We all have heard about crypto trading in one or another way. But do we know how to trade in these financial instruments?
Trading has been a fundamental concept of the economic market where a trader buys and sells assets to earn profit. The trading or investing could be in any manner, be it Stocks, Commodities or any other option of Forex instrument.
Crypto trading is the digital trading of goods and services. For example, in online investing, the companies issue online tokens which are traded. Real cash is required to exchange cryptocurrencies for goods and services. Cryptocurrency works on blockchain technology, a decentralised technology spread over many systems and manages and records transactions.
Bitcoin is the most popular cryptocurrency globally, with a total value of $653 billion U.S. dollars. Digital currency has grown with some lows and managed to have a high value. Not only Bitcoin but there are more than ten thousand other cryptocurrencies in the digital market to invest in. These digital currencies continue to multiply, raising money through initial coin offerings (ICO). Cryptocurrencies hold a total value of $1.3 trillion as of July 2021. The most-traded Cryptocurrencies of the market are :
- Binance Coin
- USD Coin
These are the most traded cryptocurrency in the digital market due to a variety of reasons. Since its inception, the value held by Bitcoin has been so high that traders believe in purchasing them before the prices go higher. The government or central banks are not involved in trading, which diminishes the chance of lowering the money value due to inflation. Moreover, it is a secure system of trading, using blockchain technology decentralising all the processing. As a result, they have no interest charges and keep the money moving.
How to Trade in Cryptocurrencies?
An extremely volatile asset, cryptocurrency is traded worldwide. If the digital currency is traded with all details and knowledge, the trader can never incur a loss. The most common goal of crypto traders is to earn profits. The trader needs to be active while trading in cryptocurrency to make the trading less risky. One of the ways to select cryptocurrency to trade in the market is by believing that there’s no single best cryptocurrency. Crypto is based on investors trading; for example, Bitcoin is best as a reserve asset because of its widespread adoption. Similarly, other currencies have their speciality. The thing to keep in mind while trading is that small market cap cryptos is riskier than large markets.
A trader who needs to get all the information at the tips of their fingers can read cryptocurrencies whitepaper. The best way to know in which crypto a trader can invest and earn double profits.
After getting in all the details, the trader must have a cryptocurrency wallet and an exchange for trading: a fully verified account and deposited funds which takes around a day. The trader from there on can start trading using the crypto wallet funded.
The following process is followed to start trading in Cryptocurrencies:
- Sign up with a Cryptocurrency Exchange
- Fund the account
- Start trading
The trading requires dollars or crypto for funding the account, and a trader can trade dollars to crypto or crypto to crypto.
Different Crypto Exchanges
The trader has options to choose from to start trading. With the help of these exchange platforms, the trader can trade smoothly. Binance, Coinpro, Coinbase, Bittrex, and Kraken are cryptos to crypto-focused exchanges helping in trading. Coinbase is an excellent option with exchange, wallet and a place of trading all in one. A trader can trade using more than one exchange by purchasing the coin on one exchange and then transferring it to another exchange for trading using other cryptos.
Moreover, there is decentralised trading where the trader is allowed to do direct peer-to-peer transactions. There are around thirty-five exchanges built on blockchains; for example, Uniswap is built upon Ethereum blockchain with an enormous trading volume. Though centralised exchanges dominate cryptocurrencies trading, decentralised exchanges are also growing slowly.
Advantages of Cryptocurrencies
We have got lots of information about cryptocurrency, but having quick points is the best way to make advantages impact the mind. So below listed are the benefits of crypto trading.
- Availability: Cryptocurrency is available twenty-four hours a day, not like the stock market opening and closing in a day. There are trading bots to help traders in having a smooth experience of crypto trading.
- Volatile: The market of crypto trading is not stable as the stock market; it is uncertain. This leads to unexpected benefits for traders. With lots of trading opportunities.
- Security: Cryptocurrencies are more secure; the personal data of traders is kept private. It is decentralised trading. A trader can opt for centralised trading with other parties storing the digital assets.
- Easy account opening: Account opening with crypto exchanges is relatively easy, just taking a few minutes to create an account. A fast process of opening an account.
- Multiple assets: With so much variety, crypto provides a variety of options for traders. With less time of market occupying, crypto has reached heights within a short time. It has multiple assets for trading.
The two main techniques used for Crypto trading are Fundamental Analysis and Technical Analysis. Both these could be applied independently or as complementary to each other. In addition, the techniques help in evaluating and analysing Cryptocurrencies.
Fundamental Analysis: It is a technique where both economic and financial factors affecting the asset are used to identify its market value. With the help of this technique, the valuation of an asset is done to know if it is overvalued or undervalued. This makes the decision of investment easy. It evaluates two factors mainly, on-chain and off-chain metrics.
On-chain factors include wallet address, network applications, network hash rate, token and transactions. Whereas, Off-chain includes exchange listings, government regulations and community management etc.
Technical Analysis: A technique that helps in knowing the future price movements of the cryptos. It has a number of indicators like moving averages, candlesticks, chart patterns and many more. This technical analysis at the end helps to know trading opportunities.
Cryptocurrency has two different markets for trading: a spot market and a derivatives market.
Crypto Spot market: In this market, the assets are purchased and sold on the spot. Say, for example, if a trader purchases Ethereum, the coins are immediately delivered and settled as well. The spot market has two types of traders, one maker and the other taker. Makers are the ones who initiate the trade. They list trade on the exchange list. On the other hand, takers are the ones who fulfil the order; they take the already existing orders.
The coin has both makers and takers on both sides, where makers bring liquidity. They both purchase and sell the orders. The orders are recorded in an order ledger book where they are fulfilled and recorded.
Crypto Derivatives market: Derivatives market consists of financial instruments whose value is based on virtual currency value. Contracted by two or more parties, the contract derives its values from underlying assets. There are multiple derivatives in the crypto market. Some of them are Futures contracts, Contracts of Difference (CFDs), and leveraged tokens etc.
Cryptocurrency trading needs a trading strategy; these strategies help to plan before investing. The trading is analysed and planned before any investment is made. The trading strategy makes a map before investment, making trading easy, guiding the trader in carrying out the trade. The trading plans help in taking the risk management so that a trader does not incur huge losses. Moreover, scalping, day trading, and hedging are good trading strategies as they make trading easier for the trader or a beginner of trading.
Crypto trading is a great opportunity for investors. Traders who enjoy trading in stock markets and other forex instruments would love cryptocurrency investing. Secure and volatile trading where the trader gets plenty of opportunities for investing and earning. A trader whose beginner can invest in this trading instrument. For sure, if the strategies are followed and techniques adhered to, the trader will benefit from manifolds. The trader can take the help of brokers to make it less hectic. Brokers like ROInvesting, Brokereo are the best in the market to trade with. They help the trader with all trading techniques with the minimum time consumed.
Cryptocurrency is a new exchange platform, and I would suggest beginners invest in these digital currencies as they have grown amazingly well in the past couple of years.