Cryptocurrency is a new trend in the world of finances and technologies. However, many people still aren’t aware of how to earn from them. If you are such an individual, read this guide till the end.
Today we are going to speak about cryptocurrency trading. How do you trade Bitcoin? Why is crypto trading different from other methods? What are the advantages and disadvantages? These are the questions we are going to answer.
Is crypto trading different from trading other assets?
To cut a long story short, yes, crypto trading is different. However, as a beginning trader, you might be wondering about these differences.
Well, the first significant difference between digital currencies and other securities is that cryptocurrencies are more volatile. Prices in the crypto market can change extremely overnight. It might seem very risky for the majority of investors. Indeed, you can lose all your investment after a single price crash. On the contrary, volatility is your chance to increase potential returns without being too exposed to the crypto market. Some digital assets might perform gains of thousands of percent over the course of a single year.
Are there any other differences? Technically, cryptocurrencies are unique because they don’t depend on general economic conditions. Supply of coins, demand for them, the level of utility, security protocols, and hype are the main factors that affect crypto prices. This is the reason why cryptocurrencies are more sensitive to market sentiment, which is why the fundamental analyses of virtual coins and shares differ.
The common thing between cryptocurrencies and other assets is that you can use the same technical tools to analyze their performances.
In order to start trading cryptocurrencies, you should take 3 simple steps. Here they are explained:
1. Register a trading account
Foremost, you need to create a crypto trading account. You will use it for all trading operations when dealing with crypto assets.
A trading account can be opened with a cryptocurrency exchange or with a forex brokerage service that gives access to the crypto market. It’s up to you which option to choose. Just keep in mind that the best crypto trading platform is the one that offers a clear user interface, simple navigation, a lot of assets to trade, safe deposit and withdrawal methods, good leverage, and tight spreads. If you want to trade different assets, not only cryptocurrencies, look for platforms offering forex and stock markets as well.
Usually, crypto trading platforms require you to verify your account after signing up. To do this, you need to provide any ID document, including a passport, ID card, or driving license. Some companies also require a copy of your utility bill in order to verify your address. This procedure is necessary to prevent fraud from entering the platform. This way, companies try to fight against illegal activities. However, some platforms don’t need to verify your identity if you trade crypto in small volumes.
2. Select a software solution`
In online crypto trading, your success depends on the quality of the trading software solution you choose. This is because different platforms can have different tools for analyses and different execution. Every aspect can affect the efficiency of the crypto trading process.
If a brokerage service offers several crypto trading platforms, you should examine them all. MetaTrader4 and MetaTrader5 are the most popular options. These are user-friendly solutions that will help you to make your first step into the world of crypto trading. Some companies can have their original software solutions. Try them on a demo to understand whether they are suitable for trading on the volatile crypto market.
3. Devise a trading strategy
The final step is to devise a crypto trading strategy that will provide you with the possibility to earn good profits. This step can be subdivided because the process of strategy building is a complex process.
First of all, determine which cryptocurrencies you will trade or add to your investment portfolio. When choosing assets, consider their volatility and price history. It’s interesting to find out that the volatility of different cryptocurrencies isn’t the same. For example, you can invest in Tether, which is pegged to the US dollar. That’s why it’s called a stablecoin because its price changes only if the USD value changes. You should also study the supply of different cryptocurrencies. The limited supply of a certain coin can accelerate the demand for it, which pushes up prices.
Your crypto trading strategy should also implement a lot of risk management tools because of the volatility of the cryptocurrency market. We suggest you establish your crypto trading strategy based on Stop Loss or Take Profit orders.
To sum it up, strategies might be different. That’s why we suggest you combine all the best from different plans. This way you will ensure the best possible efficiency.