Cryptocurrencies are the hottest asset class in finance and are disrupting industries like banking, cross border payments, credit cards, and more. DeFi is even doing away with traditional lending and borrowing, all without lengthy credit checks and other limiting factors.
The only problem with crypto is that the asset class is generally still more speculative today than a technology with widespread adoption or usage. Adoption is spreading, but for now, trading crypto is the better alternative to investing, which can leave holders susceptible to bear markets and dangerous downtrends.
Cryptocurrency as a technology can be confusing, and investing challenging – which is why trading can also be difficult without the right education or practice. This guide offers one half of the equation, providing extensive tips on how to get started trading cryptocurrency if you are a beginner.
Investing Versus Trading Crypto
First, we will break down the differences between investing versus trading crypto.
Investing in crypto is something anyone can do and takes very little effort or skill. It simply involves buying crypto assets and holding them for the long term. This type of investor is often encouraged to HODL – hold on for dear life – due to how volatile cryptocurrencies like Bitcoin can be.
The alternative to always holding, is to sell these assets, which to be profitable must be sold higher than the initial purchase price. This can be challenging to time so the guidance instead is to HODL and to forget about selling altogether. But that’s no way to secure returns.
Trading instead offers a way to make money whichever way the market direction turns, all without having to be exposed to the underlying asset itself. Trading lets people speculate instead and trade derivatives contracts that focus on the price of the underlying crypto asset.
Even if trading accounts rely on crypto as a base currency, in cases like this stablecoins can provide a base currency that lacks volatility and lets users trade CFDs. Meanwhile, there is no such thing as investing in stablecoins, as they do not increase in value like Bitcoin or other altcoins do.
Why Trade Crypto CFDs Over HODL
CFDs stand for contracts for difference. The way these derivatives contracts work is that the buyer and seller agree to settle the contract at the difference in underlying asset price from the time the contract is opened until it is closed.
For example, opening a short position on BTCUSD when Bitcoin was trading at around $60,000 and then closing it at $30,000, would result in a price difference and profit of $30,000. CFDs are typically traded on margin, which allow for profits to be amplified further with leverage.
Trading crypto CFDs on leverage over holding is an obvious choice for those seeking the fastest capital growth. Bitcoin price rallies every four years with each halving, and during that short period, it makes a great investment. All other times, the cryptocurrency spends consolidating or in a bear market, where investors have to wait another four years for ROI to return.
With CFDs, crypto traders can go long or short Bitcoin and other altcoins with each peak and trough, keeping profits flowing all throughout. There’s a reason why trading platforms increase in notoriety in bear markets, while crypto exchanges do well during bull markets.
CFDs also let traders get in and get out of positions quickly, rather than HODLing and waiting for another parabolic impulse wave and crypto market cycle.
How To Begin Trading Crypto
To begin trading crypto, it is wise to start with the basics of learning technical analysis, such as finding support and resistance, and understanding crypto price charts.
From there, a trader can learn chart patterns, candlesticks, and technical indicators. Common indicators include the Bollinger Bands, Ichimoku, Parabolic SAR, and many more. These tools can tell a trader when to go long or go short, as well as where to place stop loss orders.
Learning how to spot trends is the next critical piece of the puzzle, as well as learning risk management strategies. Combining all of this means you’re ready to try your hands at markets, but still need to find a reliable trading platform.
Platforms such as PrimeXBT, an award-winning margin trading platform, offer built-in technical analysis software, long and short positions and more than 50 CFDs under one roof. However, there are several brokers that offer CFDs so it is wise to research other available platforms and compare features.
Trading requires even more than just knowledge of markets. Trading requires a strong emotional and mental state, and an ultra sharp mind. The best traders also must force themselves to take bold positions even when others are fearful, or when the market is at its greediest. Reading sentiment and following the news cycle is also a critical factor in becoming successful.
Finally, fundamental analysis in crypto is unlike any other area of finance. There are no revenue reports or quarterly company results to share. Instead, fundamental analysis around Bitcoin and other cryptocurrencies looks at how active wallets are, how much BTC they hold, or how much BTC is left on exchanges. Using this data to track the movement of coins is nearly as important as technical analysis.
Relying on the bevy of skills and tools above, anyone can find success in markets with time, patience, and a steady hand.
Conclusion On Crypto Trading For Beginners
Each crypto trader is unique, and therefore there is no perfect way to get started for everyone. Investing carries less risk than trading, and derivatives can further increase risk and profitability with leverage. How much risk you are willing to take on or how much profit you are after will determine how much capital to put into each position. Remember, never invest or trade with more size than you can comfortably afford to lose, and be sure to do additional research on which broker to use and keep learning as you go. That concludes our guide to trading cryptocurrency for beginners – you are now ready to try crypto trading on your own.