How to Trade Cryptocurrency: A Brief Guide for Beginners
- What’s cryptocurrency trading? The difference between stock and crypto exchange
- How to use cryptocurrency?
- Technical analysis in crypto
- Fundamental analysis in crypto
- Where to trade cryptocurrency?
- What are trade orders?
- How to place a trade order?
- What is a trading terminal?
- Pros and cons of cryptocurrency trading
Trading digital assets are gaining popularity among traders, and no wonder, as it diversifies their routine and their asset portfolio. There’s more to that. Traders prefer crypto over traditional stock exchanges with their minimal fees, high volatility, and the prospects of a young and promising industry.
What’s cryptocurrency trading? The difference between stock and crypto exchange
Firstly, one should figure out how cryptocurrency works. Then it’s crucial to explore ways to trade cryptocurrencies. The most popular one is using specialized platforms’ services and cryptocurrency exchanges. For a better understanding, let’s compare a stock and a cryptocurrency exchange.
A stock exchange is a platform for trading stocks, bonds, investment shares, and more complex instruments, options, and futures. A share is a security issued by a joint-stock company or an issuing company. All investors who bought shares become the company’s co-owners, meaning they own a share of the company, sometimes a small one. Shares also allow receiving dividends, a part of the company’s profits.
The situation is different for the forex and cryptocurrency markets, where participants are limited to buying/selling assets. Let’s clarify the difference between the “forex” and the “cryptocurrency” markets. Forex exchanges offer national trading currencies, i.e., fiat, whereas crypto exchanges allow digital trading assets.
Back to the stock exchanges. They have been around for over 400 years and are much more regulated than cryptocurrency exchanges.
All stock exchanges operate only on weekdays and have eight working hours. For example, the main trading session on the New York Stock Exchange (NYSE) lasts from 1:30 p.m. to 8 p.m. (UTC). It, in turn, can be inconvenient due to the difference in time zones. Trading on the cryptocurrency exchange is open around the clock.
Fundamental (FA) and technical (TA) analysis is the basis of a conscious approach to crypto trading and trading in other markets.
How to use cryptocurrency?
Cryptocurrency trading is a type of deal that involves two parties: a seller and a buyer. The purchase and sale of assets is carried out on a specialized platform when the price is agreed between the buyer and the seller. It establishes the market value of the asset. In most cases, buyers place orders with a lower price than sellers creating an order book.
When the number of buy orders exceeds the number of sell orders, it increases the asset value. On the other hand, when the number of sellers exceeds the number of buyers, the market price of the cryptocurrency falls. You can find an order book in the trading terminal of any crypto exchange. Sell orders are shown in red, buy orders are shown in green.
The saying “Buy low, sell high” gives a basic idea of the buyers and sellers’ incentives.
In addition to spot trading, exchanges offer trading with borrowed funds in long and short positions within margin and futures trading.
A long position is a type of financial transaction in which a person buys an asset and makes a profit depending on the increase in its price. On the other hand, a short position is a type of financial transaction in which a person sells an asset and profits from a fall in its value.
Most popular cryptocurrency trading strategies
- Day trading is a style of cryptocurrency trading that involves buying and selling cryptocurrencies within the same trading day in an attempt to profit from short-term price movements.
- Swing trading is a strategy that involves holding a cryptocurrency for a period of several days to several weeks to profit from medium-term price movements.
- Position trading is holding a cryptocurrency for a longer period of time, such as a few months to a year, in an attempt to profit from long-term price movements.
- Scalping is a strategy of making multiple trades over a short period of time, usually in an attempt to profit from small price movements.
- HODL is one of the most popular strategies that involves holding a cryptocurrency for a long time, regardless of short-term price movements, with the expectation that its value will rise in the long term.
- Dollar cost averaging is investing a fixed amount of money in a cryptocurrency at regular intervals, regardless of the price. It can help reduce the impact of volatility on overall investment.
Keep in mind that all of these strategies are associated with different levels of risk, and what may work for one person may not work for another. It’s also important to note that none of these strategies are foolproof. Therefore, it’s always important to do your own research and invest only what you can afford to lose.
Technical analysis in crypto
Technical analysis in crypto trading typically involves using charts and various technical indicators to identify patterns and trends in the price and trading volume of a cryptocurrency. The main elements of technical analysis include:
- Chart patterns include identifying patterns such as head and shoulders, triangles, and wedges that can indicate potential buy or sell signals.
- Moving averages (MA) involve plotting the average price of a cryptocurrency over a specific period of time, such as 50 or 200 days, to identify trends and potential buy or sell signals.
- Relative Strength Index (RSI) is a momentum indicator that compares the magnitude of recent gains to recent losses, to determine overbought or oversold conditions.
- Bollinger Bands is a volatility indicator that plots two standard deviations away from a moving average, and is used to identify potential buy or sell signals.
- Volume is the number of trades that have occurred in a specific period of time, and can be used to confirm trends or potential buy or sell signals.
- Fibonacci retracement is a tool that uses horizontal lines to indicate areas where the price of a cryptocurrency may find support or resistance.
It’s important to note that technical analysis is not a guarantee for success, and should be used with other forms of analysis such as fundamentals and market sentiment. Furthermore, It’s important to clearly understand the indicators and tools that you’re using, and also to fully understand the market conditions you’re operating in.
Fundamental analysis in crypto
Fundamental analysis in crypto trading involves evaluating the underlying factors that may affect the value of a cryptocurrency, such as the technology behind it, the development team, and industry trends. The main elements of fundamental analysis in crypto trading include:
- Technology. It includes evaluating the underlying blockchain technology of a cryptocurrency, such as its scalability, security, and potential use cases.
- Development team. It includes evaluating the experience, reputation, and track record of the team behind a cryptocurrency, as well as their ability to execute on their vision.
- Partnerships and collaborations. It is about evaluating the partnerships and collaborations that a cryptocurrency has formed, as well as the potential impact of these partnerships on the value of the cryptocurrency.
- Adoption and usage. It includes evaluating the current and potential adoption and usage of a cryptocurrency, such as the number of merchants accepting it as a form of payment, or the number of decentralized applications built on top of its blockchain.
- Market trends. The evaluation of the broader market trends in the cryptocurrency industry, such as regulatory developments, macroeconomic factors, and investor sentiment.
- Tokenomics. It includes evaluating the economic model of the project, such as the token issuance, the token price and token distribution.
Note that fundamental analysis is not a guarantee for success and can be affected by unexpected events. Also, the crypto market is subject to high volatility and the crypto projects are subject to high uncertainty, it’s important to keep that in mind when conducting fundamental analysis and make sure to diversify your investments.
Where to trade cryptocurrency?
Earlier, we already figured out where you can buy cryptocurrency and what specialized platforms for buying and selling digital assets there are. The best option to trade cryptocurrency for beginners is centralized cryptocurrency exchanges (CEX). They allow buying cryptocurrency for fiat, offer extensive functionality and a choice of assets, protect their users’ funds and help restore access to the account in case it is lost. But on a decentralized exchange (DEX), buying a cryptocurrency for the first time is possible only thanks to another digital asset, which can also cause difficulties for novice traders.
You can store digital assets on a special wallet, and you can have an unlimited number of addresses and wallets. Personal hardware wallets and built-in crypto wallets available on crypto exchanges are both the options.
How to get into cryptocurrency on CEX?
You can talk endlessly about how the cryptocurrency exchange works and what tools it offers. In addition to spot trading, CEX allows you to trade with leverage and on the derivatives market (futures trading), as well as to use tools for passive income. Let’s consider how to start trading cryptocurrency on a CEX exchange step by step.
Cryptocurrency trading on CEX starts with signing up. The process takes a few minutes; you just need to enter your data, link your future account with an email address, and agree to the User Agreement terms.
Once you have created an account, it is crucial to secure it by activating two-factor authentication (2FA) and verifying your identity (KYC). The verification procedure is critical, as it allows you to use all the platform’s functionality. During the verification process, you only need to provide your data and a photo of an identification document of your choice.
Theory and practice
Before embarking on a journey through the cryptocurrency market, you should study the digital assets of your interest in terms of TA and FA, decide on a trading strategy, and practice. Some exchanges offer special tools for users to learn to trade crypto without investing real money. WhiteBIT implements this idea in Demo Token, a special free token to try out the platform’s functionality.
When you are ready to use the accumulated knowledge and skills in practice, you can proceed to deposit. Large crypto exchanges allow depositing both national currency and cryptocurrency using merchants or bank cards.
Placing an order
Trading orders command the exchange to conclude a deal according to your conditions (desired buy or sell price). They relieve the trader of the need to continuously monitor the market, which is very convenient for crypto trading. There are five types of trading orders available on WhiteBIT: Market, Limit, Stop-market, Stop-limit and OCO orders.
What are trade orders?
Trading on the exchange is carried out using special orders or applications that the user places in the trading terminal to sell or purchase digital assets. Let’s look at the most popular order types and how to use them.
It is a type of order to buy or sell an asset executed instantly at the current market price. All you have to do is enter the amount of the asset you want to buy or sell.
Such an order allows you to set a price limit, at which a transaction will be executed only at a specified price or better than the specified one. A limit order helps avoid price slippage in the order book.
It is a conditional order executed only when a specific price is reached. This type of order is suitable if you want to buy an asset at a price higher than the current one or sell an asset at a price lower than the current one.
The order has two indicators: “Stop” and “Price”. When the market price reaches the specified level in the “Stop,” the order enters the order book but is executed only when the current price reaches the level set in the “Price”.
A stop-limit order enters the order book at the right moment and is executed faster than a simple limit order.
OCO stands for “One Cancel the Other”. Such an order combines limit and stop-limit orders, and two orders are placed simultaneously when it is executed. When placing such an order, one volume of assets is reserved. After one of the two orders is executed, the other order is automatically canceled.
How to place a trade order?
First, you need to sign up on the selected exchange, pass the verification procedure (KYC) and increase the security of your account by connecting two-factor authentication (2FA). Having verified your identity, you will be able to use the platform’s full functionality. Next, you need to replenish the balance with national or cryptocurrency.
How to place an order on WhiteBIT?
- Go to the “Trading” section and select the desired trading pair in the right part of the window;
- Choose the type of order you wish to place;
- Specify the price and quantity of the asset;
- Click “Buy” or “Sell”.
Ready! You placed an order!
What is a trading terminal?
A trading terminal is a software application provided by a cryptocurrency exchange that allows traders to place and manage their trades on the platform. The trading terminal offers market data, charts, and real-time order execution capabilities, making it an indispensable tool for crypto traders.
The trading terminal usually includes features such as:
- Placing orders: allows traders to place orders to buy or sell cryptocurrencies at specified prices;
- Order management: allows you to view and modify your open orders, including the ability to cancel orders that have not yet been executed;
- Market data: displays real-time market data such as price and volume;
- Trading charts: shows market data, including price charts and indicators, to help traders analyze market trends and make informed trading decisions;
- Portfolio management: allows you to view your holdings, including the current value of your holdings.
The appearance of the trading terminal may vary depending on the exchange and the software used. The terminal has an intuitive and easy-to-use interface. A typical trading terminal will have the following elements:
This section displays real-time data on prices, volumes, and other important information for various cryptocurrencies. The data is often displayed in tables or charts, with the ability to customize the displayed coins and information.
It displays charts showing the price movement of various cryptocurrencies, often with the ability to view different time frames and add technical indicators for analysis.
Placement of orders
The section allows traders to place orders to buy or sell cryptocurrency, including the ability to set Limit, Stop, and Stop-limit orders.
It displays current buy and sell orders for a particular cryptocurrency, often in real-time.
This section displays records of completed user’s transactions, including the time, price, and volume of each transaction.
The trading terminal interface presents all the information and tools a trader needs to place trades and manage their portfolio in one place. Design and functionality can vary significantly between exchanges, so it’s crucial to find a terminal that meets your specific needs.
Pros and cons of cryptocurrency trading
The popularity of cryptocurrencies as a means of investment is hard to deny, and while they offer great earning opportunities, there are also risks to consider.
One of the biggest advantages of cryptocurrency trading is the ability to make high profits in short periods. In addition, cryptocurrencies are decentralized and run on a blockchain, which provides increased security and transparency compared to traditional financial systems. It is also worth noting the possibility of storing savings in stable digital currencies, stablecoins. You can keep funds on the exchange at interest, which, as a rule, is much higher than the interest on bank deposits. Or you can use cold wallets, access to which only the owner of the wallet has.
There are several significant risks associated with investing in cryptocurrencies. One of them is price volatility. That is, prices can fluctuate greatly over a short time, which tends to worry investors. In addition, the lack of regulation in the market can make it a breeding ground for fraud.
Another risk is the rejection of cryptocurrencies as a means of payment. Although some businesses and individuals are starting to accept cryptocurrencies as payment, they are still not widely adopted. It means that you will not be able to use your cryptocurrency to buy goods and services in the same way you would use a traditional currency.
Since the cryptocurrency market is in its infancy and is still not clear to most investors to the full extent, it can be challenging to correctly assess the risks and potential returns associated with various cryptocurrencies.
Summing up, the success of cryptocurrency supporters is individual and depends on the approach, savvy, and awareness of the trader.