How To Trade Cryptocurrency
What is crypto trading?
Crypto trading is the process of speculating on cryptocurrency prices, and buying and selling them accordingly.
Crypto traders typically use crypto exchanges such as eToro and Uphold. These are marketplaces where traders meet to track prices and make transactions.
The idea is to buy crypto assets expected to increase in value, typically because of events in the news, the economy, in regulation and so forth, and sell them for a maximum profit before prices drop.
Ways to trade cryptocurrency
Within a chosen crypto exchange, a trader will be able to check current prices for a range of tokens, and see how they’ve been performing over the past hours, days, weeks, months and even years.
Exchanges will generally show users the tokens that are trending upwards and downwards in price, new tokens, popular tokens and so forth. Users can use all of this information to decide which coins to buy and sell.
Buying a cryptocurrency means someone else is selling with both parties just using the exchange as an intermediary. When there are more buyers than sellers, the price of a token tends to rise – and vice versa.
How and when an investor chooses to buy most likely depends on his/her approach to investing, what they may hope to gain, and the risk each trader is happy to tolerate as part of the transaction.
Day trading
Day traders buy and sell tokens within the same day to take advantage of movements in the market. This offers the potential for quick returns and mitigates risks of big price drops from one day to the next.
On the other hand, day trading is such a short-term strategy that it prevents investors from riding out price dips that might correct themselves over longer periods.
Swing trading
Swing traders hold coins for longer periods of time, monitoring prices of assets over a period of weeks to determine the best assets to buy, sell and hold.
Observing price movements over longer periods can help traders to make more informed decisions, but potentially requires more discipline and the ability to not act impulsively on changes.
Position trading
Position trading takes a long-term view on crypto investing. Position traders buy coins in anticipation they’ll make gains over the longer term, and are less concerned with day-to-day volatility.
Position trading also has the benefit of being able to build a portfolio over time, starting with a small investment and increasing it over time. The trade-off is that investors cannot make quick returns.
What makes prices change?
There are countless factors that can affect the price of a cryptocurrency, but supply, demand and sentiment are useful bellwethers for predicting trends.
When demand is met with sufficient supply, or more supply than is needed, prices tend to remain flat or fall. In crypto, supply is determined by how coins are mined.
For example, next year the amount of Bitcoin given to miners who successfully add a block to the blockchain will halve from 6.25 BTC to around 3.125 BTC.
This drastic slowdown in the rate of new Bitcoin issuance could, in theory, push prices up as supply becomes constrained. However, if demand were to drop significantly, the supply squeeze would be insignificant.
Public backing
Demand is the other side of the coin. When more people are interested in buying something, the more those who can afford it are willing to pay for its relative scarcity. If, for example, a major public figure were to say they believed a coin would become very valuable, their support could pique interest and lead demand to outstrip supply, pushing prices up.
On the other hand, if a coin begins to be seen as less valuable – perhaps if there were rumours of liquidity issues behind the scenes – demand could fall and sellers would need to accept lower prices in order to get rid of their coins, hence prices fall. According to a Forbes Advisor survey, 58% of respondents said the recent cryptocurrency crashes affected their investments.
Keeping abreast of the news
Monitoring the news for changes in these three factors can help to predict how prices might change, but countless external factors are also at play.
To make trades with crypto assets, investors need to provide their public and private keys. They can’t authorise a trade without these long alphanumeric strings, the latter of which should be known to the owner alone.
Crypto owners’ keys need to be stored in a secure wallet to prevent their unauthorised use. Most, if not all, crypto exchanges offer a free wallet in which to store keys.
These ‘hot’ wallets live online, which makes them vulnerable to hackers. On the other hand, they’re convenient and come with support from the provider via account recovery if a user were to, for example, forget their crypto exchange password.
Investors can store their keys offline to keep them at arms’ length from hackers, but they’ll have to pay for a USB device and they won’t get third party support if they lose their device or forget their passwords for it. Plus, the protection from hackers is weakened once one plugs their ‘cold’ wallet into a web-connected computer.
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What is crypto trading?
Crypto trading is the process of speculating on cryptocurrency prices, and buying and selling them accordingly.
Crypto traders typically use crypto exchanges such as eToro and Uphold. These are marketplaces where traders meet to track prices and make transactions.
The idea is to buy crypto assets expected to increase in value, typically because of events in the news, the economy, in regulation and so forth, and sell them for a maximum profit before prices drop.
Ways to trade cryptocurrency
Within a chosen crypto exchange, a trader will be able to check current prices for a range of tokens, and see how they’ve been performing over the past hours, days, weeks, months and even years.
Exchanges will generally show users the tokens that are trending upwards and downwards in price, new tokens, popular tokens and so forth. Users can use all of this information to decide which coins to buy and sell.
Buying a cryptocurrency means someone else is selling with both parties just using the exchange as an intermediary. When there are more buyers than sellers, the price of a token tends to rise – and vice versa.
How and when an investor chooses to buy most likely depends on his/her approach to investing, what they may hope to gain, and the risk each trader is happy to tolerate as part of the transaction.
Day trading
Day traders buy and sell tokens within the same day to take advantage of movements in the market. This offers the potential for quick returns and mitigates risks of big price drops from one day to the next.
On the other hand, day trading is such a short-term strategy that it prevents investors from riding out price dips that might correct themselves over longer periods.
Swing trading
Swing traders hold coins for longer periods of time, monitoring prices of assets over a period of weeks to determine the best assets to buy, sell and hold.
Observing price movements over longer periods can help traders to make more informed decisions, but potentially requires more discipline and the ability to not act impulsively on changes.
Position trading
Position trading takes a long-term view on crypto investing. Position traders buy coins in anticipation they’ll make gains over the longer term, and are less concerned with day-to-day volatility.
Position trading also has the benefit of being able to build a portfolio over time, starting with a small investment and increasing it over time. The trade-off is that investors cannot make quick returns.
What makes prices change?
There are countless factors that can affect the price of a cryptocurrency, but supply, demand and sentiment are useful bellwethers for predicting trends.
When demand is met with sufficient supply, or more supply than is needed, prices tend to remain flat or fall. In crypto, supply is determined by how coins are mined.
For example, next year the amount of Bitcoin given to miners who successfully add a block to the blockchain will halve from 6.25 BTC to around 3.125 BTC.
This drastic slowdown in the rate of new Bitcoin issuance could, in theory, push prices up as supply becomes constrained. However, if demand were to drop significantly, the supply squeeze would be insignificant.
Public backing
Demand is the other side of the coin. When more people are interested in buying something, the more those who can afford it are willing to pay for its relative scarcity. If, for example, a major public figure were to say they believed a coin would become very valuable, their support could pique interest and lead demand to outstrip supply, pushing prices up.
On the other hand, if a coin begins to be seen as less valuable – perhaps if there were rumours of liquidity issues behind the scenes – demand could fall and sellers would need to accept lower prices in order to get rid of their coins, hence prices fall. According to a Forbes Advisor survey, 58% of respondents said the recent cryptocurrency crashes affected their investments.
Keeping abreast of the news
Monitoring the news for changes in these three factors can help to predict how prices might change, but countless external factors are also at play.
To make trades with crypto assets, investors need to provide their public and private keys. They can’t authorise a trade without these long alphanumeric strings, the latter of which should be known to the owner alone.
Crypto owners’ keys need to be stored in a secure wallet to prevent their unauthorised use. Most, if not all, crypto exchanges offer a free wallet in which to store keys.
These ‘hot’ wallets live online, which makes them vulnerable to hackers. On the other hand, they’re convenient and come with support from the provider via account recovery if a user were to, for example, forget their crypto exchange password.
Investors can store their keys offline to keep them at arms’ length from hackers, but they’ll have to pay for a USB device and they won’t get third party support if they lose their device or forget their passwords for it. Plus, the protection from hackers is weakened once one plugs their ‘cold’ wallet into a web-connected computer.