Cryptocurrency trading is becoming increasingly accessible to anyone with a decent computer and an Internet connection. There are many success stories out there of people getting rich from crypto trading, however that doesn’t mean it is always a simple process and guaranteed to return a good profit.
Online cryptocurrency exchange platforms allow for the buying and selling of coins, as well the exchange of cryptocurrencies for other cryptocurrencies or fiat currencies such as the U.S dollar. The number of cryptocurrencies on the market has rapidly shot up in recent years to over 1500 cryptocurrencies at present.
When trading crypto on exchanges, you can store your coins in your secure wallets separate from the exchange. However, the exchange keeps digital records related to the ownership of the coin stored on the blockchain. It is possible to sell a coin to another user and once verified the change in ownership is added to the blockchain registry.
Before starting to trade it is a smart move to formulate a trading plan including strategies and techniques you will use. The plan you create will depend on what crypto you want to invest in, the investment funds available and the likely frequency of your trading.
There are many things to know about crypto trading to avoid risking too much or missing opportunities, so here are some do’s and don’t of crypto trading to help you.
Choose the Right Online Crypto Exchange
There is a range of crypto exchanges on the market that allow users to exchange fiat currencies such as the U.S dollar or Euro, for cryptocurrencies, like Bitcoin or Ethereum or vice versa. The different exchanges offer different trading tools, the crypto trading specialists on the team at hedgewithcrypto have written a rundown of the crypto exchanges out there. Reading up on the various tools the different exchanges offer will help you make the right choice of exchange.
As cryptocurrency exchanges run on the blockchain system, they are decentralized leading to greater protection from hackers and theft. Furthermore, all transactions can be anonymous.
Crypto exchanges can be categorized into three types:
- Trading platforms, which connect sellers to buyers and charge a fee on each transaction.
- Online trading brokers, where you can purchase and sell cryptocurrencies at exchange rates set by the broker.
- Direct trading platforms, which allow for individuals to directly trade cryptocurrencies with each other according to the exchange rates set by the sellers.
The most popular crypto exchange platforms have attractive visuals, a user-friendly interface, low fees, excellent customer service around the clock, and fast trades and payouts. You should consider all of these if you are a would-be crypto trader.
Don’t Forget To Research Cryptocurrencies
The first step in successfully trading cryptocurrencies happens long before you buy any coins, and that is researching every detail there is to know about the cryptocurrency you are interested in. When performing this due diligence you should find out information on the currency’s background, creators and trading performance.
Prepare A Plan Before Trading
Once you have completed some research on cryptos, the next step is to write down a detailed trading plan, stating your strategies, tactics, target currencies and whether you will focus on long or short term trading. Formulating a solid trading plan and sticking to it will decrease your risk of losses and likely lead to consistent gains.
The different strategies involved in crypto trading include:
- Day trading, also known as scalping when traders make a high volume of daily trades, buying low and selling on for small profit margins which later add up to a larger amount.
- Margin trading refers to when a trader borrows cash from a broker to buy crypto and when the value of the currency increases the trader can profit on the margin. However, the trade could go the other way with the value of the currency decreasing leading to losses.
- Position trading is a long term strategy involving the trader buying when the price is low and then waiting months or even years for the price to rise and then sell for a profit.
All of the most successful crypto traders have a well thought out plan informed by researching trends in cryptos and the tools available on crypto exchanges. Their plans will also state clear short and long term strategies and goals.
Hire a Crypto Broker
Some people do not have the time to manage their crypto trading using an online exchange, so instead decide to hire a crypto broker to manage and trade their crypto on their behalf.
Brokers have been around for a long time, and are known to facilitate trade in almost every sector including commodities, finance and real estate. The job of a broker is to connect the seller and buyer, provide advice on when to trade, and ensure smooth and timely transactions.
Don’t Let Emotions Control Trades
Crypto markets can be quite volatile which is why it’s important to always trade with a level head and decisions based on emotions including greed are never a good idea.
Diversify Investments
A common way crypto traders reduce risk is by investing in a variety of cryptocurrencies, therefore protecting themselves from losing large investments in a single currency.
Do Make Use of Stop Losses
Crypto exchange platforms have several useful features, although the “stop loss” function is considered to be one of the most important. The tool is designed to put a limit on trading set at a specific value when it is making a loss, and then automatically trigger a sale of the assets. The liquidation of assets activated by the stop loss can be a full or partial sale.
Do Make A Budget
Your budget will be determined by your financial means and the amount of risk you are comfortable with taking. It should also be closely linked to your trading plan and long term goals. Remember your budget is there to prevent you from getting into any financial instability.
Trading cryptocurrencies can be extremely lucrative for some, especially if they have followed a step-by-step process of research, planning, strategizing, budgeting and setting up of online exchange portfolios.
