What is cryptocurrency trading?
Cryptocurrency trading is the process of buying and selling different cryptocurrencies to generate profits. Because the markets are extremely volatile, cryptocurrencies can be traded short-term, i.e., within a few hours or days (depending on the coin), or investors can take a long-term view and trade accordingly. Trading enables investors to increase their profit potential by allowing them to buy and sell cryptocurrencies at key moments. The most popular cryptocurrencies include Bitcoin, Ethereum, Ripple, and Litecoin. When you trade cryptocurrencies, you’re buying one cryptocurrency with another. For example, if you want to buy Ethereum, you can purchase it with Bitcoin. This trading process is called a “buy” order, and the act of purchasing one currency with another is called “selling”. Cryptocurrency trading is an incredibly quick way of trading one currency for another, which means you can take advantage of the volatile nature of the markets to make profits.
The basics of cryptocurrency trading
Before you begin trading cryptocurrencies, it’s important to understand the basics that underlie the trading process. This will equip you with the knowledge you need to make sound trading decisions and protect you from common mistakes and pitfalls. Here are the five essential steps of cryptocurrency trading:
- Identify your trading goals - Before you get started with cryptocurrency trading, it’s important to clarify your goals and expectations. This will help you to select a trading strategy that is appropriate for your needs and make better decisions in general.
- Create a trading plan - A trading plan can help you to stay focused on your goals. It’s helpful to write down your strategy so you can refer to it whenever you’re tempted to stray from your path.
- Create a risk management strategy - Understanding and managing risk is essential to successful trading. You can minimize the risk of your investments moving against you by diversifying your portfolio and using stop losses.
- Execute your trade - Once you’ve worked out a strategy, it’s time to put your plan into action.
- Follow up and keep improving - Once you’ve completed a trade, it’s helpful to evaluate your experience and learn from your mistakes. You can also use the experience and knowledge you’ve gained to devise a new plan and improve your trading strategy.
Benefits of cryptocurrency trading
- Trade cryptocurrencies online - Trading in cryptocurrencies allows you to trade online 24/7, 365 days a year. There’s no need to commute to a physical trading floor and wait in line to access the markets. - Trade on the go - You can trade cryptocurrencies from your smartphone or tablet, making it even easier to stay on top of the markets.
- Trade with low trading fees - Trading in cryptocurrencies means that you pay lower trading fees than you would with traditional asset trading.
- Trade on the global market - Cryptocurrency trading offers you access to the global market and lets you trade on markets around the world.
- Trade diverse assets - You can trade a variety of cryptocurrencies, from Bitcoin and Ethereum to Litecoin and Ripple, as well as other digital assets.
- Trade 24 hours a day - Cryptocurrencies can be traded 24 hours a day, 7 days a week, meaning you can take advantage of all market fluctuations.
Risks of cryptocurrency trading
- Trading in cryptocurrencies is unpredictable and risky - Trading can be very risky as cryptocurrencies are extremely volatile and prices can fluctuate wildly. There is also the risk of your funds being stolen or hacked.
- Lack of government regulation - Because cryptocurrencies aren’t regulated by governments, they come with a huge amount of risk. There is always the possibility that a coin will be deemed worthless, or governments could intervene and issue warnings about trading in a specific coin.
- Lack of liquidity - Because the cryptocurrency market is still in its infancy, it’s lacking in liquidity. This means it can be difficult to buy or sell at a reasonable price. - High risk of investing in ICOs - ICOs (Initial Coin Offerings) are risky investments as they’re often unproven start-ups and projects that don’t have a proven track record.
- High risk of hyperinflation - As cryptocurrencies aren’t tied to any traditional currencies, there is a risk that they could lead to hyperinflation.
- Lack of protection - Currently, there is no protection in place if you lose money while trading in cryptocurrencies.
- Lack of regulation - There is no regulation or protection when it comes to cryptocurrencies and trading.
The best cryptocurrency trading platforms
There are a variety of cryptocurrency trading platforms available. It’s important to select a platform that offers a clear trading process, low fees and is secure. Here are a few of the best cryptocurrency trading platforms:
- Coinbase - Coinbase is one of the biggest cryptocurrency trading platforms and is based in San Francisco. It offers a wide range of cryptocurrencies including Bitcoin, Ethereum, Litecoin, and more.
- Binance - Binance is one of the most popular cryptocurrency trading platforms.