Cryptocurrency trading is the initiation of operations on an exchange or by a forex broker in order to buy or sell cryptocurrency at a certain price with the intention of profiting on the rise or fall of the rate.
The basis of cryptocurrency trading is tools, terminology and methods of analysis which are similar to those used when trading currency pairs in the forex market.
The main difference between cryptocurrency trading and forex trading is:
● High volatility, especially based on news, and less opportunity for analysis.
● New cryptocurrencies are constantly appearing, and there is a lack of available history showing their ups and downs which can create strong levels of support and/or resistance.
You can start trading cryptocurrency in 7 steps:
- Study the terminology of cryptocurrency;
- Choose a cryptocurrency trading platform. Register on several cryptocurrency exchanges or with forex brokers;
- Get acquainted with the terminal and the cryptocurrency terms of trade;
- Determine your strategy for trading cryptocurrency;
- Analyze and choose your cryptocurrencies for trading;
- Based on this analysis, look for entry points into the market (this is the price at which one initiates a deal). Next, we calculate and set the maximum loss (stop loss) allowed to open a single operation;
- Wait for the right moment and start making money.
How much can you earn trading cryptocurrency?
Trading success is determined by the experience and skills of the trader in analyzing the situation on the market and predicting the direction of the virtual currency’s movement. Based on this, a trader with over one year of experience in constant trading can double his deposit every 1–2 months.
At the initial stage in the learning process, taking into account discharges and losses, a good indicator of success would be 25–50% in 3–5 months or a doubling or tripling of capital in 1 year. In this case, you need to be ready to merge 2–3 deposits, so it is a good idea not to use money received on credit or the last of your money when you begin trading.
Cryptocurrency trading strategies
1. One of the easiest working strategies for trading cryptocurrencies is using a graph to chart levels of support or resistance. As soon as these levels are analyzed and understood, experienced traders trigger previously pending orders and open a position in the direction of their movement.
With this strategy, a stop-loss is set in the opposite direction from the analyzed level with a cushion so that the transaction is not closed during a rollback. At the same time, ideally, this level should be arrived at based on good trading volume, i.e. not on the tail of a Japanese candle, but on its body. This strategy does not apply to news-based trading.
2. It is better not to place pending orders for news-based trading, since before news appears, the market is usually chaotic. This leads to the opening of positions on pending orders and the breaking of stop-losses. When trading based on news, it is better to trade cryptocurrency online and keep abreast of all related developments
3. A proven long-term strategy is one focused on the functional analysis of a specific cryptocurrency. In this case, the opening of the transaction is based on the stability of, and news from, companies that can have a significant impact on a particular cryptocurrency.
For this strategy, you need both patience and endurance, and sometimes even a good initial deposit for margin trading.
For beginners, when trading cryptocurrency, strategies using scalping and short positions are not recommended.
This is because the volatility of the virtual currency and the commission for opening a transaction can quickly deprive you of your capital.
More specific strategies are developed and tested by each trader independently in the process of learning and gaining experience in the field of cryptocurrency trading.
Cryptocurrency trading on exchanges
The purchase and sale of virtual currency can be carried out on cryptocurrency exchanges.
The main advantages of trading on cryptocurrency exchanges in comparison with a forex broker include:
● The fact of acquiring the actual asset. If the acquired cryptocurrency depreciates, it will still remain in your account;
● The ability to quickly trade in a new cryptocurrency (altcoin) that appears on the market.
● Currently, there is a large amount of both cryptocurrency exchanges and pyramid schemes pretending to be real exchanges.
In my opinion, the following cryptocurrency exchanges are worthy of attention:
YoBit — a large exchange, with a huge number of trading instruments. On the market since 2014.
HitBTC is a large cryptocurrency exchange headquartered in the UK; it has been around since 2013. I recommend it for beginners because it has a Russian-language interface and a demo account for training. There are opportunities for scalping, automated trading and to exchange for fiat money with a verified account.
Kraken, from the US, occupies one of the leading positions in Bitcoin-to-euro trading volume. Adding to this broker’s reliability is the fact that the lion’s share of capital is stored in cold wallets. Therefore, even if the exchange has been hacked, they have sufficient finances to stand on their feet.
Binance is a relatively new exchange with a large trading volume and some contradictory reviews. It is popular thanks to its available Russian-language, and intuitive interface, as well as the presence of a demo account and low commissions.
BitMex — the main advantage of this exchange is that there are record opportunities for leverage trading.
Here is a quote from the Clearinghouse blog about this type of trading:
Leverage trading is also known as margin trading. This is a form of trading in which a trader is able to borrow funds that will allow him or her to amplify any potential return from the sell or buy of cryptocurrency. Leveraging provides an individual with increased buying power, allowing them to access much larger accounts than they can with their actual account balance.
Cryptocurrency trading via a forex broker
Forex brokers are now actively adding cryptocurrency trading to the terminal, thereby creating a good competitive environment for the exchanges.
The principal differences between trading cryptocurrency through a forex broker and trading on an exchange are:
1. When trading via a forex broker, it is not the cryptocurrency itself that is acquired, but only the fact of its change in price for the purpose of making a profit. Therefore, in fact, you actually trade on the exchange rate without acquiring cryptocurrency.
As a comparison, if you bought cryptocurrency on an exchange and it fell in price, then you would still have it; you cannot sell it yet, but only keep it in your account.
When purchasing a virtual currency via a forex broker, you enter the game at a specific price and you can leave it only by closing the transaction. Therefore, if the market does not move in your favor, then you immediately begin to lose money.
2. All operations with forex brokers are carried out in USD, EUR or the bitcoins of your choice. The process of depositing and withdrawing money is not difficult, even on a ruble-based card.
With cryptocurrency exchanges, the situation is more complicated. Now, there are some large banks in several countries which have officially expressed a negative attitude with regard to cryptocurrency.
They have prohibited their customers from using money from debit and credit cards to purchase cryptocurrency in exchange offices, and from replenishing their balances on cryptocurrency exchanges.
3. Due to time-tested software and the security of forex-broker client accounts, there is relative stability in this market. However, this cannot also be said about the scandals associated with the hacking of cryptocurrency exchanges and the amount of fraud associated with the theft of money by hack