Finally, decided to jump on the crypto wagon? But, confused about how crypto trading actually works? Well, you have come to the right place. In this article, we will discuss step-by-step the process to do crypto trading. Many people confuse crypto trading with investing in crypto. However, both the activities are poles apart. Therefore, let’s clear that first.
In investing, you buy a coin for which you need to open an account and have a digital wallet. Investing means you have the ownership of a coin. It’s often for mid to long-term. Meanwhile, trading is a short-term strategy. Crypto trading involves buying and selling the crypto asset on the same day. You also do not have ownership of the cryptocurrency. If you do a long position, with the price increase, the profit will increase too. While it’s the opposite in the case of the short position.
How To Trade In Crypto?
Before you start trading, it is important to know how the cryptocurrency market works. Crypto trading is a decentralized space. It promotes peer-to-peer transactions unlike a central server in the case of traditional financing. Now, let’s understand the step-by-step process for crypto trading:
- Create An Account In Brokerage Firm:
The first step is to make an account with a cryptocurrency brokerage. Different brokerages have different strengths. Choose the one which matches your interests. Luckily, there is quite an option available for doing so.
It can be overwhelming for a beginner trader to decide which platform to use. Here is a checklist for while choosing a platform:
- A platform with more active years is usually reliable and trustworthy.
- Knowing what currencies are available on the platform clears a lot of things. For instance, small exchanges usually offer trading on small cryptocurrencies.
- Find out the transaction fees of an exchange. Transaction fees refer to the charge a platform takes for executing a trade.
- Check out the review of the platform through different communities.
Opening an account on a crypto brokerage is similar to a stock brokerage. To set up the account, you need to fill out your personal information. This includes social security number, address, date of birth, and email address.
- Credit Funds In Your Account:
After creating an account on a crypto brokerage, connect your bank account. Usually, crypto brokerages provide both options: bank funding through debit cards and wire transfers. Wire transfers are a cheaper option. Coinbase and Gemini offer this for free.
- Devise Your Trading Strategy:
With all the excitement to enter into crypto trading, we often enter the field unprepared. It is important to take some time out and make a trading plan. In order to do so, do an analysis. There are two kinds of analysis: Fundamental and Technical.
Fundamental analysis involves the analysis of updated macroeconomic data and external movements such as governance protocols and governance. While technical analysis is monitoring the real-time price movement. Traders entering the market should have a proper plan backed by heavy research. Traders should also have a proper plan to enter and exit the market. Range trading, Long straddle, Bot trading, and arbitrage are among the popular trading strategies.
- Choose Your Investment:
Most beginner crypto traders tend to invest most of their capital in large crypto assets such as Bitcoin and Ethereum. Since they offer stability and their price movements are more predictable. Hence, it gets easy to trade with technical indicators. Though there is a high risk involved with small crypto projects, they offer high upside potential.
Moreover, experts believe crypto trading requires more than just reading the charts. It is important to research the use-case of the blockchain, its network size, governance, and protocols. At the same time stay updated on any development on the project. Having a technical understanding of the technology offers an extra edge in trading. Some experts suggest investing in the top 15-20 crypto assets by market cap. Though caution is advised as not every blockchain has a real use case or will make sense.
The final advice would be to do proper research on your part and never invest what you can’t afford to lose. Crypto trading can be a risky activity. However, with a serious approach and knowledge of crypto, individuals can make a profit for themselves.
- Store your cryptocurrency.
If you are planning to do crypto trading actively, then you would need to store your funds on the exchange. Thus you can access them whenever you need them. In case of long to mid-term trading, you should buy your cryptocurrency and get a crypto wallet.
- Kick-start with your first position:
As mentioned earlier, since there is no need to have a digital wallet, you can start your crypto trading journey right away. Once you’ve decided which cryptocurrency you want to trade, you just have to open the deal ticket for the selected market. You will encounter both the buying and selling prices. Decide the position: buy a long position or sell a short position. In the ‘open position’ section of the chosen platform: you can also monitor the profit/loss of your position. You just need to place an equivalent trade in the opposite direction of your position when you decide to close your position.
Advantages & Disadvantages Of Crypto Trading:
Now, it is important to understand that there are both advantages and disadvantages of trading in crypto. Let’s discuss both of them in brief:
Crypto markets are decentralized platforms and are not controlled by a central entity. Therefore, they are open 24/7 and seven days a week. Now, it is both an advantage and disadvantage. Any individual can easily access the platform and start trading. Since easy-to-trade, a new inexperienced investor can easily suffer huge losses. Therefore it is advised to follow the above steps. Another con of crypto trading is that pump-and-dump schemes are quite common. These are basically Ponzi schemes, in which owners of a token inflate its price using various methods and later sell them at an inflated price. Again, here too the research factor becomes crucial. On the other hand, since crypto and blockchain technology is decentralized, users can be anonymous and can process payments without any intermediary.
Before you jump into crypto trading, understand that the majority of day traders suffer losses. Losses are also part of crypto trading. However, it is important to take out time to focus on your trades, keep track of your profit/losses and have a strategy and stick to it. Crypto trading/ day trading is one of the many opportunities that crypto offers through which you can earn profit.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2022/07/21/step-by-step-beginners-guide-on-crypto-trading/