Crypto Trading, Explained

This type of trading involves exchanging one cryptocurrency for another, buying and selling coins, and exchanging fiat money into crypto.

It bears some similarities to foreign exchange (forex), where fiat currencies from across the globe are traded 24 hours a day.

The number of cryptocurrencies has exploded in recent years – and estimates suggest there are now more than 1,500 in existence.

Many of these coins can only be acquired using a major cryptocurrency such as Bitcoin or Ethereum. Because of this, you’ll likely need to perform trades if you want to contribute to initial coin offerings (ICOs,) or use a blockchain company’s services.

One upside of crypto trading is that you can get involved without mining coins yourself – a process that takes time, energy, technical knowhow and a lot of computing power.

You’ll usually go through something known as a crypto exchange.

Crypto exchanges generally fall into two categories: centralized and decentralized.

As well as buying crypto using fiat currency, a centralized exchange is somewhere you can store funds and exchange the likes of Bitcoin for other coins and tokens. Examples include Coinbase, Kraken and Binance. Although there is less risk that your funds will disappear if you forget a password or your private key, it’s important to go with reputable providers who have high security standards. That’s because there have been cases where millions of dollars have disappeared from these exchanges overnight through hacking.

On the other side of the coin, decentralized exchanges (DEX) remove the middleman – meaning trading is automated and peer to peer. They include IDEX, Waves, Bitshares, and OasisDEX. Unlike their centralized counterparts, there is more of an emphasis on privacy here, allowing you to take further steps to protect your identity. The “trustless environment” on these platforms is driven by smart contracts. Although you retain 100 percent control of your cash through your own personal wallet, losing your private keys could make your funds irretrievable.

This depends on what your priorities are.

So-called “hot wallets” make accessing your crypto easy – allowing you to transfer funds and complete trades quickly and with ease. Many providers now offer mobile apps so this can be done on the move. Meanwhile, “cold wallets” are stored offline – commonly on USB sticks – with some people even writing down their private keys on paper. The latter can work well if you’re looking to save crypto for a rainy day.

Another thing to think about is what you want to store in your crypto wallet. If you’re interested in trading, the odds are that you’ll own multiple cryptocurrencies at once. Some wallets are only designed to support one coin, while others support dozens.

With hundreds to choose from, each with a different value and purpose, it’s worth doing your research.

Only a few cryptocurrencies – such as Bitcoin and Ethereum – have achieved mainstream levels of popularity. However, even well-established currencies can fall victim to extreme price volatility. It can be difficult to predict how prices will fluctuate with newly minted coins because there is little historical information to analyze. Backing a new currency could prove extremely lucrative, but equally, there’s a chance you’ll make an expensive mistake if you don’t know what you’re doing.

Keeping up to speed with the news on Cointelegraph, seeking independent ratings on ICOs, and gathering as much information as you can on a coin’s background are essential steps before you decide to make an investment. After making a purchase, monitor any changes in price closely – and consider setting higher and upper limits on when you would want to sell your crypto, mitigating losses in the event of a crash and protecting profits after a surge.

Try to avoid putting all your eggs in one basket.

Just like traditional investing, it’s worth having a diverse portfolio and spreading risk. That way, if one cryptocurrency performs disastrously, it won’t have a catastrophic effect on the overall value of your assets.

Another tip is to try and determine why the value of a particular cryptocurrency is rising or falling before you make an investment. Buying a coin that’s in freefall and waiting for its value to increase again may seem astute, but there’s no guarantee that it’ll bounce back. Chasing gains by backing a currency that’s surged can also seem tempting, but there’s always the risk of “pump and dump” schemes where the price crashes afterwards. Know the “why” before you buy.

Finally, always check, double check and triple check while trading – a simple tip that even seasoned crypto holders forget. When setting up buy or sell orders, make sure your numbers add up, as even the smallest of typos can see you lose an eye-watering amount. Also, when dealing with an exchange, make sure you’re sending coins to the correct address.

To improve rapidly, you need guidance and support from a mentor or a community you trust.

Ideally, a rookie trader should start by choosing a reliable exchange and playing with popular coins, such as Bitcoin or Ethereum. However, the learning by doing approach is too slow for those who want to succeed fast. Joining a community of like-minded traders could be one of the best decisions to make: there are plenty of groups on Telegram or regular meetups in the US and other countries.

Also, resources such as Taklimakan Network, the blockchain investment platform, connect amateur crypto investors and traders with industry experts. The platform’s goal is to teach a user to make their own investment decisions, helping crypto newbies to trade from the position of knowledge.

Co-author: Vicky Lova

 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.