How to trade cryptocurrencies?
25 Oct 2018
So, you have finally decided to start your career as a trader and are already thinking about how you will spend your millions. There is no doubt that cryptocurrencies are an exciting market for investors, but unfortunately, success is not as easy as it seems.
For those of you who are interested in learning about cryptocurrency trading, we are here to help you get started. This guide for beginners will show you everything you need to know about trading cryptocurrencies.
In all seriousness, trading cryptocurrencies can be a risky business. Yes, it's true: some people have earned a lot of money. However, some people have also lost large amounts.
At the end of the reading of this guide for beginners you will have all the necessary information to trade on your own.
What Is Cryptocurrency Trading?
Bitcoin became the first cryptocurrency launched in 2009. However, with only one currency available, no other cryptocurrency could be traded.
It was not until a few years later when more and more cryptocurrencies were created that people began to trade them. The idea is really simple. You exchange one cryptocurrency for another, in the hope that the currency you buy will increase in value.
This concept is the same as in the real world stock market.
Exchange platforms will charge you a fee for doing this. It normally costs around 0.1% for each transaction. Cryptocurrency trading is very popular today, with billions of dollars in currencies that are bought and sold every day.
When people trade they need to use a cryptocurrency exchange platform. This is how that buyers and sellers can meet. For example, if you have Bitcoin and you want to sell it for Ethereum, an exchange platform will help you find an Ethereum vendor to trade with.
The lucky ones have made a lot of money doing this, and there are many people who are now exchanging cryptocurrencies as a full-time job.
However, experienced traders use many different tools to help them choose the right currencies at the right time. This may include software that helps investors analyze previous price trends, etc.
However, everyone has to start with something! As long as you're not trading with more than you can afford to lose, there's nothing wrong with trying.
Now, we will explain what is short term trading, along with its advantages and disadvantages.
Short Term trading
Short term trading is when you buy a cryptocurrency, but only plan to hold it for a short period of time. This can be anything from minutes, hours, days, weeks or even a few months.
You can buy a certain cryptocurrency because you believe its short term price will increase. In that case, you would sell it to get a quick profit if you thought the price would go down again.
Let's look at some of the advantages of short term trading.
The main advantage of short term cryptocurrency trading is that it offers a very good opportunity to obtain high percentage gains. Unlike fiat currency markets where prices generally do not move more than 1% each day, the prices of cryptocurrencies can almost double overnight!
The large trading volumes are important since it means that you will always find a buyer or seller. It simply means that a large amount of money flows in and out of that cryptocurrency.
Now that cryptocurrencies have become so popular, there are more than 1,500 different projects to trade. This means one thing: there are more opportunities to earn big profits. Some currencies have a large trading volume.
It is very important to maintain control of your emotions, something you will learn when doing short term trading is that you do not always win. It can be very stressful when prices move differently than you expected.
As the cryptocurrency markets are so volatile, prices can change very quickly. This means that if you want to trade short term cryptocurrencies, you will have to spend a lot of time analyzing the markets.
Learning to accept losses is a big part of the cryptocurrency trading. Nobody gets a profit 100% of the time.
Short term cryptocurrency traders seek small gains in small price movements, so they must have a fairly good analytical capacity. This means being able to read financial charts and graphs. Which, if you are a beginner, can take some time to learn.
Another disadvantage of short term trading is that in order to see good returns you must make a fairly large investment. This is something that most beginners may not feel comfortable with.
Many brokers offer leverage to their clients, which allows them to trade much larger amounts than they have. Leverage allows you to earn more than in normal operations, but also increases potential losses.
Long Term Trading
Have you ever heard the word HODL? Well, if not, we will assume that you are completely new to the world of cryptocurrencies. No, it is not a word that is in the dictionary, but you will surely find it in forums that speak of cryptos.
HODL is a slang word that means keeping a cryptocurrency for a long term instead of selling it. Its real meaning is Hold On for Dear Life. In general, long term crypto trading means holding a coin for a year or more.
The idea is that, although there will always be volatility, the price would increase in large amounts in the long term.
A great example of this would be the lucky investors who bought Bitcoin in 2011 when it only cost $0.35. If they maintained it until the end of 2017, they could have sold their coins for almost $20,000 each! That's more than 57,000X the initial investment!
One of the main advantages of the long term cryptocurrency trade is that it is easy and requires a little time. You do not need to understand complex business charts because you are simply looking to keep your currency in the long term.
Unlike short term trading, where you need to spend time constantly controlling the prices of cryptocurrencies, you can do it in your free time. It's quite simple, once you've bought your currency, you do not need to do anything but wait.
Another good advantage of the long term cryptocurrency trade is that you do not need a lot of money to start. You can buy small amounts as long as you have money to spare and let it grow for a long period of time.
This also allows you to avoid the tensions of market volatility, since you do not need to worry about short term movements in the price.
One disadvantage of long term cryptocurrency trading is that you may lose a good chance of quick profits in the short term.
Sometimes the coins increase in value very fast, only to fall again. Short term traders will notice that and can make a profit quickly.
Another disadvantage is that, because you do not spend your time analyzing the market (as much as a short term trader), you can miss some bad news. If bad news is published that could affect the price of your cryptocurrency (such as regulations), the price could fall and never rise again.
Therefore, you should make sure you are aware of the cryptocurrency news to prevent this from happening.
Now that you know some of the advantages and disadvantages of short and long term cryptocurrency trading, let's look at some of the things you should be careful about before you get started.
What Should You Pay Attention to?
The most important thing to remember before starting to trade is that there is a possibility that you will lose all your investment.
The cryptocurrency market can skyrocket or fall even dozens of percent in a matter of minutes or hours. It is completely different from stock markets and the traditional currencies and it is important to realize that investing in cryptocurrencies puts your capital at high risk.
The cryptocurrency markets are very volatile, and although some people have made a lot of money, many people have also lost a lot of money. You should never trade with any amount you can not afford to lose.
The way you deal with your losses will determine your success as a trader. Here are some important tips: never try to recover your losses by investing larger amounts. This is investing with emotions and often causes people to lose a lot of money.
A popular term that is used both in the real world and in crypto trading is FUD. This means Fear Uncertainty and Disinformation.
FUD is when people or organizations try to make people not invest in an asset by telling them they will lose all their money (or something similar). They usually say things like "It's a scam" or "It's going to explode like a bubble".
You should always do your own research before reaching any conclusion. Use Google to find out if the information you hear is correct.
One last thing to consider before starting trading is that you should never be influenced by the opinions of other people. Remember, you are not the only person who wants to benefit from trading cryptocurrencies.
Be careful with the people you watch and listen to. They are often paid by cryptocurrency projects to promote their currency. This could increase the price in the short term, but could end up decreasing in the long term. Therefore, we recommend you always do your own research first.
The Patterns Sometimes Lie
Many books and trading guides cover certain techniques of reading charts and patterns used by professionals to predict the market. Although the market sometimes follows patterns, this is never a guaranteed result, and unless you limit your exposure, you could end up losing a lot of money for a pattern that does not exist.
Limit Your Exposure
Limiting your exposure is reduced to two specific concepts:
- Never invest more money than you can afford to lose. Consider all the money you invest into a transaction as lost. If you do not feel comfortable with this idea, then you are trading with more money than you should. Finding the point where you are comfortable with this concept is key to helping you trade without stress.
- Consider setting take profit and stop loss orders. These limits are offered by many professional trading platforms and will help you avoid losing more money than you feel comfortable losing if your trade goes awry, as well as helping you avoid losing a cash withdrawal opportunity.
Know When to Exit
Actually trading is based on knowing when to close a trade. This is key. Getting into a trade is easy, knowing when to exit is difficult, and that is where you should focus most of your learning. This again involves two different aspects:
- Close your trade with a winning trend. Lock in your profits. Cryptocurrencies move faster down than they do up, and you would not want to delay paying for your trade. Nor will you want to arrive too early and lose additional profits.
- Cut your losses. In the same way, you want to be prepared to reduce your losses if your trade goes wrong and at the same time you do not leave too early in case the cryptocurrency recovers.
Cryptocurrency CFD Trading vs. Exchange Trading
Most people trade with cryptocurrencies through cryptocurrency exchange platforms; however, there is another option with which one can speculate on price movements. This can be done by using contracts for difference, or CFD's.
CFD's are financial derivatives that are carried out as agreements (contracts) between a trader and a broker. When you have a contract, you do not actually own the underlying asset; instead, you have the right to receive the difference between the current value of an asset and its value in the future. If your prediction about the value of the underlying asset is incorrect and the difference is negative, you will have to cover that loss. CFD's can be based on stocks, indexes, currencies, and also cryptocurrencies. With CFD's, traders can speculate on the price rise and fall of an underlying asset.
Leverage and Stop Loss / Take Profit
Leverage is a tool that is used to negotiate with more capital than a trader actually has. In practice, this means that when you open a cryptocurrency position with an investment of $500, and a leverage of 5:1 is used, you do not trade with only $500, but with 5 times the amount of capital: $2,500. As a result, you can earn more money even with small price movements. That said, the risk of losing your money is also much greater, and each price movement in the opposite direction can significantly damage your funds. Therefore, one has to think carefully if trading with leverage is appropriate for their trading style. Almost all CFD brokers offer leverage. Most cryptocurrency exchanges do not support leveraged positions.
CFD instruments can also be traded using loss stop and take profit. These features are useful when considering how extremely volatile the cryptocurrency market can be. When creating a stop loss order, you determine at what price level your position should close, so that no more losses can occur. On the other hand, take profit allows you to lock in profits before the price of the underlying asset decreases. Both stop loss and take profit are very important characteristics that are crucial when trading cryptocurrencies. One must set them at a price level that will not be activated all the time, in which their capital can be destroyed (take into account the volatility of the cryptocurrency market).
As you can see, trading CFD's has many advantages over traditional operations in the stock market.
Therefore, we recommend that you start your career as a trader with CFD trading.
Start Trading Cryptocurrencies
Now that you know how trading works in the market and you have decided what kind of trader you want to be, you know what to look for and you have studied the theory, you are ready to start trading cryptocurrencies. Let's take a look at everything you'll need to start.
1. Find a Broker with Which You Can Trade Cryptocurrencies
Searching for the best cryptocurrency broker is not an easy task. There are many companies and their offers vary. The main aspects that you should keep in mind when choosing a broker are the following:
Trust and Regulation
If you are from a European country, the broker must be regulated by CySEC, a regulatory body that oversees all broker activities. They also provide full deposit insurance of up to $20,000. Investors in Australia should look for agents with an ASIC license.
Libertex is a trusted and regulated broker: it has all the necessary licenses to work in all the countries in which it has presence.
Costs and Fees
The less fees you pay, the more you can earn. Then, it is logical to find a broker with the lowest fees possible. Most brokers charge an amount equal to a margin for opening a position. A margin is the difference between what you pay for a cryptocurrency token and what you get when you decide to sell it to the broker. Apart from that, many brokers charge an exchange fee when you roll over your position overnight. These brokers are usually the best for daily cryptocurrency trading, and brokers without swaps are the best for long term holding.
Following this link you can become familiar with the trading terms and conditions with Libertex.
Cryptocurrency to Trade
If a broker does not offer the option to trade the cryptocurrencies you want, it does not make sense to create an account with it. Therefore, do not forget to check if the company of your choice offers all the cryptocurrencies you plan to trade.
Leverage can help you benefit from the small price movements of cryptocurrencies. It is a very powerful tool when used by professionals, however, beginners should only use it with great caution.
First of all, pay attention to the brokers that provide CFD trading, since with these instruments you can earn a good money with cryptocurrencies without even really buying them.
Libertex has all the above advantages
We offer you to open a free demo account on Libertex right now so you can practice trading cryptocurrencies without any risk.
2. Get to Know the Platform
Cryptocurrency brokers usually offer their own trading platform and each one's system will be slightly different from each other. You will have to spend time learning how the platform works, where each feature is located and how to use it.
When you first access a broker's trading platform, you may feel overwhelmed. This is normal. Spend some time and continue researching. Sure you will feel comfortable with this in a short time.
Our free lessons will help you feel comfortable with the Libertex interface.
3. Select Your Cryptocurrency
If you have not chosen the cryptocurrency you want to trade, now is the time. Selecting a digital currency with great potential is a very important step. You do not want to choose a cryptocurrency in which you do not have faith. When you do your research on cryptocurrencies, there are several things you should look for:
- Infrastructure (application development, cloud storage, virtual private networks, financing, etc.)
- Technology (fast transaction process, powerful and easy to use user interface, etc.)
- Development team (expert and experienced, large number of developers, etc.)
- Growing popularity (increased demand for cryptocurrencies, more people who use it, media coverage, etc.)
These are the most important general rules when determining the potential of a cryptocurrency. Some of them are more important than others, but the cryptocurrency that you select must meet at least 3 of these criteria.
4. Determine where the price is. Is it low or high?
Is the price now at its lowest level of 45 weeks? Or is it at its maximum? You probably heard the phrase "buy cheap, sell expensive".
Do not buy cryptocurrencies when the price is at its highest point, and do not sell them when they are at their lowest point. The cryptocurrency markets rise and fall, and large movements are often followed by sudden drops.
It is definitely true that there may be situations in which the value of a cryptocurrency continues to rise for a long time. However, such investments are very risky for beginner traders because it is difficult to determine how long a rise may last.
The best way to learn how to trade is to really trade. It is not a secret. Once you have learned the whole theory, you will need to practice. Buy some cryptocurrency, set your limits and start. Libertex free demo account will allow you to practice trading as long as you want, without risking real money!
6. The Best Way to Approach Cryptocurrency Trading
One of the best investors of all time, Warren Buffet, once said:
"Be afraid when others are greedy and be greedy when others are afraid."
And this is an excellent way to approach the cryptocurrency market. Do others sell coins for a relatively low price? Great! It can be a good time to buy them. Is the optimism of the market false? Well, now this could be a good time to secure those gains and exit your trades safely.
7. What Affects the Price of Cryptocurrencies?
There are many factors that fundamentally influence and that can bring the price of cryptocurrencies down or up. The main ones are the following:
Every time a government makes a public statement about the regulation of a cryptocurrency, the market always reacts to it. Remember when China banned ICO's? The price of Bitcoin and other cryptocurrencies fell rapidly. Therefore, it is very important to be aware of these events, be it a beginner or an expert trader.
Exposure to the Media and Other Influential People
In general, cryptocurrencies gain value when they receive a positive exposure to the media. It's simply because more people are interested in buying them. There are also people who can influence the crypto prices. These people are usually very well recognized in the field of finance and investment. Then, when the CEO of the largest US bank J.P. Morgan, Jamie Dimon, publicly stated he thought Bitcoin was a fraud that would eventually explode, no wonder the Bitcoin market had taken a big hit.
Broader General Acceptance
Have Amazon, eBay or another large international company announced that from now on they will accept payments in Bitcoin? Great! You probably know what that means for the market.
Similarly, when large companies such as Microsoft, Intel or others provide their name and finances, this is another reason for the price to go up.
Technological Changes and Innovations
Each new technological change carries a high probability that it can significantly affect the price of a cryptocurrency. For example, if the publication of a new security protocol is scheduled that will make cryptocurrencies even more reliable, secure and scalable, this could also induce a positive response from the market.
State of Other Markets
It should not be surprising that cryptocurrencies also react to developments in other markets. In the past, cryptocurrencies tended to benefit from declines in other markets.
Cryptocurrency trading can be profitable, but only if you play your cards well. Hopefully, you now know enough to start this exciting adventure.
Commercial cryptocurrencies work almost exactly like fiat currencies. While profits are never guaranteed during trading, you can take steps to protect yourself from large losses and improve your understanding of how markets move.
The Libertex team hopes that this article will be useful for you and we hope you will start working with us. For this, we can offer you a demo account free of charge, as well as free lessons. Having become familiar with that, you will soon be able to start earning real money! In addition, our support service is always ready to help you.