All about cryptocurrency trading
Digital currencies are a relatively new phenomenon in the financial world, rapidly gaining popularity. There are now thousands of cryptocurrencies, and for crypto-curious users, the first step is learning how to start with crypto trading.
Cryptocurrency trading in the financial markets opens up unlimited opportunities for earning, as profit can be made both on the growth and on the decline of the price. To support you in your trading practice, we’ve prepared a step-by-step guide to follow you through the process.
Learn how to trade cryptocurrency
Step 1: Check out how the cryptocurrency market works
All markets follow the same principles: cycles, exposure to fundamental factors, etc. However, the nature of financial markets differs. They all have unique characteristics that should be considered. Traders develop their strategies according to their market analysis and risk management principles.
The cryptocurrency market is quite young compared to traditional markets such as stocks, commodities, or foreign currencies. The crypto market runs on a blockchain — peer-to-peer decentralized transaction verification system. When digital assets are bought and sold, transactions are added to the blockchain — a shared digital ledger that records data — by participants called “miners.”
Cryptocurrencies are known for their volatility. Their price can easily change by more than 50 percent in any direction during the day. Crypto markets have always operated 24/7, creating price fluctuations during unpredictable hours.
One of the biggest challenges for crypto traders is high volatility. For example, if one trader makes a large purchase or sale, he can significantly affect the rate of a cryptocurrency. Furthermore, like any other assets, cryptocurrencies are subject to external economic, political, and social factors that pressure the market: economic collapses, crises, news background, and much more.
There are similarities and differences between trading in traditional and crypto
markets. Equity and foreign exchange markets are better protected in terms of legislation but do not provide the same flexibility and variety of assets as the cryptocurrency market.
At the same time, crypto exchanges offer more freedom, but with it come risks.
Step 2: Choose the trading strategy that corresponds to your knowledge
To get long-term benefits from crypto trading, enthusiasts should ensure they follow strategies that can make trading profitable and reduce risks. Here are some strategies that can optimize your profits.
A day trading strategy means that you buy and sell a cryptocurrency on the same day. The goal is to book quick profits amid price fluctuations during 24 hours. Investors usually rely on technical indicators to find entry and exit points for specific cryptocurrencies.
Traders also rely on experienced analysts, who give out support and resistance levels each day. Resistance is a price point up to which the price may rise, so a resistance level is always above the current price. Support is a price point below which a crypto price is not supposed to fall. It is always better to trade with a stop-loss below the support level to minimize losses.
Scalping is a name given to one of the strategies of intraday speculative operations, which involves closing a transaction when the price reaches several points of profit Scalpers seek to capture a few pips profit from each trade to make incremental gains assessed at the end of the day, week, or month. Day traders are more likely to hold a trade for longer in hopes of a larger profit target within a day.
High-Frequency Trading (HFT)
HFT trading is a kind of algorithmic trading strategy used by quant traders. It involves developing algorithms and trading bots that help quickly enter and exit a crypto asset. To develop such bots, you need to understand complex market concepts and have strong math and computer science knowledge.
The term “hodl” was raised as a typo on an early bitcoin forum, supposedly a mistyped response to a question about whether one would sell bitcoin holdings amid a steep price decline. Now it is often retrospectively explained as standing for Holding on for Dear Life.
Trend traders decide to buy or sell currencies based on whether their price rises or falls. There are many theories about identifying trends and when they’re going to change; however, the basic idea is that these crypto traders will buy in a market that’s about to rise and sell when it’s about to fall.
It requires analyzing the market trend and understanding the market cycle. Crypto investors should pay attention to oversold and overbought areas before taking a position. Chart-reading can also help you exit at a reasonable time.
How to manage risks?
- Build a balanced portfolio
Although central banks worldwide are working on better regulating digital currencies, trading in cryptos can be quite risky. You can avoid extreme volatility with some strategies. In addition, investors can also maintain a fixed amount of regular investments in different cryptocurrencies — such as bitcoin and ether — that will systematically increase the risk appetite and help your portfolio yield favorable returns in the long term.
- Avoid making trading calls based on hype.
New investors should avoid relying on social media for news on cryptocurrencies. Investment decisions should never be based on the hype created on social media.
- Do your Primary Research
Primary research is one of the most important tools for a trader. You don’t have to be an expert at trading to conduct primary research on an asset you wish to purchase. To succeed in the crypto industry, you have to stay updated on the news.
Step 3: Choose a trading platform that best fits your needs
Exchanges work similarly to a broker, giving you the tools to buy and sell cryptocurrencies like Bitcoin, Ethereum, and Tether. These platforms can be divided into two bigger sections: centralized exchanges (CEX) and decentralized exchanges (DEX). Decentralized and centralized exchanges have operated in parallel for many years.
Binance, Kraken, and PointPay are centralized exchanges with their order books. Every order is recorded and validated in these books before going through internal security processes to ensure accuracy. CEXes operate under government oversight and have extensive Know Your Customer policies. Simultaneously, they create a safe space for traders by prohibiting the use of stolen bank credentials and working on preventing money laundering. New users, in particular, utilize this type of exchange, as their centralized structure offers a user-friendly interface that makes buying, managing, and selling digital currencies particularly easy.
The liquidity of CEXes is higher than on DEXes. Access to your crypto assets is directly related to the user’s credentials. If a fraudster gains access to this information, they may access your crypto assets stored in the wallet.
CEX is a for-profit company. To offer a good user experience, they may provide support services. For example, PointPay offers the purchase of cryptocurrencies against fiat currency and has an extensive range of trading pairs.
When you perform a trade on DEX, you pay not only trading fees but also transaction costs. The latter depends on the blockchain on which DEX is operating. As of 28th of February, 2022, the transaction cost of swap on one of the most popular DEXes — Uniswap, cost $16.05. This is not including trading fees on the exchange.
DEX offers the core functions of a centralized cryptocurrency exchange CEX, such as order books (or Automated Market Makers), a trading venue, a matching system, and security functions. Decentralized exchanges are not based on servers and infrastructure but operate as a dApp on the blockchain.
Decentralized exchanges such as Uniswap, Bisq, and GDEX are user-friendly because they do not store user data. Decentralized exchanges are anonymous because users do not need to provide KYC information to use them. Decentralized exchanges have several advantages over traditional cryptocurrency exchanges. First, there is no need to deal with complex verification procedures, as users only need a public address to trade. There are also no third parties (authorities or financial regulators) monitoring or imposing regulations on the exchange.
Consider these tips when choosing the crypto exchange that’s right for you.
- Check if the exchange is not a scam.
It is recommended that the exchange has a legal address available and open to the users. Furthermore, you can read reviews of the exchange to learn if there were no fraud — monitor information about the team, its history, and development.
- Check how the exchange maintains its security.
Security of funds should be a key priority for every exchange. You can google if there were no hacker attacks before. Though major exchanges faced hacker attacks, try to figure out how the company responded to them. Please, note that if your funds were stolen due to the vulnerability on DEX, you would not get any compensation.
- Evaluate trading volume and pairs
Be sure to check if there is a market for the token you want to trade. For example, if you want to trade PXP for USDT, you can do it on WhiteBit, Bittrex Global, or Bitrue. Ensure there is enough liquidity; otherwise, your order might not get filled, or the slippage could eat up your profit.
- Explore additional services
When you plan on using margin or futures trading, make sure that the exchange supports it. Also, look for other services integrated with the platform, such as fiat-to-crypto gateways to top-up your crypto wallet with a debit or credit card. Lastly, it’s useful when the platform has a mobile app to use in addition to its web interface.
Our top cryptocurrency exchanges make it simple to buy and sell the currencies you want with low fees and powerful security features.
Step 4: Start trading.
This guide will cover centralized exchanges using PointPay as an example.
- First of all, you’ll need to create an account. You can do this on the main webpage by pressing the “Create account” button.
- You’ll need to top up your account with crypto to start trading. You can transfer funds from another wallet. For that, you should go to the wallet tab. Choose the crypto you would like to transfer and find your wallet address.
You can also buy crypto via debit or credit card. PointPay integrated a lot of payment providers. Go to the “Buy Crypto” tab, choose the asset you would like to give, and buy. The system will offer you a Payment Provider with the best exchange rate.
- We offer three types of interfaces — Classic, Advanced, and Quick Exchange. While Classic and Advanced versions are designed for experienced customers, Quick Exchange offers simplified exchange functionality.
Let’s choose an Advanced version of the exchange.
- Now you can choose the preferred trading pair. Press on the “+” right up from the chart. You will be able to choose among USDT, BTC, and ETH markets.
Let’s now choose BTC/USDT pair.
- Select the order type and place your bid. You can choose between marker and limit orders. Market orders are quick ways to place an order that executes at the current price. Limit orders allow you to define the maximum or minimum price for your order. After that, type the price and click on either “Buy” or “Sell.”
That’s it! You can see all your open, filled, or canceled orders below the chart.
Even though crypto trading can bring you high profits, you should always remember risk management strategies. You are able to mitigate risk by diversifying your portfolio. Another way is to allocate and rebalance your asset basket properly. You should also assess the possible risks and analyze the market and the coin you are going to trade before investing.
For your help, we have launched a crypto school. We are currently reformatting it. The new version will include a series of video tutorials for beginners, intermediate and advanced users. Our customers will learn basic concepts like creating a wallet and protecting their funds from scammers and hackers in the simplest language possible. We will educate you on how to buy cryptocurrencies with just a few clicks, even with fiat money, and teach you trading basics. The PointPay crypto school will show how to apply fundamental and technical analysis and interpret the main market indicators. The knowledge gained will be helpful to both newbies and advanced users.
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