Cryptocurrency trading: what you need to know

In today’s world, more and more people want to know how to trade cryptocurrencies, because today it is more relevant than ever. There are different ways to trade cryptocurrencies. Choosing the best way is not easy, especially if you are new to this field. This article will help you understand how to trade cryptocurrencies and understand all the intricacies.

Types of cryptocurrency trading

Every beginner, and not only a beginner, needs to know the different types of trading in the cryptocurrency market. There are 3 main types, each of which involves working with exchanges of certain categories. 

Margin Trading

Margin trading is the interaction between an investor and a broker, in which the former can buy more assets than he would buy using only his own funds. The essence of margin trading is to buy something with more of your own money, or without spending any money at all. At the same time it is possible to sell someone else’s assets and receive income. Leverage trading is another name for margin trading. Leverage means that trades or investments are made using borrowed funds as capital. Thus, leverage is the borrowing of an amount to trade or invest in an asset or market in hopes of making a profit.

ICO and IEO

ICO (Initial Coin Offering) is the issuance and offering of coins to investors to pay for the services of a new project. The main purpose is to raise the funds necessary to implement, launch and develop the project. Simply put, investors buy coins with the expectation of future growth.

Initial Exchange Offerings (IEOs) represent new ICOs in which the exchange becomes the main marketing partner of the project, and the coins are listed on the exchange a few days after the start of the campaign. All the basic information about the sale of coins is coordinated with the exchange and fixed in the contract. Thus, IEO is much simpler, more convenient and reliable for investors than a traditional ICO.

Futures

A futures contract is a contract in which the seller undertakes to deliver to the buyer the underlying asset of the transaction at a certain price and on a certain date and the buyer undertakes to repurchase the object of the transaction. Due to the speculative nature of futures, both experienced and inexperienced traders can profit from them. The first function of futures is to hedge risks. The second function of futures is to increase liquidity and stability in the markets.

Option 

An option is a contract that gives the buyer of an option the right to buy or sell an asset at a specified time and price. The buyer may choose not to exercise the option, but the value of the option is not refundable. However, the seller is obligated to exercise the option. A futures contract differs from an option in that both the buyer and seller assume the obligation to execute the transaction, whereas in an option, one party has the right and the other the obligation.

Cryptocurrency value formation

In pricing, buyers and sellers meet on a cryptocurrency exchange and try to find a value that suits both parties. Buyers want to buy cryptocoins as cheaply as possible; sellers want to sell them for as much as possible. Both sides need to compromise in order to make a deal.

CPI and GDP have no influence on the price of cryptocurrencies, but they do affect investors and traders who decide to buy or sell coins. All factors affecting the price of cryptocurrencies are divided into economic, technical and demand factors.

Economic factors include the volume of coins released, the use of digital assets in actual financial transactions, and the average number of transactions per day. 

Developers of cryptocurrency platforms are concerned with decentralization, privacy, cheapness and speed of transactions, i.e. technical pricing factors.

Traders’ interest in the coin affects the price, but it isn’t so great that the price skyrockets. In fact, interest simply increases the demand for tokens and pushes the price to the right level.

Where to trade cryptocurrencies

The number of places to trade cryptocurrencies grows every year, but there are 3 common places:

Cryptocurrency exchanges

Trading cryptocurrencies on an exchange is the most convenient and profitable method. These platforms specialize in buying and selling tokens, have a clear interface and allow you to set trading conditions. Users are offered a wide choice of exchanges, which differ in the level of commissions, the need for verification and other conditions. When choosing, it is important to consider the deposit and withdrawal fees, exchange fees, and other services. For example, you can consider the exchange https://whitebit.com/, which is known for its low commissions and a wide range of cryptocurrency trading pairs. 

Centralized exchanges are controlled by management companies. They all operate officially, have a clear interface and wide functionality. The disadvantage is that it is necessary to provide a third party with a personal password and give them the right to make trades. If anonymity is important to the trader, then decentralized exchanges are in demand as never before. All trading is done directly and without additional control by third parties. The disadvantage is that a commission is paid for all DEX transactions, and it is higher than on CEX. This means that this option is not suitable for trading cryptocurrencies for small amounts.

P2P

P2P is direct trade between users, without the intermediation of an exchange. This means that the buyer transfers money directly into the seller’s wallet and vice versa. The money does not go through other accounts. If one of the parties fails to send the transaction or violates the terms of the agreement, the administration of the site reviews the dispute and makes a fair decision. P2P services provide anonymity and high security.  P2P exchanges do not charge transaction fees. Minimal fee is paid by sellers – up to 1%.  You can deposit or withdraw money without using bank accounts or payment cards. P2P platforms often offer additional payment options: international transfers, gift cards, phone top-ups, etc.

Although P2P transactions move fairly quickly, one party may delay the transaction for a variety of reasons. In addition, the buyer or seller may change his or her mind and cancel a transaction that has already begun. A typical transaction can take anywhere from 15 minutes to several days, depending on the payment method.

Liquidity on P2P platforms is lower than on central exchanges. For this reason, traders making large trades usually prefer to work on a standard exchange or in OTC trading.

Forex Brokers

Forex brokers are individuals or companies who act as intermediaries between the exchange and the trader. They play a very important role in trading. The speed and quality of order execution, the size of commissions and the terms of funds depositing/withdrawing depend on them.  To start trading, one must register on the broker’s website, open an account and fund it with a plastic card or e-wallet. Access to the forex market is through the trading platform. The forex broker’s functions include immediate submission of client orders to the exchange and making an online trading plan. In addition, it can and does provide free advice and assistance if needed. All clients’ money is kept in the broker’s account, so it is very important to carefully study the information about the broker before entrusting him with your money. 

The fastest solution is the first option: trading cryptocurrencies on specialized exchanges. This is the path most traders choose.

Preparing a trading plan

A trading plan serves as a trader’s road map. With its help, you can analyze existing trading opportunities and plan future trades. If you don’t have a plan yet, it is recommended to develop one. Consider cryptocurrency trading as a long-term business. Don’t take ready-made trading plans from the Internet to trade successfully, you should make one yourself. A trading plan should outline your trading ideas and analysis of the current situation in detail. That way you will be able to record your ideas about the market in a document. Having a clear and understandable trading plan, a trader stops making chaotic and emotional deals.

Your trading plan should include important elements such as an entry and exit plan. The entry and exit plan should include the key points for entering the trade (buying) and exiting the trade (selling). Consider also your goals and how much of your portfolio you are willing to risk on a particular trade. Before you start trading, conduct thorough research. Analysis can help determine how a particular security will behave. You can never be 100 percent sure, but you want to be able to say you’ve done your best.

A trading plan is a trader’s most important tool. It is used to estimate current market conditions as well as to plan and execute future trades. Having a trading plan protects the trader from chaotic and emotional trades. Creating and disciplined execution of a trading plan is a way to improve trading efficiency and become a successful trader.

Step-by-step description of trading crypto on the exchange

The algorithm to start trading on the exchange is quite simple and consists of the following steps:

Sign up

You cannot trade without registration. The procedure is very simple: enter your email address or phone number and select a password. Read the “User Agreement” and confirm that you accept all the points. After this, you need to confirm the registration by clicking on the link in the email. Next comes the verification process – confirmation of identity based on the user’s personal information. However, not all sites require verification. After that, your account will be activated.

Balance replenishment

In order to trade cryptocurrencies, you need to fund your account. Depending on the capabilities of the exchange and your plans, you can use fiat or digital assets. Some exchanges may charge you to fund your account. You can fund your account by going to “Wallet”.

Navigate to the exchange’s terminal

Cryptocurrency exchanges have more or less the same principle of trading terminals, different window sizes, colors, location – but the logic is the same. There are two terminals on the exchange: basic – with not much functionality, and advanced – if you are an experienced trader, choose it. There you will see a list of transactions that all traders currently trading on the exchange have already made, the cost of selling cryptocurrency, the amount (you can use the percentage buttons that automatically pick up the necessary portion of the funds available in your account), and the “Sell” button – the immediate placement of the order. 

Conclusion

Traders, especially beginners, face many technical and financial obstacles. Therefore, we hope that this article was able to shed light on the most important points of trading. Becoming a successful trader is indeed a challenging task that requires a lot of knowledge and practice. With due diligence and a willingness to understand, you can master these skills and immediately start making money in a promising and incredibly relevant field. You shouldn’t start trading with a large amount of money at once. This is because you could lose everything on the first day of trading. Remember that the cryptocurrency market is unpredictable and very volatile. That is why it is worth to learn the basics of trading, understand how to trade cryptocurrencies, educate yourself daily and get deeper into trading every day.