If you want to learn how to trade cryptocurrency, you’re at the right place. There are mountains of information available on the internet, which could easily overwhelm anyone, including a seasoned trader. To help you out, we have created this detailed guide to cryptocurrency trading for beginners.
What is cryptocurrency?
Simply put, cryptocurrencies (also known as digital currencies, cryptos, virtual assets, or digital assets) are digital forms of currencies. They can be used to pay for goods and services just like conventional currencies. Like how the traditional forms of currencies can be traded against one another on the forex, cryptocurrencies can also be traded against specific pairs on specialized platforms called cryptocurrency exchanges.
The difference is that unlike conventional currencies such as the U.S. dollar, cryptocurrencies are often not controlled by a single entity. They are also secured using complex cryptography coupled with a new form of online public ledger called a Blockchain. It is distributed to anyone and everyone interested in having a copy. Watch the short video below to understand how blockchain works before we proceed further.
Cryptocurrency trading for beginners vs. Investing
As you learn how to buy and trade cryptocurrencies, you must differentiate between crypto trading and investing. What is the difference? Which is better? And, how do you take advantage of this distinction to effectively make your trades? The two terms are often used interchangeably, but they are different.
They are only similar to the extent that the end goal is the same – gaining profit from your activities. They are different in that results from trading activities are generally expected within a short to medium-term period. This could be anything from minutes or hours to a few days or weeks. With investing, the trader is in it for the long haul. We’re talking about months all the way to years or even more.
As a beginner, you probably want to choose a trading strategy that involves medium to long-term trading and investing. This will typically require more time to research and analyze your trades before committing.
Crypto market vs. Stock market
The stock market has been around for a long time now, and there is a bunch of literature on the topic. But, how different or similar is it from or to the nascent cryptocurrency market? Here’s how.
Please see: Crypto market vs. Stock market
Similarities between the crypto and stock market
- Stock trading and investing tools are more or less the same. This is especially true for technical traders using tools such as charts to analyze the market. You can use the same tools to perform TA (Technical Analysis) for trades on either market.
- Assets denominated using fiat currencies. The crypto market may be innovative and revolutionary with the assets designed to append the current financial system. However, the denominations in the marketplace still valued compared to fiat currencies similar to the stock market.
- Trading and investing strategies are similar. In the stock market, traders can choose to day trade, swing, or position trade. They can also opt to buy and hold their assets for the long term. Similarly, traders and investors in the crypto market can do the same things.
- Similar market products. The stock market has been around for generations, leading to innovative products such as derivatives and techniques such as using leverage to inflate gains (and losses.) Those same products and techniques have been ported over to the new age cryptocurrency market. You can now trade Bitcoin futures, options, and leveraged tokens. You can use leverage on most of your trades on most leading cryptocurrency exchanges, such as Binance, Bitfinex, or BitMEX.
- Market volatility. Owing to its old age, the stock market is more stable and less volatile. The crypto market, on the other hand, is accustomed to wild price swings. It is pretty normal to see double-digit percentage swings in a matter of hours.
- Market maturity. Age is a significant factor in trading. The stock market has been around for a long time, while the crypto market is only about a decade old. This means that market value and trade volume in the former is much larger compared to the latter. The younger age also contributes to the wild volatility experienced in the crypto market.
- Market assets. In the stock market, you invest in the publicly listed company shares by buying their stocks. In the crypto market, you invest in the idea, the technology, or the currency (or token), but not the company (if any) behind the currency.
- Regulations. Since the stock market has been around for ages, regulators have had enough time to develop and implement rules and regulations governing the market’s conduct. This contributes to the minimal volatility we highlighted earlier. In the cryptocurrency market, this is not the case. The regulators are still grappling with understanding the emerging asset class, and this lack of (proper) regulations are part of the reason for the market’s wild nature.
Why cryptocurrency trading for beginners?
Given that cryptocurrencies seem to have more negatives against the stock market but not enough positives, why would you want to trade digital assets? Well, here are some of the pros below.
Benefits of cryptocurrency trading for beginners
- 24-hour trading. As opposed to the stock market that opens and closes at specified times, there is no closing of the cryptocurrency market. You can trade cryptocurrencies 24/7/365 or even use trading bots and let your trades run all the time.
- Market volatility. This may be seen as both a negative and a positive feature. In the previous section, we focused on the negative, but let’s talk about the positive. Traders (not investors) live off market volatility. The crypto market has this in troves, and this means that as a trader, you will get better trading opportunities with the cryptocurrency market as opposed to the stock market.
- Privacy and anonymity. If you’re big on your right to privacy, then you will love cryptocurrency trading. With crypto trading, you have access to decentralized cryptocurrency exchanges. These allow you to trade with self-custody assets (when only you have possession of your digital money) without the need to submit your identity online. Of course, there are centralized trading platforms if you don’t mind sharing your particulars and having another party storing your digital assets.
- The multitude of assets. Despite its relatively young age, the crypto market has advanced so much so fast that traders now have access to similar stock market products, including futures, options, leveraged tokens, swaps, CFDs (contracts for difference). Whether you want to go long or short, ‘call’ it or ‘put’ it, look no further. Every kind of derivative currently available on the stock market already been ported over. If not, it’s coming soon.
- Easy account opening. In crypto, there is a shallow barrier to entry. You can easily create an account in an exchange and start trading in a matter of minutes. That’s how fast it is to jump on board.
Cryptocurrency trading for beginners: Risk management
It’s hard to talk about crypto trading without talking about risk management in cryptocurrency trading for beginners. It is another essential part of your success journey. Risk in crypto trading refers to the chance of an undesirable outcome happening.
You may have heard that trading cryptocurrency is risky, and that is true, but so is trading all other financial instruments, including stocks and bonds. What differs is the level of risk.
There are different kinds of risks, and in this section, we will discuss those related to cryptocurrency trading.
- Market risk. Perhaps the most widespread of all is the risk that a given asset’s market price or the overall crypto market will swing unexpectedly and negatively affect your market position.
- Liquidity risk. Refers to a situation where you are unable to exit a position. Typically happens when you can’t find a buyer for your asset.
- Legal risk. Refers to a situation where a government regulation or policy negatively impacts an asset or a trading platform. This could lead to liquidity problems if buyers for your asset barred from purchasing it. Also, if a trading platform will ban from your jurisdiction, you could end up losing your funds stored with the exchange.
- Operational risk. It is the risk inherent if a trader cannot perform a trading activity such as exiting or opening a position. It could be caused by the failure of a trading platform or malfunction of a trading application etc.
- Systemic risk. Refers to a loss incurred due to a failure in the entire trading system. Closely related to the market risk, but this one is much direr given that it caused not just by the market downturn but also the collapse of crucial systems within the marketplace. Think of the 2008 financial crisis. That was a systemic failure that led to a market meltdown.
Now that you understand the kind of risks you are most likely going to encounter, you should factor them every time you are about to make a trading decision.
Cryptocurrency trading for beginners: Portfolio management
Professional traders rarely have just one asset within their portfolio. Therefore, to juggle all their investments and trades, they need specific tools to be efficient while trading. And that’s where portfolio trackers come in.
They are software applications for desktop, tablet, and mobile devices that help track every kind of investment you make in the crypto market.
By tracking your portfolio and measuring your performance, you can easily improve upon it and make better trades. As the saying goes, you can’t improve what you can’t measure.
When it comes to crypto portfolio management, you want to know how much of a particular asset you hold and where will it store. You also want to know how much you are gaining or losing from a particular trade or investment.
Keep in mind that you could have to maintain multiple portfolios. As a trader, you might employ different trading strategies simultaneously, meaning you are actively trading while at the same time swing trading and/or position trading.
To be a profitable trader, you will need a suite of applications from data portals and news aggregators to portfolio trackers. They all work in tandem to offer you real-time data you can use to make better trading and investment decisions.
Cryptocurrency trading for beginners: strategy
Success in cryptocurrency trading for beginners, need an effective trading strategy. What is it? A trading strategy is simply a plan that you will follow when executing your trades. It will comprise the kind of assets to invest in, the frequency of your trades, and your investments’ size.
In this section, we will discuss some of the most common crypto trading strategies. Although keep in mind that you can always create your personal strategy that works for you. It could be based on these broad strategies or something completely new.
Why cryptocurrency trading for beginners need a trading plan
Here’s why a crypto trading strategy is crucial to your success:
- It’s a map. Having and maintaining a trading strategy is akin to having a map. It guides your trades, helping you know when to trade, how, and why to perform a certain trade.
- Keeps emotions at bay. One of the biggest challenges facing traders is the interference of feelings and emotions. These become an impediment when an asset’s price starts trending in the opposite direction to a bet. In cryptocurrency, this happens so frequently that it easily leads to an emotional roller coaster. Successful traders have learned to keep trades free of emotions by sticking to their trading plans.
- Risk management. Having a trading plan effectively forces you to do the research necessary to create one, and part of that research is the risk factor to consider for every trade. Risk identification is the first step toward risk management.
The Bitcoin network introduced to the world in 2009 by an unknown individual or group called Satoshi Nakamoto. In 2021, there are more than 10,000 different projects in the field of cryptocurrencies, each of which, having its role in building the future of money.
The market value of cryptocurrencies reached $ 1 trillion for the first time in January 2021 and passed $ 2.5 trillion in less than three months later, which shows that this market is one of the growing markets in the favor of its investors.
Bitcoin Cloud Mining is the process by which you participate in a mining pool to a cloud miner website and purchase a certain amount of hash power. In this pool, the profit will distribute equally among all participants who have participated in the mining pool based on hash power. The cloud miner platform allows you to mine your Bitcoin without installing any hardware and at no extra cost. Minerland, the best crypto cloud mining service, helps you invest in Bitcoin easily and with low risk.