How to Get Started in Cryptocurrency Trading

Bitcoin Trading

How to get Started in Cryptocurrency Trading

The complex topic of cryptocurrencies is still a mystery to many. Even those who understand how Bitcoins are mined, don’t necessarily understand how you can invest into them to profit from it in the future. Here is a beginners’ guide for cryptocurrency trading and how to get started.

Cryptocurrency Basics

Cryptocurrency is an umbrella term for many different digital currencies. Popular names are:

  • Bitcoin,
  • Ethereum,
  • Ripple,
  • Dogecoin or
  • Cardano

Unlike regular currencies, these coins are not regulated or tied to governments and financial institutes. In fact, the first cryptocurrency, Bitcoin, was created in an effort to give every person on the planet access to them, not depending on their financial situation or skin color – unlike many financial instruments from banks and co.

The coins are kept on a digital database and can be shared between traders or used in transactions. Some were made to function as a means for purchases, others are a token with which to invest into the development of new technologies, or as an asset on the stock market.

Many cryptocurrencies are based on the blockchain technology. This way, the coins are not stored in a singular location, but shared in a network of thousands and thousands of computers and servers. This makes the currency popular for its anonymity and safety, since they are hard to target for hackers and allow following a coin’s path and past transactions.

How to Trade Cryptocurrencies?

There are many ways to profit from trading with cryptocurrencies. For one, there are multiple platforms for crypto trading. Secondly, there are different types of crypto assets and trading methods. You can choose to invest into Crypto-ETFs, Binary Options or treat the coins like other currencies on forex exchanges.

Trading Platforms

Before you can decide on what to invest in, you need the tools that allow you access to crypto-markets and trading. There are multiple paths you can take. Some are dedicated cryptocurrency platforms, like Bitvavo, Binance, and Coinbase, others are online brokers you can use to trade several assets on the stock market.

  • Using a crypto marketplace, you typically need to start a wallet. These digital wallets are the online storage for the keys that signify your ownership of individual crypto coins. When you make a transaction, you transfer the key to the other party, or the other way around.
  • Using a broker, you will need to start a depot. A depot is a storage for different stock market assets, like stocks, ETFs, or forex. It gives you an overview on your transactions and open positions when trading.

Trading Tactics

There are several strategies you can use when you are trading crypto.

• Day Trading

When we day-trade, we buy and sell assets within a day. This can be profitable, when we use volatile markets, in which the assets change their value frequently and by large amounts. You buy an asset at one moment and sell it once the market worth has risen.

• Hedging

Hedging focuses on minimizing losses. You invest into multiple currencies so when one fails, the others’ success can cancel out your loss. For this strategy, you need to know the market well and can speculate accurately which coins will rise or fall in value.

• HODL-ing

HODL is an acronym of “Hold On for Dear Life”. This strategy focuses on buying and holding the coins for a long period of time. Even when the coin loses in value, these traders stick with it and wait for higher profits in the future.

• Trend Trading

Trend trading is a popular strategy for beginners. This social trading method focuses on and follows popular investments on the market. However, to be successful using this tactic you shouldn’t just copy other traders but develop your own grasp of the market to identify trends in advance.

Types of Assets

  • Cryptocurrencies are often traded as forex. You exchange regular currencies or other crypto coins for cryptocurrencies and profit from the exchange rate.
  • If you want to minimize the risks, you can invest into ETFs. They bundle the worth of several assets of one type. If one currency in the mix fails, the others cancel out the loss.
  • You can also use binary options. Here, your investment is tied to the worth of an asset, and you can bet on whether it will rise or fall in value during a set period of time.

Avoiding Risks for Beginners in Crypto-Trading

  • Like any other type of investment, speculations on the stock market or on crypto platforms are never guaranteed to succeed, no matter how good the projection looks. However, the right preparation can influence how likely you are to profit. Make sure to read up on how the market works before you make any decisions.
  • When you start out, limit your investments to test out the waters. Even if you start to feel confident, never bet more than 1 % of your total capital to avoid bankruptcy.
  • There are countless different crypto coins, and their value is very dependent on outside factors. You need to keep an eye out for several events, like Elon Musk tweeting about Dogecoin, to make good speculations.
  • The quality of different marketplaces and brokers can differ. Make sure to check out some reviews before you pick. Some of them have demo accounts, so you can try them out without risking money

Conclusion

Trading with crypto is a complex topic that will need more than this basic overview to grasp. When you want to invest, make sure you read up on the many markets, assets, and strategies first. This way, you can find out which type of platform, asset, or trading method feels right for you.

Never skip out on a proper risk management. Spread your investments and limit the amount you spend to a maximum of 1 % of your total capital. This way, you can profit from trading without risking bankruptcy.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.