s already there.
◼️Crypto derivatives market
✔️. The cryptocurrency derivatives market is made up of financial instruments whose value relies on a digital currency’s value. These derivatives may also be based on other derivatives’ value and form multiple tiers.
▫️The derivatives are basically contracts of two or more parties, with these contracts get their worth from underlying assets like Bitcoin, Ethereum, or other digital assets. Just like in the traditional stock markets, there are many derivative products in the crypto sphere.
◽Common crypto derivatives examples of common crypto derivatives are options contracts, contracts for difference (CFDs), futures contracts, leveraged tokens, and token swaps.
▪️Take note: Derivative instruments are advised to be used only by professional crypto traders.
◼️Cryptocurrency trading strategy
✔️. For you to be successful in digital currency trading, you will need an efficient trading strategy.
▪️What is a trading strategy? A trading strategy is a simple and straightforward plan that you will follow when carrying out your trades. It includes the kind of assets to invest in, your investment size and the frequency of your trades.
Here we will talk about some of the most common digital trading strategies. But bear it in mind that you can always make your own strategy that will work for you. Your personal strategy may be based on these broad strategies or something entirely different.
◼️ Why a trading plan is needed
✔️. These are reasons crypto trading strategy is necessary for the success of your trades:
▪️It’s a map. Having and maintaining a trading strategy is the same as having a map. It serves as a direction for your trades, informing you when to trade, how to trade, and why to perform a particular trade.
▪️Keeps emotions at bay. One of the greatest challenges traders face is the intrusion of feelings and emotions. These become an issue when an asset’s price starts going in the opposite way to a bet. In digital currency, this happens so often that it easily leads to an emotional disturbance. Successful traders have learned to separate their emotions from their trades by sticking to their trading plans.
▪️Risk management. To have a good trading plan you have to do an intensive research necessary to create one, and part of that research involves the risk factor to consider for every trade. To identify risk is the first step towards risk management.
▫️These Below are some of the famous strategies used by highly professional traders and investors:
▪️Day trading and Scalping
✔️. A crypto day trading strategy enables the trader to take full advantage of digital currency assets’ price volatility. As stated earlier, digital assets are extremely volatile presently, this works very well for a day trader.
The day trading strategy has a lot to do with numbers. A day trader makes multiple trades in a day, buying low and selling high making little profits that add up to a large amount by the end of the day. Actually, sometimes it gets hard to achieve this manually. To succeed with this strategy, you should consider automating your trades by using trading applications or Digital trading bots like Coinrule.
✔️. Take note: It is not advisable as a beginner for you to start your trading journey as a day trader. This is because this strategy requires you to make fast decisions, for this reason, there is little or no time for research between trades.
▫️Scalping; this is a trading strategy where traders get profits off a small price change that is a part of day trading but basically involves concise trading periods. Think maybe for a few minutes or more.
Be it day trading or scalping, trades may end up in wins or losses. The idea is to ensure that your winnings or losses ratio is in your favor. When you get more wins your strategy is considered a success.
✔️. Time varies in swing trading. Meanwhile when it comes to day trading and scalping, traders basically open and close positions many times in a single day. In swing trading, this occurs within a longer period (from days, weeks, months or more).
A digital swing trader objective is to take advantage of an incoming or ongoing trend. This strategy is sometimes referred to as “buying the f’n dip” ( BTFD) in the digital market. Simply put; buying when it’s vay is on the down side and selling when the value is at the high side. Applying both FA and TA techniques is important when using this strategy.
▪️Position trading (HODL)
✔️. This strategy is also called following the trend or trade trend, this strategy has to do with long-term investing in assets. An investor will normally buy or invest in an asset when the price is low and sell when the value is high, not so different from other strategies; the only difference there is the time frame between opening and closing a position.
Trades which are set up using this strategy could take months or sometimes years. This is the best trade plan or strategy for traders who favor a more hands-off approach. This strategy can also be called (or Hold On for Dear Fife) ‘HODL’ in digital currency. The term was obtained from a play on the word ‘hold’, to buy and hold. A trader would invest in a coin and hold it even when the prices are dropping. Such a trader would then be known as a ‘Hodler.’
▪️Margin trading (trading with leverage)
Margin trading can not be called a trading strategy but rather ;a trading method. This trading method was copied from the traditional stock market, whereby a trader uses borrowed capital to open positions on a trading platform.
As expected, the results from trading on margin are greatly dilated to any direction of the trading position. When you win, the gain is very big, and it goes the same way when you suffer a loss.
✔️. When you trade digital currencies with margin, you will come in contact with these common terms; margin, leverage, and liquidation. Margin this is the initial amount you stake in a position. Leverage is the capital borrowed to open a larger position. Liquidation is the price gotten when a trade closes and the price moves against your position.
The bigger the leveraged amount, the closer is the liquidation price to the entry amount.
To get a better understanding of leverage, let’s say you enter a trade with 3x leverage, that’s to say that the position of your trade is 3 times the size of capital you staked from your own personal money which is the margin. Most times, the platforms with margin trading options offer a leverage of up to 100x, which is a risky ‘game’ and not advised for beginners.
✔️. It’s close to impossible to talk about crypto trading without talking about risk management in virtual currency trading. It is a very important part of your success journey. Risk in digital trading refers to the chance of getting unfavorable results.
You may have been informed that trading virtual currency is risky, which is true, but it is the same for trading other financial instruments, which includes stocks and bonds. The only difference is in the level of the risk involved.
There are various kinds of risks, here we will go through those risks related to cryptocurrency trading.
▪️Market risk. Maybe the highest widespread risk of all time is the risk of a given asset’s market price or the overall crypto market unexpectedly moving and negatively affecting your trade position.
▪️Liquidity risk. This talks about a situation where you are not able to exit a trading position. Basically this happens when you are unable to get a buyer for your asset.
▪️Legal risk. This is when a government regulation or policy negatively affects an asset on a trading platform. This could result in liquidity problems if buyers for your asset are restricted from purchasing it. Again if a trading platform is restricted in your jurisdiction, you may end up losing your money kept in the exchange.
▪️Operational risk. It is the risk that occurs when a trader is not able to perform a trading activity like opening or exiting a position. This could be because of a failure on a trading platform or impairment on a trading application or more.
▪️Systemic risk. This loss resulted from a failure in the whole trading system. Closely connected to the market risk, but this one is very crucial given that it is not just caused by the market downturn but also the impairment of crucial systems in the marketplace. Let’s talk about the 2008 financial crisis. That was a systemic failure that resulted in a market meltdown.
▪️Security. This is really important in digital currency. This factor should not be compromised. A trading platform should have the best security put in place to safeguard its assets and those of its clients. In addition to this, there should be an insurance policy for an extra layer of assurance.
▪️User experience. The easy movement in a trading platform should be considered, specifically for a beginner. You would want to easily find things, easily place orders, and easily be able to keep track of your trades. Basically, exchanges that are run by companies are much more user-friendly, compared to decentralized exchanges.
▪️Customer support. Although a trading platform may look easy to use, it is also necessary to consider how easy it is to get in touch with the customer care desk. You can visit Reddit and other relevant sites to read reviews about the customer support efficiency of a platform. This may be helpful when you have an issue.
Making Your Decision On the Best Crypto Exchange To Used Based On The Above Risk Management:
✔️. Coinbase is a suggested digital currency exchange for beginners who value security and convenience. The platform ensures that the buying and trading of digital currencies is easy and simple, at the same time offering high levels of security and transparency. Besides it’s user-friendly interface, it provides trading, institutional benefits, and crypto storage to clients in more than 100 countries.
Meanwhile Coinbase fees may be more expensive to other platforms, however, since the firm is publicly listed on the Nasdaq and is regulated in the United States, it is an ideal fit for customers who waver to buy or trade crypto. So you have to pay a greater fee in exchange for simpler deposit and withdrawal options.
But those traders who want to go with manual trading can decide to go with Binance for; low charge fees, various order types and payment options. In addition, Binance is more favorable to experienced users with extensive charting options, with enough advanced indicators and overlays. There are more than 500 digital currencies for trading and lots of transaction types to select from.
Aside from the fact that Binance is user friendly and offers three levels of service made according to trading expertise. Although, it is not as easy to make use of as the Coinbase platform and it is more in line with those already familiar with spot trading.
Here is #Binance Guides: How to Buy Crypto with a Credit or Debit Card
▫️Furthermore, the customer experience is good for a beginner. We have Classic (previously known as basic) and Advanced user interfaces for both beginners and advanced traders
✔️. Classic trading interface on Binance platform. Suggested for beginners.
◾Advanced trading interface on Binance exchange. Suggested for pro.
✔️. Binance presently has the largest selection of deposit and withdrawal options than any other platform and the biggest geographical coverage as well. You also get to download a mobile application on either iOS or Android and trade on the move.
✔️. Hopefully, you have had more information on virtual currency trading and investing than you did at the beginning.
◼️Choeck Out Our Crypto Trading | FAQs
◾What is the best Cryptocurrency exchange for beginners?
✔️. Binance. Binance has some of the lowest trading fees in the market, offers a complementary mobile app for clients to keep track of asset prices on the go, has an extensive educational resource section and haa one of the largest selection of payment methods. Besides, it follows strict safety and security measures. These reasons makes it ideal for a beginner.
◼️ What is the best cryptocurrency trading strategy?
✔️. Which trading strategy is better totally depends on your goal. Looking for short term profits, then scalping and day trading is the best strategy for you. But if you are looking for long-term profits, you should go with position trading or holding your coins over a long period (HODL).
◼️ Is trading cryptocurrencies profitable?
✔️. Crypto trading can be very profitable, when done correctly. Take these steps, strategize, learn tips shared online, this will help to direct you in making profitable trades. An important point: Plan your trade, and stick by it.
◼️ How do I start trading Cryptocurrency?
✔️. Trading virtual currency is not so different from trading stocks in the traditional markets. They have similar principles but a bit different in execution.
To start trading crypto, take this very important step;
✔️. Do your research. Same as the stock market, you need to do an intensive research of the market and the assets before you put in real money.
Thank you for stopping by to read our article. Leave us a comment if you want to add anything.
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