What is cryptocurrency trading? How does it work?

What is cryptocurrency trading? How does it work

The first cryptocurrency, bitcoin, gave the last decade's high return of investment of the last decade than anything else in the world. If you had bought 1000 bitcoins in 2010 when it was available at a meager 10 cents, on April 12, 2021, when bitcoin was its all-time high of 63,000 dollars, your ROI for 100 dollars would have been 63 million dollars. Hence it is no wonder that many like you want to know what cryptocurrency trading is?

Also read: Myths about cryptocurrency

What is Cryptocurrency Trading?

Because of being highly speculative to give huge returns, cryptocurrency trading has become the craze among people in the last few years. Apart from bitcoin, the first cryptocurrency and the most valued and traded, many other cryptocurrencies are available for trading in the many cryptocurrency markets. Similar to trading in stocks, cryptocurrencies trading is possible to make profits by buying them or shorting or selling them in anticipation of their price to fall also yields good returns. But stocks are traded in government-controlled exchanges, whereas cryptocurrency exchanges are decentralized to run across a network of computers protected by blockchain technology.

How to Trade Cryptocurrency?

It is time to know how to trade cryptocurrency after knowing about cryptocurrency trading. Over a decade, there have been many regulated cryptocurrency exchanges for trading to make a profit or loss. Many online trading provider platforms facilitate cryptocurrency trading with these exchanges. They are similar to the broking firms for trading stocks affiliated to specific exchanges. These cryptocurrency trading providers will act as intermediaries to buy or sell cryptocurrencies. Also, an online exchange will enable you to convert the cryptocurrencies to dollars or other fiat currencies deposited in the bank to withdraw anytime.

Also read: Crypto facts. The following are the few simple steps for you to start cryptocurrency trading.

Simple Steps for Cryptocurrency Trading

  • Choose the right online cryptocurrency trading provider affiliated with the best exchanges.
  • Open an account within minutes and with minimal documentation.
  • Transfer the desired amount from the banks to the cryptocurrency trading account with the online platform
  • Start buying or selling cryptocurrencies or trade-in CFD or contract for difference trading by engaging in a contract with the broker for buying the asset.

And that is all for you to start cryptocurrency trading from the comfort of your home to make big money by trading responsibly and with the right strategy.

Risk-free Crypto Trading

Since trading in cryptocurrencies is both highly profitable and risky to lose hard-earned money, it is advisable to trade cautiously, responsibly, and only with the extra money. Trading cryptocurrencies with unaffordable money or borrowed money or money meant for other expenses to make big money will have more chances of losing and create a lot of hardships. Hence using the right tools, strategy, and a perfect plan of not losing above a certain amount by using the stop-loss orders and strictly adhering to it is the best way to trade in cryptocurrencies. Listed below is an example of safe crypto trading.

Cryptocurrency Trading Examples

A profitable buying cryptocurrency trading example is buying Ethereum at X price and selling it within a day of X+ price. If it is X-, it is a losing trade. Also, you can trade in CFDs or contract for different trading like selling 5 Ethereum units against dollars at 500 dollars when the sell-buy current quote is 550/500. It is equal to buying five ether units for you to gain or losing 5 dollars for every 1 dollar change in Ethereum value. As per your prediction, if the US dollar falls to 460/510, you buy the five units to make a profit of 550-510 = 40 x 5, which is 200 dollars will be the profit.

If the US dollars rise against your expectation, you make a loss.

What is the Right Cryptocurrency Trading Strategy?

From fewer than ten cents, the first famous and most traded cryptocurrency, bitcoin, went up to an all-time high of 63,000 dollars within a little more than ten years in April 2021. But within less than ten months now, it is trading around 36,000 dollars which are nearly half of its all-time high. Such is the colossal volatility associated with cryptocurrency trading than in any form of investment, including stocks. The most traded cryptocurrency can fluctuate even 30% in a single day to be highly risky for losing big money or a boon to make big money. Since trading in cryptocurrency is like a double-edged sword, you should have the right cryptocurrency trading strategy not to lose hard-earned money but consistently get better returns by buying or selling cryptocurrencies. Building a solid trading plan using the right risk management tools and understanding the many intricacies of cryptocurrency trading is critical for making money than losing it.

A few of the cryptocurrency trading strategies include:

  • Day trading, also known as intraday trading, is by taking positions of buying or selling cryptocurrencies and exiting them on the same day by relying on technical indicators to find out the entry and exit points for making profit or loss that ends with the day.
  • Range trading relies on experienced analysts who give the resistance and support levels that are crucial for the cryptocurrency movement, and taking positions at those levels will reduce the chances of losing and increase the chances of making profits.
  • Scalping is another cryptocurrency trading strategy by analyzing the increased trading volumes, past trends, crypto assets, among others, to enter and exit on the same day.
  • HFT or high-frequency trading strategy used mainly by quant traders involved developing trading bots and algorithms which have an excellent understanding of the complex concepts with sound knowledge of computer science and mathematics for quick entry and exit.
  • DCA or dollar cost averaging is investing fixed amounts at regular intervals to earn money in the long term without relying on the timing of the market, which is only next to impossible for entry and exit profitably.
  • Build a balanced portfolio is buying different cryptocurrencies like Bitcoin, Ethereum, Dogecoin, and others to have a mixed and balanced portfolio to avoid any vast risks and be safe from extreme volatility.

The above facts will be more than enough for you to know what is cryptocurrency trading and how it works responsibly and makes huge profits.