What are best ways to trade cryptocurrencies? There is a lot of difference between buying or owning cryptocurrencies and trading them.
Buying crypto coins actually means outright purchase where you hold the coins for a long time and sell it when the prices go up significantly.
Trading, on the other hand, usually means buying and selling the coins within a short period of time to make the maximum out of the potential opportunities due to the volatility of prices of the coins. This is primarily called directional trading.
If you want to buy and hold the coins simply, it is enough to know the best cryptocurrencies to buy but when you want to trade them, you will need to know the best ways in which you can do so in order to maximize your profits.
Margin and leverage are the most common ways to trade cryptocurrencies however, depending on the cost of the coin you may also implement other ways of trading so that your trade does not become expensive in the end.
In most cases, trading crypto coins usually becomes a daunting task, especially for those people who are new to the crypto world. Therefore, it is important for you to know the cryptocurrency trading steps.
Best Ways to Trade Cryptocurrencies
Here are some tips and advice to follow while trading crypto coins and some of the best ways to go ahead.
Read through this article before you get started so that you make all decisions confidently.
1. Routes to take
The first, and perhaps the most important, thing to do is to decide how exactly you would like to trade your crypto coins. Typically, there are two specific routes to take while trading cryptocurrencies. These are:
- Based on the speculations of the prices of the coins by using Contract For Difference or CFD method and
- Purchasing the crypto coins from an exchange hoping that the value of them will rise in the future, near or distant.
Trading crypto coins using CFD is actually done on the basis of a contract. The entire trading process and its outcome primarily depend on the price of the coins in the market instead of owning the coins and holding them for trading later.
This contract is actually your willingness to trade the price difference of a cryptocurrency from the time when you open your position initially till the time of closing it.
You will make profit when the price of the crypto coins rise and you open a long position. On the other hand, if the price falls, you will incur loss on your trade. On the contrary, if you open a short position, the converse is true.
Alternatively, if you wish to buy cryptocurrencies from an exchange, you will actually take ownership of it outright and hold them in your crypto wallet. You can sell them to gain profit when the prices rise.
However, if you follow this route you will first need to open a digital wallet along with your trading account with the crypto trading exchange. There can be a long wait period in it and you will have to go through a lot of steps to complete the process.
2. Knowing the working process
The next important step to trade cryptocurrencies is to know how exactly the crypto market works.
This is vital because the crypto market is significantly different in stature as well as in the mode of operation as compared to any other financial markets.
You will also need to understand the technologies involved as well as the jargon used here before you begin to trade.
The cryptocurrency market is not controlled by any central authority or the government. It is basically a decentralized currency market that is entirely digitalized and depends primarily on a network of computers within a trading chain.
It usually operates via peer-to-peer transaction, with checks and verifications made at each node of the network instead of relying on a central server.
When you buy or sell any crypto coins, these are considered as a block and are added to the chain, creating a ‘block chain.’
This blockchain is a shared and public digital ledger that records all transactions and data. This process is called ‘mining’.
It is also important to know that there can be steep and frequent rise and fall in the prices of the crypto coins which makes the crypto market extremely volatile, and thereby risky.
In order to trade confidently and successfully, you will first need to know which coin can be pricier and has the potential to move the market.
3. Account creation
Once you are confident with the crypto market as well as the route to take, it is time to get ready for the trading process.
Assuming that you want to trade your crypto coins via CFDs, there is no need for you to open an account.
This way you can open a short position even faster. On the other hand, if you buy the crypto coins, you will need to open an account as well as get a digital wallet with an exchange.
In CFD trading, you will however need to create an account with one of the leveraged trading providers. This can be done in minutes and the best part is that you will not need to add any funds until you place a trade.
4. Put up a trading plan
Once you are done with the account creation process, you will now need to create and have a proper trading plan in place.
This is one of the most crucial parts of the process because your chances of success will largely depend on how well your plan is created and how feasible it is to achieve.
It is also very necessary to deal with the high level of volatility of the crypto market which it is known for. This volatility attracts the investors but also makes it difficult and risky for the traders to trade.
To create a good trading plan you should focus on and include several aspects such as:
- The risk management tools
- Your goals and an outline as to how you intend to reach them
- The specific type of crypto coins you wish to trade and
- A clear and viable methodology to enter and exit.
All these points in your trading plan will help you immensely to create the best trading strategies.
5. Fundamental and technical analysis
In addition to the above mentioned points, you will be much better off if you also focus on the analysis of the crypto market and the ways in which you want to do it. It can be either through fundamental analysis or technical analysis or both.
Technical analysis is a process in which the price movements of a specific crypto coin are considered. It is mainly based on the historical pattern of the coin.
On the other hand, fundamental analysis is the process in which all external and relevant factors are taken into account. It also deals with the macroeconomic data that influences the digital asset and the market fluctuations.
Irrespective of the method you choose, it is paramount that you stay up to date with the events and happenings in the market, along with its current trends, that may have a serious impact in its working process.
This is a vital step to follow because the market sentiment plays a significant role in determining the status of the sensitive cryptocurrencies.
With a proper market analysis you will have a clear idea of your objectives, its viability for success and potential to provide higher capital gains.
6. Select a trading platform
The next important step to follow to trade cryptocurrencies is to choose a reliable and reputable trading platform.
Always go for a trading platform that is known to provide better, faster, and smarter ways to trade crypto coins via CFDs. Also, check that is comes with other useful features such as:
- Personalized alerts
- Risk management tools built in and
- Interactive charts.
It should also allow you to trade using either your web browser or through a mobile app. To be better off, it should also support other sophisticated third-party platforms.
7. Follow the right trading process
Since you will just need a trading account and no digital wallet, you can start trading your crypto coins straight away through the platform you have chosen.
All you have to do now is follow your trading strategies so that you enhance your profitability. The best way to do so is to:
- Open your first position
- Monitor your trade and
- Close it.
You can trade with Bitcoin, Litecoin, Ether, or any other cryptocurrency. Once you select the market and open the deal ticket, check the list that includes both the buy and a sell price. Make your decision based on the size of your position.
Once you are done, you can either select buy, if you want to open a long position, or sell, if you want to open a short position. It is good to keep in mind here that you can even add limits or stops to close your trade.
However, you can do so only when your trade reaches a specific level. This will protect your trade and ensure that you do not encounter any risks unnecessarily.
Also, monitor the profit or loss of your position very closely when you deal with the trading platform, especially in your open positions.
When you feel that it is the right time to close your position, all you need to do is place a comparable trade in the reverse direction.
8. Know the right time
Knowing the right time to buy and sell crypto coins is one of the most important aspects to make the most out of the volatile nature of this market and the digital assets.
You should typically trade at the best time but sadly there is nothing called ‘best time’ when it comes to dealing with cryptocurrencies.
This is because the crypto market, unlike any other stock markets, is open 24 hours a day and operates seven days a week. This means that the price of a coin can change anytime.
Also, the cryptocurrencies are traded all across the globe which, as you may know, has different time zones. This means that the crypto market never sleeps and is active at some part of the world or other.
This specific aspect of the crypto market also has a significant benefit. Working around the clock, it creates much better and more trading opportunities, provided you have the proper and highly functional risk management tool in place.
This will not need you to monitor the market all the time and you can have complete peace of mind while trading your crypto coins.
9. Demand and supply
In order to be very confident with your trade, you should also know a few other basic things of economics that will influence the market as well as your trade. One of these is the supply and demand perspective of the market.
You may know that any commodity market is driven by the forces and level of supply and demand. The crypto market is not any different from this rule.
Therefore, you will need to make your sales when the demand of the specific crypto coin is high and the supply is low to make more profit.
On the other hand, you should hold yourself back when the supply is high and demand is less as that will fetch you a low price.
To understand demand and supply and its effects on the crypto market you will need to consider several relevant factors that affect them. These are:
- The technological progress and innovations
- The current trend of the market
- The upcoming trends
- The health and status of fiat currencies and government regulations and politics
- The blockchain forks and
- The Initial Coin Offerings or ICOs.
The best way to keep you updated about the crypto market and its happenings is to listen to the news published in different crypto websites.
Right from the best time to trade to the conditions of the crypto market, there are many factors to consider while trading crypto.
The steps above will simplify things for you, though being creative and judicious are primarily important.