Cryptocurrency trading has created a buzz among traders as cryptos gradually become a more viable financial transaction medium. In recent accounts of events, the crypto market is soaring at its all-time high, drawing mass attention and trust, including from giant companies and countries that used to doubt the market. More people want to trade Cryptocurrencies and make profits. This article will take beginners through a learning curve, highlighting all the essentials a beginner should spend time learning in-depth.
What is Cryptocurrency?
Cryptocurrencies are the virtual equivalence of real money, designed to resolve common issues associated with online money transactions. Built on top of blockchain technology, which creates and keeps records of all crypto transactions, cryptocurrencies flow in the market, leaving a trail of smart contracts containing those records reachable via any computers linked with the system.
Blockchain is a rather complicated technology that creates decentralized structures that are unregulatable by exterior forces. It helps cryptocurrencies sustain a standard value regardless of geological impact. Since the launch of the first cryptocurrency, Bitcoin, in 2009, thousands of new cryptos have emerged with distinct goals and benefits. According to the latest statistics, over 10,000 tradable cryptocurrencies are active in the Crypto market today.
What is Cryptocurrency Trading?
Cryptocurrency trading refers to buying and selling cryptos on a crypto trading platform or speculating on price movements through a CFD trading account. So, there are two ways to trade cryptos.
CFD Trading
CFDs (Contracts for Differences) are a type of derivative, contracts whose values don’t depend on the currency, traded by speculating on the future price movements of a currency instead of directly buying it. In this trading style, traders can choose a currency available on their CFD account and place an order speculating its imminent price action.
Beyond using their margin fund, traders maximize their profit through various options, including using leverage offered by their brokers. Based on their analysis, traders can decide either to “Go Long” or “Go Shot”- the first one reflects their belief in a price hike, while the second one reflects a price decline.
Buying and Selling
Traders, instead of borrowing, buy cryptos directly from an exchange at a lower price and sell them when the price hikes. The process is rather simple than trading CFDs, involving opening an account on a crypto trading platform, verifying it with legit documents and information, adding funds to the account, buying preferred cryptos, and storing them until their prices reach a sellable position.
Each trading type comes with a distinct rigorous learning curve demanding careful study and observation of market details.
How Crypto Trading Works
Blockchain technology, which doesn’t rely on a central regulation system, tracks, maintains and secures transactions on the crypto market. It works through a network of computers, creates a smart contract for every cryptocurrency transaction by encrypting the details, and distributes it throughout the network upon completion.
This global distribution system protects smart contracts from third-party interference while updating everyone on the network about the change by sending them a copy of the smart contract. After the contract is created, the blockchain converts the transactional data into a cryptographic code and juxtaposes it with a block of similar codes.
Miners worldwide compete to solve these codes through a process called mining. Once the mining is done for a particular contract, the blockchain verifies and completes its transaction.
How to Start Cryptocurrency Trading?
An organized approach will reduce the initial risk factors and lead you to a great kick-off. Avert your eyes from the lure of money and make a smooth and steady entry. First, take time to learn the most basic concepts, including terms and jargon conventional to the crypto industry, catalysts that move the price action, strategies for reducing risks and maximizing profits, exchanges, and platforms and their price to feature comparisons, analyses, and so on, before getting into serious business.
Here is a details step-by-step guide to getting your feet wet for the first time in the crypto trading ocean:
Learn the Fundamentals of Cryptocurrency Trading
Every industry has exclusive terminology to describe associated activities and operations. Learning about different terms and jargon helps build a strong understanding of an industry. The cryptocurrency trading market has its own set of terminology. Familiarizing with them is the first right choice an aspiring trader can make. Here are a few crucial terms to start with:
Price Action
Let’s start with the heart of every trading market: price action, the indication of a price change that every trader speculates on before investing their money. Be it a trading chart, graph, or bar, everything that represents the timeline of price change for an asset shows that asset’s price action.
Analyses
Analyses are tools and methods that help traders speculate on price action to predict the market’s future. They focus on different factors that move the market upward or downward. There are three basic types of analyses:
Fundamental analysis: These are factors relating to the geolocation effect, economies of different major countries, opinions of influential individuals, and news reports that can trigger price changes for an asset.
Market sentiment analysis: Market sentiment indicates how sellers and buyers of a particular asset feel about its worth. If buyers’ desire dominates a market they will buy more volumes of an asset and initiate a price hike. On the contrary, if sellers dominate a market, they will start selling all the assets they stored, causing a price reduction.
Technical Analysis: Technical analyses are tools and features of a trading platform that help traders study the market in retrospect and analyze the price action comparing it with common patterns and tendencies a market often follows.
Pip
A pip refers to the smallest unit of price change of a cryptocurrency. In the actual term, a pip means “Percentage in Point.”
Lot
A lot is the unit to measure an asset’s volume. Traders buy their assets in lots– a large lot means a higher volume of an asset and a small lot means a lower volume of an asset.
Bid Price, Ask Price and Spread
In simple words, buyers buy cryptocurrencies on a trading platform at the ask price, and sellers sell their assets at the bid price. Brokers mention both prices on their platforms. The difference between the bid price and the ask price is called spread. A spread is the fee your broker casts on you for their service.
Margin and Leverage
Traders can borrow money from their brokers to buy a large volume of their desired asset by depositing a portion of that price. The deposited money is called a margin, which brokers keep as collateral until the trader returns the borrowed money, which is termed leverage. So, a trader deposits a margin amount to take leverage, and the broker uses the margin as collateral or security money.
Learn the Psychology of Crypto Trading
Having a grasp of trading psychology will always be an edge because trading as a profession is a great emotional roller-coaster, which iteratively tests traders’ nerves by throwing them into uncertain market turns.
Throughout your journey, all the buying, selling, or spreading decisions you make will be greatly influenced by both logical and emotional factors, like your hope for a rise, despair out of loss, desire to win, anger from repetitive mistakes, and so on.
For example, when you are scared of entering the market, you may miss a winning chance. Similarly, your greed or overconfidence can lead you to step on an imminent falling market. Losing streaks can plant the seed of despair in your mind, which will grow gradually every time you make a mistake or lose a big amount of money and eventually make you leave the market.
Traders, on their way to becoming professionals, learn how to ignore emotions treating them as ephemeral states of mind subjected to change with time.
Choose a Crypto Exchange Carefully
The crypto market is brimming with traders, marketers, and businesses. Don’t get lost among companies hawking their platforms over sugar-coated copies and prospects. Most platforms fall into two major categories- centralized exchanges and decentralized exchanges. They offer unique features at a variable price range. Here are a few of the primary features offered by popular platforms:
- Regulated or custodial exchanges come with integrated exchange accounts, whereas non-regulated platforms lack features to store traders’ assets.
- Exchanges support trading with fiat money, which means traders can buy and sell cryptos in exchange for fiat money.
- On ideal platforms, traders will find options for diverse trading styles, such as spot trading, futures, CFDs, options trading, margin trading, and indices.
- Beyond features, good exchanges offer security being regulated by government agencies and other regulatory bodies.
- Ideal platforms provide multi-language supportability.
- Exchanges have integrated systems to verify users’ identifications.
- Diverse fees for diverse accounts and styles
- Straightforward payment and withdrawal methods
Devise a Crypto Trading Plan
At this point, you need to probe your desires and goals and meditate on your trading strategies step-wise, aiming for a simple and easy start in the right direction. A great strategy, at the beginning, takes a good understanding of risk management and opportunities in different trading types. Later, the strategy matures, merging with novel perspectives gained from dealing with the real business.
The trading plans of most successful traders branch out into diverse dimensions, each with a calculative solution for an obstacle or an alternative route, but all directed towards an ultimate goal. These multi-dimensional plans with all their branches may intimidate newcomers and keep them away from making one. There is an easy solution to it.
If you are a beginner, stop delving deeper than you need. It will never be possible to set an annual profit goal and build your very first plan based on that goal. An initial strategy is about setting the initial ground, building a prototype—a basic infrastructure—maybe detailing a few do’s and do n’ts, and not bothering with what you will do after six months of failure.
Regardless of how basic or introductory a trading plan may be, the inclusion of a few essential points will expose it to border success prospects:
Setting an objective: Even after an in-depth, exhaustive, meticulous analysis of the market trend and behaviour, placing an order always comes down to responding to a hunch strong enough in reason and bias to dominate the projected risk.
Deciding on the asset to trade: After cautious vigilance over the market, make a list of your preferred assets. These are your most profitable players. You should channel your focus on them and strategize your plan based on their value, belonging economies, biases, etc.
Setting an entry rule: This is when things become serious. Never rush to enter the market, especially before making definitive entry rules for yourself. These rules can vary from others already in the market because of visionary differences between you and them. While setting your rules, be specific about what you want, and how you want to proceed ahead.
Limiting your budget: Trading is among the riskiest professions that can lead to bankruptcy. Every good plan protects or supports planners against negative outcomes. As you are up against a market more volatile than the Atlantic, you better draw your limit by drawing an ending line. To bolster the idea, fix at a constant security money. Don’t take risks beyond the security that can reduce it to negative amounts.
Clarifying the exits: Study different initiators of falling trends, those points from where the price takes a downturn. On top of it, develop an intuitive sense to identify a major market-tumbling event. As you advance with your profile, there will be times when a rising potential will spring back to become a steep fall. Use precise stop orders sourced from the indications of multiple analyses.
Retrospecting performance: Unjudged or unattended performances are valueless as they don’t surpass being just a winning or losing game. After closing out every trade, take a step more and scrutinize where things went south or started to sum up for a win. In addition, gaze upon your reminiscences of past trades to detect the emotional impacts of uncertain trades and how you tackled those moments. From there, you will find the right inspirations to trade confidently.
Risks of Trading Cryptocurrencies
Cryptocurrency trading has a few risks involved. Neglecting them or being uncautious of them can cause extreme losses. Here are a few major risk factors associated with the crypto market:
Fluctuating Market
No trend will follow a single course for a long time. An upward trend can reach a breakpoint and turn into a downtrend in a matter of moments. Being unregulated and decentralized, the crypto market is difficult to monitor. In addition, cryptos have a significantly higher price hike and fall ratio compared to other types of assets, making them riskier for traders.
Cyber Threats
Cryptocurrency trading platforms and wallets have a bad reputation for being attacked by hackers. In the most common cases, hackers take control of a trader’s account and extract all the available assets.
Developing Judiciaries
Cryptocurrency trading is banned in many countries. Regulatory bodies are still working on developing a less impregnable infrastructure. So, traders may find it difficult to get help from regulators in resolving disputes with their brokers.
FAQs
Is Crypto Trading Profitable?
The crypto market is highly volatile and difficult to speculate. To make a profit, you have to learn the fundamentals that direct the market, trading basics, and risk management systems. Trading without this knowledge will only push you towards serious loss.
How to Start Trading Cryptos?
You can start trading cryptocurrencies anytime by following four simple steps:
- Learn the basic trading procedures
- Choose a suitable broker
- Open a standard trading account on the broker’s platform
- Fund your account and place the first order
What is The Best Crypto Trading For Beginners?
The crypto market is filled with known and unknown, established and experimental virtual currencies open for trading. For beginners, picking an established crypto will be the wisest choice, as stable coins are traded in high volume showing overwhelming liquidity. Once you familiarize yourself with different strategies, diversifying your profile by trading less popular coins will become easier.
How Much Can You Earn On Cryptocurrency Trading?
The possibility of earning is as high as the possibility of losing. The very same trend that can double your investment by soaring can also take it all by dwindling. Be thorough with your research, implement risk management, and be attentive to the market determining factors. Cautiously placed orders tend to yield optimal outcomes projecting an unbound profit potential.
What Do You Need To Learn To Trade Cryptocurrency?
You can save your energy by ignoring the nitty-gritty part of blockchain technology at your beginning stage. You can always come back to learn it once you master the fundamentals. To trade cryptocurrencies, list down all the unknown terms and jargon somewhere and get through each by learning their definitions, role in the market, strategies to implement them, and analysis process. It will make you ready to trade in real-time with confidence.
Conclusion
Beginners should slow down and take one thing at a time while learning about Cryptocurrency trading. In those early trading days, they can use a demo trading account on any trading platform to practice all they have learned. Mastering the basics may take time, but it’s an unskippable step. Apart from the basics, beginners also should be aware of the emotional impact of the market and learn to cope with it. The next big steps are to pick a reliable broker and place the first trade; recommended is to buy a small volume at the beginning level. With enough experience, dealing with larger volumes will project less risk.
