This guide about cryptocurrency trading for beginners will take you from a knowing nothing about crypto to be able to start trading your first Bitcoin.
So, you want to trade cryptocurrencies, but you don’t know where to start learning about this exciting rollercoaster of a market and its fundamentals?
Don’t worry, we have a perfect crypto trading for beginners guide for you to be able to get a hang of what it really takes to be successful in the crypto market.
This article is focused on all the basic knowledge a newbie just has to absorb to continue growing as a trader.
Through a series of, sometimes, interrelated topics, this crypto trading guide is going to submerge you into the world of crypto trading and its secrets, so let’s get down to business.
What are Cryptocurrencies?
Cryptocurrencies can most easily be defined as digital assets that use cryptography and rely on some kind of (more or less) decentralized technology.
The trustless nature of cryptocurrencies (the environment in which a user doesn’t have to trust anybody but the network itself) allows the highest level of decentralization among all payment (and other) systems.
What is Bitcoin?
The first cryptocurrency, Bitcoin (BTC), was launched in 2009 by the evasive entity dubbed Satoshi Nakamoto as peer-to-peer electronic cash backed by the blockchain technology.
Of course, more similar projects followed the same path, so every other cryptocurrency other than BTC is called an altcoin.
What is Blockchain?
Most cryptocurrencies use blockchain as the underlying technology, but that is not a necessity as some use other types of decentralized systems, such as IOTA’s Tangle. Read more about IOTA in our article about the best price predictions for IOTA.
Nowadays, cryptocurrencies are primarily used to transfer money (especially international) faster, cheaper, more secure and more transparent than any current money transfer system is able to achieve. However, they are not just currencies and have far more applications than their traditional fiat counterparts.
Cryptocurrencies and blockchain may be used to solve problems in other industries, not just financial. They can be used to transfer, store and account for any digital asset such as stocks, land, emission rights, copyright material, contracts, etc. The possible applications are more than numerous, and might not even be comprehensible to us at the moment.
While Bitcoin is the most valuable cryptocurrency in the market, when comparing cryptos, one cannot compare them by the price but by their market capitalization.
What is Crypto Market Cap?
To put it simply, cryptocurrency market capitalization is a number that we get by multiplying the supply of a coin with its price. However, regarding the supply, there is a circulating supply telling us how many coins are in the market at the moment, and maximum supply which reveals how many coins can ever be present in the market.
Market capitalization deals with circulating supply, and here is how:
The price of Bitcoin is currently $8,091 and the circulating supply is 17,721,262 BTC.
17,721.262 x 8,091 = 143.389.370.132
According to this calculation, the current market cap of Bitcoin is $143.389.370.132.
The important thing about the market capitalization is that it accurately shows how much practical demand there is for an asset in the market in comparison to others.
The other thing which is important for you to understand and it relates to market cap is that there are some coins that have the same circulating and maximum supply. That means that all units of that cryptocurrency have already been mined, so their market cap will only depend on the asset’s price.
For example, the difference between Bitcoin and Ripple is that they both have fixed maximum supplies, but the maximum amount of XRP has initially been mined.
Crypto Trading Platforms, Brokerages, and Exchanges
Cryptocurrencies are bought, sold and traded on specialized websites we call cryptocurrency brokerages, exchanges, and crypto trading sites.
The difference between those is that a trading platform allows a trader to buy, sell or trade cryptocurrencies for one another and can be an exchange and a broker at the same time, offering the widest possible service to their customers. Let’s take Coinbase as an example.
It has a platform for beginners looking to only exchange currencies, but at the same time, there is Coinbase Pro with many more options, such as leverage, high detail charts, etc.
On the other hand, brokerages allow traders to take long and short positions or bet on the price of a cryptocurrency against fiat currency in some pre-determined timeframe.
Exchanges, being the simplest of service providers, offer only exchanging between cryptos, or fiat currency for a digital one.
Still, exchanges are, by far, the most popular and on the majority of them, Bitcoin (BTC) is still the pivotal point of trade, which means that all other cryptocurrencies are paired for trading with it.
However, most trading platforms have other options, such as trading against a stablecoin (Tether (USDT), TrueUSD (TUSD), etc.), Fiat currency such as US dollar, or, like some exchanges, against some altcoin like Ethereum (ETH).
Centralized VS Decentralized Crypto Exchanges
It is important to note that there are two kinds of exchanges as well.
According to their fundamental system, we differentiate two basic kinds of trading platforms:
- Centralized exchanges
Websites owned by a company where users’ coins are stored in exchange’s wallets. These have proven to be very unsafe as hackers tend to target them and steal users’ funds. The most used ones are Binance, Bitfinex, and Coinbase.
- Decentralized exchanges
These are, while can be owned by a single entity, do not store users’ coins but simply provide the platform where traders connect and exchange cryptocurrencies between themselves. A few of the most known are Uniswap and Anyswap.
Crypto Exchanges Security
All platforms dealing with any kind of financial assets need to fulfill a certain level of security since they are basically dealing with their clients’ money.
Therefore, most of the best platforms enforce the multi-level checks in order to keep their users’ funds safe on the user’s side of the system:
- 2FA (two-factor authentification)
- Multi signatures
- Whitelisting IP
- Whitelisting crypto-addresses
- Email verification
- Daily limit withdrawal
- ID verification
On the back end, regarding the safety of funds already stored on the platform, some companies have cold storage where they keep cryptocurrencies which are not been used for trading. Cold storage is a crypto security system which is, contrary to a hot wallet, not connected to the internet.
Still, history has taught us that centralized trading systems are vulnerable to hacker’s attacks. Many platforms have fell victim to various kinds of malicious actions, losing their clients’ funds in the process.
Some of the most notable attacks were:
- 2014: MtGox (850,000 BTC)
- 2015: Bitstamp (19,000 BTC)
- 2016: Bitfinex (120,000 BTC)
- 2017: Nicehash (4,000 BTC)
- 2018: Coincheck (523,000,000 NEM)
Taking everything said into account, it is always advisable not to keep your funds on an online platform, but in cryptocurrency wallets transferring them online only for trading purposes.
There are several kinds of crypto wallets available:
- Cold storage
Cold storage is a cryptocurrency hardware wallet mostly coming in the form of a specialized USB stick which holds your private keys offline.
- Desktop wallets
These are the most common wallets that every cryptocurrency has for users to hold their assets. Individual downloads the wallet and gets the address to which he can deposit and keep his coins. It is important to always back it up.
- Mobile wallets
As the name states, these are wallets downloadable on your mobile devices, but otherwise, don’t differentiate much from their desktop counterparts.
- Paper wallets
This can be considered as an “old school” but also one of the safest ways to store cryptocurrencies. The owner of the asset gets his keys and can print them (or write them down) on a piece of paper. Keys are not stored or in any other way connected to the internet but only provide access to user’s funds stored on the blockchain.
Read more on this topic in our article about what crypto trading sites are safe to use.
Crypto Tracking and Reporting Software
When you invest in cryptocurrencies, it is always advisable to use a software to keep track of your investments, returns and tax liabilities.
Tracking a portfolio is also important for those who make a lot of transactions across various platforms as things tend to get more complicated that way.
Creating a portfolio in some sort of portfolio tracking tool is always a good idea because it is automated to show the overall value of your funds as well as the value of all your individual investments in comparison to their value at the time you acquired them. Good portfolio trackers also have a notification system, which, much like an alarm clock, tells you if your cryptocurrency has reached the desired price or fell below some valuation.
All these functions are very useful for managing your investments as well as for making decisions.
Let’s name a few of the best options for tracking your portfolio:
A desktop and mobile portfolio tracker with trading fees, multi-portfolio options, and a wide range of tokens and exchanges.
By far the most popular mobile portfolio tracker. Has multiple-portfolio management option, and outstanding exchange and token coverage with great charting.
One of the few desktops and mobile portfolio trackers with advanced tax-report possibility. However, the mobile version is limited, so desktop access is a must-have.
Coinmanager is a portfolio tracker with, by far, the best charting available in the market. Also, it has an integrated arbitrage detection function and, what is most important, in-app trading function.
Simple to use App which allows users to import Bitcoin, ERC20, Litecoin, and Dogecoin wallets. Cointracker also has a good tax calculation option but, sadly, falls short on charting and exchange support.
Crypto Portfolio Allocation
When it comes to portfolio allocation in cryptocurrency trading, there are many theories out there that may or may not suit your needs best.
Usually, the most common practice is to invest approximately 50% of your portfolio in Bitcoin (BTC) as it is the most powerful cryptocurrency and an asset in which traders invest the most.
Otherwise, it is also a good idea to have your portfolio balanced and not “put all your eggs into one basket,” because as much as you believe in the success of a single crypto-related project it may fall short of your expectations and produce losses. That is the time when other coins you have invested in may show up to re-balance your losses. Therefore, it is advisable to diversify that other 50% of your portfolio according to the amount of risk involved, leaving approximately 5% for a game of “high stakes” risk trading.
Still, the cryptocurrency market consists of assets which, in most cases, “follow the leader”, meaning that once Bitcoin moves, others tend to follow. Nevertheless, there are constant exceptions from this rule, and one has to be prepared when they occur. History tends to repeat itself. However, sometimes history surprises us and takes a turn into the unknown, but it most definitely can give you a hint of some possible occurrences.
The other thing you should be aware of when portfolio allocation is concerned is your trading style and strategy.
If you decided that day trading suits your needs best, the idea is to keep your funds in fiat or a stablecoin to be able to use a possible sudden dip and score gains out of short-term volatility. On the other hand, HODLing funds in a stablecoin will not produce any gains so that is when a proper, educated portfolio diversification comes into play.
If you want to know more about how to allocate your portfolio in accordance with your trading preferences, you will be able to find out in the “trading strategies” paragraph.
About Crypto trading taxes
Cryptocurrencies, back in the days, used to be non-taxable as governments around the world haven’t yet devised a taxation policy towards these new, arising assets. However, lately, most of the countries are taxing cryptocurrency trading gains.
Just like it is a bit difficult to fill your personal tax application, it would be even more awkward to keep track of all things you do in the market and file an accurate tax calculation yourself. That is when crypto trading tax software solutions can be important.
Cryptocurrency trading tax software can be downloaded separately, or it is already a part of your portfolio tracker (like it is the case with Cointracking.info). What it does is that it follows your market actions and calculates the realistic tax rate in real-time, making it possible for you to get the exact taxable amount and the rate at any time.
Some of the best such software solutions are:
If you want to learn more about them, please refer to our article covering how to pay tax on crypto in deep.
Crypto Trading Instruments
There are a few different crypto trading instruments in the market you should be aware of before you start trading.
When using such instruments, a trader doesn’t physically own an asset but signs a sort of a contract obliging him to act accordingly.
These are the most common regulated instrument available:
- Exchange-traded funds (ETFs)
It is stated that ETFs provide a safer, more stable way for investors to trade cryptocurrencies without going to all the technicalities of storing the assets or even having to deal with crypto exchanges. ETFs fall under the regulatory laws which makes them make them a desirable alternative for more traditional traders who don’t want to participate in the wild physical crypto market. ETFs are perfect instruments for institutions that don’t want to own the asset itself, but sadly, in the US, the SEC has turned down every single crypto-related ETF proposed rule change to date.
- Futures contracts
Cryptocurrency futures are, basically, agreements to buy or sell a coin on a specific future date at a pre-determined price, disregarding the actual market price of the crypto asset. Futures are used as a form of a tool against the volatility of the price of cryptocurrencies in the market.
- Contracts for Difference (CFDs)
When trading cryptocurrency CFDs, you and the seller of the contract (broker) make an agreement to settle any increase or decline in the valuation of the asset in cash on the contract expiry date. Therefore, CFDs allow investors to profit off of the unstable market conditions as the demand and supply vary for a certain cryptocurrency.
Needless to say, trading such regulated instruments doesn’t carry any lower level of risk that trading the actual asset physically. On the contrary, many traders would define it as the riskiest kind of trading available.
Crypto Trading Pairs and Trading Hours
Contrary to other kinds of assets trader may own whose value is mostly denominated in US dollars, Chinese yuan, Japanese Yen, etc., in cryptocurrency trading things aren’t so simple.
As stated before in this article, the vast majority of coins are paired with BTC as a pivotal point of crypto exchanges, so the most trading volume in the market comes from crypto to crypto pairs with Bitcoin.
Therefore, when investing in an altcoin which isn’t paired with any fiat currency or stablecoin (cryptocurrency whose price correlates with the price of some fiat currency in a 1:1 rate), one has to also follow the price of Bitcoin. This is important because if our coin’s price is rising compared to BTC and the price of BTC is declining in comparison to USD, you may find yourself actually losing value in the US dollar.
However, most top cryptocurrencies, such as Ethereum (ETH), Litecoin (LTC), and Ripple (XRP) are paired with either stablecoin or fiat option, making it more simple to keep track of the value of your investment.
Crypto Trading Hours
Unlike the stock market which has its working hours, the cryptocurrency market never sleeps which makes it a fast-moving, living organism susceptible to regional conditions across the globe.
It is impossible for a trader to keep track of the market 24/7 so one should be able to adapt to these unique conditions where the time difference between traders in various parts of the world using the same platforms plays a huge roll in the overall price movement.
Note that a trader can be everpresent in the market by using a cryptocurrency trading bot, which you can read all about in the coming paragraphs.
Crypto Analysis - Technical VS Fundamental
Crypto Trading for Beginners – Technical Analysis
Our guide, crypto trading for beginners, presents a short introduction into technical analysis focused on crypto. Technical analysis (TA) is a tool that traders use to discover market trends and reversals through a series of technical indicators and oscillators.
Every charting tool offers a wide variety of these technical calculations represented visually either on the chart itself or underneath it.
There is what seems like an infinite number of tools you may use for TA, but in order to be as accurate in your predictions as possible, you will have to devise your strategy, implement those indicators you know how to utilize best and stick what you are comfortable with.
One more thing to have in mind when implementing a strategy based on TA is that while it can give you an upper hand in a day or swing trading, TA may not provide as much when you are looking to keep hold of your crypto for the long run (HODL).
However, if you want to know much more about crypto technical analysis, we suggest that you read our article which dives deep into that topic dissenting it in fullness.
Crypto Trading for Beginners – Fundamental Analysis
As stated, the TA will not do much good for HODLers. So, what to hang on to if you want to decide on which crypto to keep for a longer period of time?
The answer is fundamental analysis.
Fundamental analysis is a package of information regarding the basic knowledge of the crypto asset. This information covers a lot of fundamentals, such as the circulating and maximum supply, the development and founders team pedigree, the underlying technology, and possible competition as well as the upcoming development milestones and even the number of exchanges a coin is listed by.
Fundamental analysis is what crypto traders usually refer to as DYOR (do your own research) because, just as we are all different individuals, we tend to think differently about the same things.
For example, while your friend can think all the best about Ethereum because it was the first smart contract platform allowing the issuance of crypto token to the masses, you may realize that there are some serious problems with Ethereum’s scalability in comparison with its competition, making it a less desirable asset in the future.
While it is true that crypto fundamental analysis may vary from a person to person, it may be good for you to educate yourself more by reading our article covering that topic in-depth.
Crypto Trading for Beginners - Strategies
A lot of cryptocurrency trading segments that we covered in this article, such as portfolio allocation or finding the right kind of wallet, may highly depend on the strategy you have chosen to use in the market.
For starters, let’s name the most used strategies and briefly explain their fundamentals:
Crypto Day Trading
When a trader does day trading, he aims to utilize the daily movement of the price of a cryptocurrency. This strategy can become a career as it can take up even more than 8 hours of your time since you have to be present in the market to make quick decisions in order to lock on those gains or avoid unnecessary losses.
Crypto Arbitrage Trading
Arbitrage is a strategy where traders utilize the price difference of a single asset between various exchanges or disparity between more than two coins on a single exchange to make a profit. Since profits in arbitrage tend to be low in percentage, traders have to wield more than average amounts of funds for arbitrage to be worth the time spent doing it.
Crypto HODL (Buy and Hold)
The previously mentioned HODLing is when an investor does his fundamental analysis, finds the cryptocurrency with what he thinks is the one with the most long-term potential, buys it and keeps a hold of it for a longer period of time (usually more than a year) or until it reaches the pre-determined price. HODL doesn’t take up much of your time apart from the initial analysis.
Crypto Swing Trading
Swing trading aims to utilize swings in the highly volatile cryptocurrency market to benefit the trader. Contrary to the day trading, in swing trading, funds stay invested or ready for an investment longer than one trading session while a trader is looking to spot a reversal pattern to exit or enter a trade.
Crypto Trend Trading
Trend trading, as the name applies, demands only one thing of the investor – to know how to recognize mid to long-term trends. Once the trend is spotted early in the making due to some big market events or political decisions, a trader jumps on the bandwagon and uses the momentum of the price movement for his benefit. Trend trading is simpler and more rudimentary than a day and swing trading, but still requires more expertise than HODLing.
Scalping, except when it’s done by bots, requires a lot of time and energy since a trader implementing this strategy focuses on really small trades but numerous trades to add up profits that will, at the end of the day, be enough to satisfy his needs. Because of its high volatility, the cryptocurrency market is ideal for scalping since the price tends to move in both directions sometimes a few times per day.
Crypto Trading Bots for advanced traders
We have already mentioned bots in this article, and rightfully so since, lately, they have become an important part of the cryptocurrency market. Bots utilize their one big advantage to benefit their owners – they don’t have to sleep. They can be present in the market 24/7, trading for their user, and, depending on how good the algorithm was set up, score higher o lower gains.
There are two basic kinds of crypto trading bots:
Arbitrage trading bots
Automatically use the previously mentioned price differences and make needed transactions.
Market making bots
Placing buys and sell orders on a single exchange, making a profit off the price movement.
There are many versions of crypto trading bots claiming to be profitable, but some of the most established and used are:
You can find out more about crypto bots in our article specifically about best crypto trading bots.
Crypto Trading Education for Beginners
Last but not least, we cannot overstate the importance of education.
To become a profitable cryptocurrency trader, you will have to know how to implement various tactics and techniques while doing the trading. It is true that knowledge gained trading some other assets may come in handy, but since the nature of cryptocurrencies is so special, certain instruments and their usage has to be tweaked to be functional in the crypto market.
From the very beginning, you will be better if you make an educated decision about which trading strategy you are going to use. After that, you will have to learn either technical or fundamental analysis, or even both to be successful. Furthermore, even if you acquire a trading bot, you will need to program it the right way to score gains.
Therefore, apart from articles like this one, you will need many more sources of knowledge to enhance your skills. Information can be found online, in various, webinars, eBooks, quizzes, online videos, or even boot camps.
Cryptocointrade.com has already brought you an article about crypto trading courses and education which can guide you to choose your learning platform, but let us name a few valuable sources where you can search for knowledge online:
- Crypto Trade Academy
- Trading Heroes
In the end, remember, it is never about what was being said but who is saying it, so after receiving information, do your own research before investing because that can save your portfolio. Look for relevant and verified sources and don’t fail to double-check those too.
Ultimately, the most important piece of advice can be found in the disclaimer…
Crypto Trading Influencers
There are numerous really good crypto trading influencers out there that you might to follow. However, there is many bad influencers as well.
So, how can you know who to follow and who to unfollow.
We did create a series of blog posts where we have selected the very best crypto influencers on Instagram, Youtube, Reddit, and Twitter. Go to our crypto influencer page for more information.
Also, we did summarize all the best crypto trading blogs in a post.
Disclaimer: Note that this is not investment advice. Cryptocurrencies are highly volatile and very risky speculations. Please, consider consulting an investment professional before investing. Never invest more than you can afford to lose. Do not borrow funds to invest.