How to Start CryptoCurrency Trading ?
Trading cryptocurrencies works almost exactly the same as trading fiat currencies and it’s also similar to trading commodities or stocks.
However, there are some differences. In fact, it will benefit you greatly to learn the theory behind trading cryptocurrencies.
This article will teach you why you need to understand these topics before you start cryptocurrency trading career.
- The underlying technology behind cryptocurrencies
- How to analyze the market? (such as technical analysis and fundamental analysis)
- What is active and passive cryptocurrency trading?
- What affects the price of a cryptocurrency
- What cryptocurrency trading tools you can use
- How to track your trades and pay taxes on cryptocurrency trading
- The difference between CFD and exchange trading
- How you compare trading platforms
- Some common Cryptocurrency trading terms
The underlying technology behind cryptocurrencies
You must understand the asset you invest in. This is crucial because you must be able to decide how external factors can impact the price. In addition, you must know what makes a certain cryptocurrency worth more to invest in than any other cryptocurrency. Plus, this makes it much more fun and meaningful to understand what you do!
It’s all about reading, learning and understanding the market. Read more about the top cryptocurrencies in our article:
- Bitcoin Trading
- Cardano Trading
- Ethereum Trading
- IOTA Trading
- Litecoin Trading
- NEO Trading
- Ripple Trading
2. How to analyze the crypto market?
There are two different theories on how to analyze a market: technical analysis and fundamental analysis. While technical analysis focuses on graphs, charts and trading patterns, fundamental analysis focuses on adoption, regulation, technology and media. You might want to focus on one of them for your trading which many traders do. However, you must understand the basics of both theories which we handle in more detail in our articles: fundamental analysis and technical analysis.
3. What is active and passive cryptocurrency trading?
A trader is active in trading and looking for opportunities. However, this is very time consuming. Therefore passive investors look for more passive trading products. Nowadays there are several products developed by platforms that makes a passive trading possible.
For example, eToro launched a social trading platform. Here you can choose to copy other successful traders. In addition, they have launched their own crypto fund which is a passive fund that automatically invest proportional in the top cryptocurrencies. Read more about social trading in our specialized article, crypto social trading.
4. What affects the price of a cryptocurrency?
When you start to trade cryptocurrencies you must know what factors impact the price. We’ve found five main categories of factors that will impact the price.
- Regulation – Regulation can mean both negative effects and positive effects in the short term. However, more regulation will probably end up as a positive long term effect since institutional investors are looking for regulation before they enter the cryptocurrency market. There have also been applications for ETF as the Winklevoss twins did apply and there are several in the pipeline. For example, when China banned ICO.
2. Media – The hype during 2017 was driven by media. In all financial newspapers you could read about people who were millionaires thanks to early investments in crypto. There wasn’t a single article about anyone that had suffered from losses. The public interpreted this as “you couldn’t lose money on crypto.”
3. Adoption – When Coinbase adds a currency to its platform it does usually spike. In addition, there have been other adoption news such as when large platforms start to accept Bitcoin or Ethereum as payment option.
4. Changes or updates to technology – There are continuously changes and updates to the underlying technology behind the cryptocurrencies and they can also result in forks. Forks happen when a cryptocurrency is updated but the update is not supported by 100% of the community or the miners. If this is the case, the result
5. Pump and Dumps – Since the crypto markets are relative small and volatile they’re easy target for pumps and dumps. Just understand this trading behavior and you’ll avoid the worst mistakes.
Read more about how to avoid the worst and most common trading mistakes in our article: avoid cryptocurrency trading mistakes.
5. What cryptocurrency trading tools you can use
6. How to track your trades and pay taxes on cryptocurrency trading
An active trader needs some kind of software to keep track of all trading for balance control and tax purposes. There are several different software that can help you with this. We ourselves use Cointracking which is a bit pricey but is definitely worth it if you trade among different crypto trading platforms and you have many trades to report. Read more about crypto trading tax software in our dedicated article.
7. The difference between CFD and exchange trading
There are exchanges, trading platforms and Certificate For Difference trading platforms (CFD).
There are cryptocurrency exchanges and cryptocurrency trading platforms. Most of the platforms are hybrid with both exchange functions and trading features. However, there are some pure trading platforms such as
A CFD trading platform offers you the possibility to trade Certificate For Difference. When you own a contract, you don’t actually own the underlying asset. Instead, you own the right to receive the difference between the current value of an asset and its value in the future. CFD trading platforms are often regulated and did offer trading platforms before cryptocurrencies appeared. Therefore, these platforms do offer trading with forex, commodities, indices and stocks as well. In addition, they have well-developed platforms and often offer free signals and free education. Read more about these platforms in our reviews such as, eToro review and Markets review. If you are interested in further reading about CFDs we can recommend this article, Bitcoin CFD trading.
Crypto trading platforms arised when cryptocurrency trading and exchanging became popular around 2014-2016. Crypto trading platforms were very unregulated in the beginning and many were hacked. However, they now have better security and many platforms offer good trading features.
At these crypto trading platforms, you actually own cryptocurrencies but you don’t usually have your own private keys. The main differences from a CFD trading platform is that they don’t have as many features and free services such as signals and education.
8. How you compare trading platforms
Read about the cryptocurrency trading platforms and learn the details about them. Study them, signup, login and start a demo account. Demo accounts are the most common for our CFD trading platforms. These won’t cost you any money and in the long run you’ll save time and probably make better trades in the end. Make sure to test different features and trading tools you’re looking for. You’ll learn more in the next article on how to explore and select the right cryptocurrency trading platform for your demands. Try different trading instruments, such as shorting, leverage, stop loss and guaranteed stop loss. Also, read further in our article about how to select the right crypto trading platform.
9. Some common Cryptocurrency trading terms
There are some common terms in trading you must know so that you can follow the articles and get the right knowledge. What does go “long” and go “short” mean? What is long term and short-term trading?
There are differences between long-term cryptocurrency trading and short-term cryptocurrency trading. If you do long-term trading you might want to use less leverage or margin. Also, fundamental analysis is usually in favor of long-term trading over technical analysis which is preferable for short-term trading.
The best thing with advanced trading is that you can speculate in either up trends ordown trends.
Conclusion - How to Start Cryptocurrency Trading
Trading can bring you extra income either as a hobby or serve you as a fulltime job. No matter on what level you aim to trade on you need to beat the market and be better than the average trader.
Knowledge and experience are the two main factors that you can use to get a trading advantage. In this article, we described the basics of where a trader must start to be a successful trader. We have more articles in this series that you should continue to read to further develop your trading skills. We believe you should start a demo account or an account with a small deposit So, go on to how to start cryptocurrency trading and select the best platform!