Cryptocurrencies are all the rave at the moment. Everyone is looking to get a piece of the action, but some just don’t know where to start. In this guide we will explain how you can start trading cryptocurrencies like Bitcoin, Ripple and Ethereum even if you are new to the crypto world.
How does cryptocurrency trading work?
Trading currencies on the market (be them fiat or crypto) implicates exchanging the currency that is in your possession into another kind of currency and then exchanging it back when the price rises so you can end up with a profit. In fiat currencies trading, this is known as forex market trading.
Forex market trading
Foreign exchange (forex) market trading involves buying and selling currencies between traders. This basically means that you exchange the currency you own into another and then change it back later if the price has changed.
Types of trading
Long-term traders buy and hold cryptos over a long period of time, while speculating when is the best time to change them back into fiat currency. By studying price trends over an extended period of time, traders can avoid suffering losses from short term dips.
This is a good alternative for traders that believe a cryptocurrency‘s value will grow steadily over time and don’t want the hassle that comes along with short term value dips.
Short-term traders profit from short- lived price swings by buying and selling cryptocurrencies over the span of a day or a few hours.
This method is for those that would rather take advantage of the volatile character of currencies by getting in and out of a trade quickly.
What you’ll need
A cryptocurrency wallet
A cryptocurrency wallet is like a regular wallet but for cryptocurrencies. It stores them by encrypting a password that represents coins. If you are thinking of trading with multiple coins, choose a wallet that supports them.
There are multiple types of wallets with various security levels. Software wallets can be online on a website, on an app that runs on your desktop or an app on your mobile device. Although most wallet companies have implemented security features, they are still not immune to hacking attacks and other online threats.
Hardware wallets are physical electronic device with the sole purpose of storing cryptocurrencies. They usually look like an USB and are a little pricier than its software counterpart.
A cryptocurrency exchange
To start trading you first need to exchange your fiat currency for a cryptocurrency, or simply put, buy cryptocurrency. A cryptocurrency exchange is like a stock exchange or like any fiat exchange but for cryptocurrencies. Just like with stock trading, you need a bank account to access the stock exchange, the same is with cryptocurrency and wallets.
It must be mentioned that a cryptocurrency exchange is not part of a regular stock exchange. Choosing the exchange should be based on its security, liquidity, transparency, prices and reputation. The higher it scores on all these parameters, the better the exchange.
A trading platform
Although exchange platforms are used to market trade currencies, they were not built specifically for trading. So that is why it is important to use a broker that provides an online platform created for trading cryptocurrencies.
Before choosing a trading platform consider the following criteria:
Cryptocurrency diversity. The more cryptocurrencies it lets you trade, the better. It’s easy to find brokers that trade in Bitcoin and Ethereum if you are interested only in the most popular coins.
Leverage. If you are after a broker that will give you leverage for your money to help you seize a small price opportunity, then this is something you should take into account. But if you are a beginner, you should stay away from leverage until you have some more experience. While leverage can help you make bigger profits by taking advantage of short cryptocurrency movements, it can also amplify your losses.
Negative balance protection. This option keeps you from losing more money than you have invested.
Initial funds. When choosing a broker, make sure if he doesn’t require a minimum starting balance that is higher than what you’re comfortable with.
Knowing when to cash out
This is what market trading all comes down to. Knowing when to close a trade. Getting into it is easy, knowing when to get out is hard.
Cryptocurrencies tend to fall harder than they rise, and you don’t want to cash out at the wrong time. But if a trade does go wrong, you have to be ready to cut your losses by not getting out too early in case a cryptocurrency recovers.
Cryptocurrency trading can be profitable, but you have to take into account their extremely volatile nature and the risks involved with trading. A cryptocurrency’s past performance cannot predict its future, therefore be very careful in which one you invest.