You may want to explore cryptocurrency trading, like millions of other people around the globe. Even though Bitcoin trading is a well known activity, it’s still something that relatively few understand how to do. With the potential for massive returns on a Bitcoin investment, this could be a skill you can’t afford to let go unlearned. Fortunately, we’ll show you how to trade cryptocurrency in the guide to come. Let’s get started!
Trade vs Invest in Crypto
Before we get into the nuts and bolts of Ethereum trading (or whatever coin you like), let’s talk about the difference between Trading and Investing in cryptocurrency. Basically, it all comes down to timing.
Traders hold their cryptocurrencies for relatively short amounts of time – weeks, days, hours, minutes. They (try to) buy low and sell high, and tend to trade frequently. People who trade all the time are called “Day Traders”.
Investors tend to buy cryptocurrencies for the long term. They believe that there is big potential in the coins they select, and that they are built upon technologies that will go mainstream, or at least be very successful in their own right. Investors tend to be willing to hang onto their cryptocurrencies for months or even years. They’re not so much concerned with trading, as they’re not trying to get rich quick. Investors are in it for the long haul.
The same person may be both a trader and an investor. Furthermore, there’s no right or wrong way. There are thousands of people in both camps who have been very successful and made a ton of money. Whatever your style, do plenty of research to make the decisions that’ll have excellent outcomes.
Why People Trade Crypto
Cryptocurrency prices are highly volatile. This means that prices rise and fall with great regularity, with daily price changes of more than 10% not at all uncommon. People who know how to buy at low prices, then sell when the market is higher, can make plenty of money if they have consistent success. It takes a lot of research to learn the market patterns that traders look for. You’ll also have to follow the news associated with the coins you’re interested in. With practice, you might just get good enough to make some real money.
Pros & Cons
- Pros – With practice reliable money, there may be no other asset class better suited to trading because of the volatility in crypto
- Cons – With bad luck you can lose money quickly, you’ve got to pay taxes on every single trade
Why People Invest in Crypto
Trading requires lots of time and focus. It can be a job, and not everyone has time or interest for that. Investors see the potential of various cryptocurrencies, choosing to invest in cryptocurrency for the long term. They believe that the price of the coins they buy will one day be much higher than it is today. They’re willing to wait for that time to come.
Pros & Cons
- Pros – Once you have good coins just “set it and forget it”, high growth potential over the long term
- Cons – usually won’t make money quickly, projects can fail in the long term even if they look good now
How to Trade Cryptocurrencies
There are various ways to trade cryptocurrencies. You could buy the coins and sell them/trade them for others. You could also use futures contracts like CFD (Contract for Difference), which allow you to invest in Bitcoin without actually buying it; your purchase price, losses, and profits will all simply be settled with cash.
There are other forms of futures contracts that work similarly. Hopefully, in the future we’ll also have cryptocurrency ETFs (Exchange Traded Funds), but for now we’re more limited. Let’s learn about these crypto trading forms more in depth.
Traditional Crypto Trading – Exchanges
Cryptocurrency exchanges are websites where you can create an account, deposit money/crypto, and trade one kind of cryptocurrency for between a few and hundreds of other kinds.
Popular cryptocurrency exchanges include Coinbase, Binance, Gemini, and many others. Fiat-exchanges (those than accept fiat money payments) tend to have just a few coins on offer. Non-fiat exchanges (where you have to buy Bitcoin or another popular cryptocurrency to trade for others) like Binance tend to have dozens or hundreds of tradable currencies on offer.
Let’s look at how trading on Binance works, as it’s a good example for most other crypto exchanges.
At the top left of the screen, you’ll see “Exchange”. This dropdown menu allows you to choose the “Basic” or “Advanced” exchange pages. You can trade crypto on either one. Since it’s a bit more simple, let’s choose “Basic”. This is what’s pictured above.
To the right of this screen, you’ll see a search bar atop a long list of cryptocurrency pairs. Here you can decide which coin you want to buy, and which exchange currency you want to pair with it. For example, you could choose NEO/BTC if you want to buy NEO with Bitcoin, or NEO/ETH if you want to buy NEO with Ethereum. Click the correct pair when you find it.
At the bottom left of the screen, you’ll see a small menu that allows you to buy your chosen currency. Choose the amount you wish to pay for a single coin, the number of coins you wish to buy, and the “Total” price will be displayed at the bottom. Click “Buy BTC” (or whatever other coin you wish to buy), and your order will be completed.
To find your coins, click on “Funds” at the top of the screen. This will bring up a dropdown menu. Click “Deposits Withdrawals” to be taken to the wallet page. The coin you bought will appear in a wallet on this page, and you can withdraw it to any outside wallet from here.
All other cryptocurrency exchanges will have basically this same functionality, though the user interface will look different. Once you understand these functions, you should be able to navigate just about any exchange.
Cryptocurrency CFD trading
CFD(Contract For Difference) is the easiest way to trade in cryptocurrency, because it doesn’t require that you learn the difficult transactions and storage involved with crypto. Instead, you lock down the price of your chosen cryptocurrency into a contract. The price changes. If you sell the contract after the price goes up, you make profit just as if you owned real crypto.
Platforms like eToro, Investous, and Plus500 give you all of the profit potential associated with cryptocurrency, without giving you the difficult task of responsible crypto ownership. All accounts are settled with cash, and even though no crypto actually changes hands, for investors only interested in crypto profits, this is actually an easier way.
Let’s take a look at eToro, the most trusted CFD investing option in the world.
Above, you can see the simple eToro interface. You can choose to “Buy” any cryptocurrency offered on the platform, as well as any of the other assets tradable on eToro.
Once you’ve selected a coin to trade, you’ll see this trading screen. You can choose to “Leverage” your trade, which will allow you to buy more crypto than you could actually afford. If you take profits, you’ll pay off the “loan” from eToro with these, then make your extra money on the top. Leveraged trading can also result in a loss, so be very careful.
Bitcoin Futures Trading
Bitcoin Futures are something of a mix between regular exchange and CFD trading. Here, the trader decides whether she thinks an asset like Bitcoin will rise or fall in price in the near future. The investor creates “long” and “short” positions, based on whether they believe the future price will be higher or lower than it is today.
In a “short” position, for example, an investor will sell Bitcoin they do not own, because they believe the price will soon fall. The exchange will lend them this Bitcoin. If the price does go low, the user profits, even after paying the exchange back. This is different than CFD because actual assets like Bitcoin change hands.
Crypto exchanges like Kraken, and conventional fintech trading platforms like TD Ameritrade, offer crypto futures trading. Futures trading was an early way for institutional investors to get into crypto. The inclusion of this investor class has brought a new level of stability to cryptocurrency prices, which we don’t expect to be in 2019 quite as volatile as they were in 2017.
Picking a Trading Platform
When choosing a crypto trading platform, prioritize platforms like this:
- Use a platform with an intuitive interface. Make sure you understand how everything works.
- Choose a trusted, well-regulated exchange. You’re trusting them with your money, after all. eToro and Coinbase are good examples.
- Choose an exchange that sells the coins you wish to buy.
- Pick an exchange with excellent customer service.
- Select the exchange with affordable fees.
How to Make Money Trading Cryptocurrencies
If you wish to become a cryptocurrency trader, you need to learn the rules that apply to all forms of trading (not just crypto. Vantage Point Trading has tons of tutorials about risk management, technical analysis, and all kinds of trading basics. It all comes down to “buy low, sell high”, but the best practices that let you achieve that goal take a bit of research. Fortunately, we have all of that information for you here!
Cryptocurrency Risk Management
Cryptocurrency prices are volatile and unpredictable. This means that even the most experienced trader can lose money quickly if they make a mistake. Make sure you understand the risks and potential rewards of trading mechanics like leverage. Also develop strong working knowledge about the nuts and bolts of sophisticated trading: stop-losses, slippage, capital-at-risk vs. account capital.
“Don’t Trade More Than You Could Afford to Lose” is an investor adage older than Bitcoin. No matter how much you learn about investing, always make sure that you don’t have too much money at risk within this experimental new asset class. Don’t be afraid to take profits. If we really are moving into a significant crypto bull run, make sure to keep a level head!
Factors That Affect Cryptocurrency Price
Cryptocurrency prices are constantly rising and falling. What are the factors that cause these constant fluctuations.
Well, at any given moment, Bitcoin and the altcoins are only worth what traders are willing to pay for them. Bitcoin’s market cap is the latest average price of Bitcoin, multiplied by the number of Bitcoin in circulation.
But what decides the price that traders are willing to pay?
On the one hand, there are real world events which make people bearish or bullish about Bitcoin. For example, if a major online retailer starts to accept Bitcoin, this makes people believe that Bitcoin will be more valuable in the future, thus driving up the price people will pay for Bitcoin as an investment. On the other hand, if the Bitcoin network starts getting congested, people start to look for alternatives, and Bitcoin prices sink.
Within markets, there are many trading patterns that have emerged over the years. These are the factors discussed in “Technical Analysis”. Support Levels, Resistance, Cup-and-Handle patterns – this study identifies natural patterns which tend to emerge in all kinds of trading. Being able to see these patterns as they manifest in real time lets skilled investors “predict the future”, if only just a short time in advance. Big profits can be had this way, if you get good at it.