The world of cryptocurrencies and cryptocurrency trading is one full of excitement, intrigue, and possibilities to make plenty of money. But for those that are not familiar with the markets and the intricacies of trading, it can be a bit difficult to get to grips with it.
While we cannot teach you everything about cryptocurrency trading, much in the same way that we cannot guarantee you will make a hefty profit, what we can do is give you some advice and share with you our top tips to trade cryptocurrencies online.
What Is Cryptocurrency and What Is Cryptocurrency Trading?
Well first things first, if you are a real rookie, it might help if we explain a little bit of the lingo and jargon to you.
Firstly, a cryptocurrency is a form of digital money that is encrypted with cryptography, is entirely anonymous, and is procured or mined through solving cryptographic problems. This currency has a real-life value and can be used to purchase a range of products, as well as exchanged for other cryptocurrencies, or even Euros or Dollars.
These digital assets can then be exchanged, or traded much in the way that fiat currencies are. You can exchange them for fiat currencies, or you can exchange them for other altcoins/digital currencies, depending on your preferences at the performance of the exchange rates.
Much in the same way that forex works, savvy trading of cryptocurrencies can result in significant profits, but if you go into it without knowing what you are doing, you have to remember that you can also make a loss.
What Makes Cryptocurrency Trading Different to Traditional Forex Trading?
Forex is short for Foreign Exchange Market and is the world’s centre for the exchanging of fiat currencies.
Traders try to predict the health of a currency and then seek to exploit its volatility in exchange rates with other world currencies in the hope of making a profit. The more the value of money varies, the bigger the profit and risk.
Traders look at the history of a currencies value along with taking into account world events and news to predict whether the value will go up or down when pitted against another.
Cryptocurrency trading is built on the same principle of exchanging a cryptocurrency for another currency. However, cryptocurrencies, due to the fact they are decentralised and unregulated, tend to have a much higher rate of volatility as well as other price driving factors that differ substantially from Forex.
With digital currencies, it is algorithms that increase and decreases the inflation and value of a coin, whereas with Forex the control is more to governments and issuing authorities.
Another factor that significantly influences cryptocurrencies is the fact that most digital currencies have a limited supply, whereas traditional currencies, in theory, do not. Likewise, the demand of cryptocurrencies is not something which is consistent as there are numerous factors including public popularity and adoption that affect the value of a particular coin.
When it comes to volatility, we must consider that the volatility of Forex currencies is around 1%, whereas, a cryptocurrency such as Bitcoin has a volatility of approximately 5% to 15% with an average of 10%.
This means that it is highly attractive to high-risk traders because should they strike lucky, there is a significant profit to be made.
Which Cryptocurrencies Are the Most Popular to Trade?
When it comes to trading in cryptocurrencies, especially if you are a beginner, it would be prudent to start with some of the most popular ones. Obviously, the number one cryptocurrency in the world is Bitcoin, but there are others you can choose from.
While Bitcoin paved the way; other options can be just as exciting and lucrative to trade – these include Ethereum, Litecoin, Zcash, Dash, Ripple and Monero. Each of them has their defining qualities as well as their benefits and drawbacks, and each has different levels of volatility.
You can decide to trade these coins between each other, or you can trade with fiat currencies – whatever floats your boat!
Just remember to read up on the currencies you choose to trade in. You should also stay on top of the news and other factors that may or may not influence both the markets and the value of your coin.
8 Tips to Trade Cryptocurrency Online
While it is impossible to give you a winning formula when it comes to trading in cryptocurrencies, we can give you a few tips to help you on your way!
#1 Have a Game Plan
Having a reason why you want to start trading is an important place to start. Make sure you know why you are getting involved and ensure you have a clear strategy laid out for afterwards. Not everyone is going to in from trading, and it is worth remembering that for every person that wins, there is someone that is losing on the other side.
Even if you plan to trade daily, sometimes it is better just to sit and watch the markets and wait for the right time to join in, rather than rushing ahead and losing it all on a whim.
#2 Set Clear Boundaries
When trading it is essential to know what markets to target, and when to stop. Set yourself an evident target level for taking your profit, and most importantly, a stop-loss target, so you know when to cut your losses.
Don’t let your ego take control and remember that crypto trades are hazardous – sometimes it is better to either quit while you are ahead or cut your losses and leave.
#3 Get Over FOMO (fear of missing out)
While it is exhilarating watching others win and lose, you need to force yourself not to give in to temptation. Don’t become obsessed with the thought that you might be missing out on something, as tomorrow is a new day with new opportunities. Sometimes it is better to sit back and watch how things perform, without putting yourself at risk in the meantime.
#4 Look For the Small Fry
Putting all of your eggs in one basket, or looking for significant market movements is not the way that people make profits. You need to keep your eye out for the small gains that will all add up and accumulate into a big one. To be a profitable trader you need to remember this and be sure to manage your risk carefully across your portfolio.
For example, you should never invest more than a bit of your pot into a very high-risk market. Instead, place smaller bets that will yield a better return should your gamble pay off.
#5 Remember Volatile Market Conditions
It is worth noting that most cryptocurrencies are traded according to the value of Bitcoin. As a highly volatile asset, this is something that you must take into consideration, especially when the value of Bitcoin is dancing around unpredictably.
The relationship between Bitcoin and altcoin is inverse – meaning that when Bitcoin value goes up, other currencies tend to go down, and vice versa.
When Bitcoin is feeling extra volatile, the conditions for trading can be a little difficult, and it is hard to see much ahead. At times like this, some say it is better not to trade at all.
#6 Wise Up to Depreciation
Most cryptocurrencies will lose their value over time, and this is something that you should take into account when holding your currencies for the medium to long-term.
If you are looking to keep your coins for a long time, you should do your research to ascertain which ones are suitable for such a purpose, and which ones are not. Currencies such as Ethereum, Monero, IOTA, and Dash are all considered leading coins and experience the most trade volume on a daily basis.
You should be sure to follow each coins chart to identify low periods or times of stability and instability.
#7 Be Wary of ICOs (Initial Coin Offerings)
Lots of fledgeling coins and projects start off with a crowd-sale where they invite investors an early opportunity to buy a share of the project either in tokens or coins at an often, lower price.
The idea behind this is that trading the new coin from day one on the exchanges will result in a tidy profit for the ICO participants, and over the last few years, there have been many successful ICO projects, particularly when it comes to the yield for investors. Lots of currencies doubled or tripled in value, and some such as Augur provided a 1000% return on the ICO participants investors.
But it is not always this way – some ICOs turned out to be total scams, and people have found themselves deserted by the organisers of the ICO, taking their money with them. Keep your wits about you, do your research, and if it seems too good to be true – chances are it is.
#8 Keep Your Eye Out for Fees
Some exchanges charge some rather extortionate fees when you buy from the order book or the maker. These costs can be as high as 0.1% which when you are trading in large amounts of currency, can really add up. Don’t forget to shop around and find the right exchange for you.
The Best Trading Platforms
Not all platforms are created equal and depending on your level of experience, and a number of coins that you have, there are lots of different options to suit you.
Bitfinex is one of the biggest names on the market. It offers a full-featured, spot trading platform for all of the big coins such as Bitcoin, Ethereum, Litecoin, Bcash, Iota, Ripple, ETP, NEO, OmiseGO, Dash, Zcash, Monero, Aventus, Eidoo, and Ethereum Classic. Bitfinex also offers leveraged margin trading through its unique peer-to-peer funding market.
eToro markets itself as a social trading and multi-asset brokerage. With offices in Cyprus, Israel and The UK, it has a global reach and is fully regulated in all of those markets. eToro gives an opportunity for individuals to trade in stock CFDs, Forex, and cryptocurrencies and has over 4 million active accounts.
AvaTrade is perhaps one of the most well-known names in trading. They are also a regulated Forex broker with a dedication to providing their clients with customised trading solutions regardless of the trader’s previous knowledge or experience.
You can sign up easily and quickly with a simple click of a button and be up and trade within seconds. The site also provides a considerable amount of reading material for those that are not au fait with trading, and you can also choose from over 250 trading instruments ranging from fiat currency, cryptocurrency, CFDs and bonds.
The key to successful trading on a cryptocurrency exchange is remembering to have fun. Set yourself some limits and don’t exceed them, and always do your research.
It is always easy to get carried away with cryptocurrencies as we tend to forget that they have a real monetary value and we sometimes behave in a way that does not reflect this.
Remember not to bet more than you have, or are prepared to lose, and especially don’t bet your mortgage repayment or the kids college fund. Stick to a certain amount, a particular coin, and a specific exchange and follow our tips above and you cannot really go wrong!
And if you’re ready to start trading cryptocurrency online, make sure to check our guide on the best cryptocurrency trading platforms.