What is Cryptocurrency Trading and How Does It Work?

 

The cryptocurrency market continues to be a popular asset for traders these days.

More and more people are starting to trade crypto across the world after the bitcoin popularity in 2018.

But what exactly is cryptocurrency trading? You may be asking yourself how to trade cryptocurrency? Or what is a good trading platform? 

A lot of traders also want to know what the difference is between crypto trading and buying cryptocurrencies? Plus with so many crypto coins available, exactly how many types of cryptocurrency are there?

In this section of our guide, we will answer all the questions listed above plus more you may have about it.

We will also show you some of the best cryptocurrency trading platforms.

And if you’re interested, we’ve done a short introduction about what is online trading and crypto platforms on the homepage which you might have seen.

Let’s get started!

What is Cryptocurrency Trading

Let’s begin with the key questions: What is cryptocurrency trading? & How can I trade Bitcoin?

When talking about virtual coins, you should know that there is a big difference between buying cryptocurrencies and investing in cryptocurrencies.

If someone buys a cryptocurrency in a platform, they own it.

For example, let’s say you buy a Bitcoin, once the purchase is complete you’ll own the Bitcoin. You can also use that cryptocurrency to buy other goods or services in the market.

If the value of that Bitcoin rises in the market, you’ll have an increased value and the opportunity to buy more things with it.

However, the amount of platforms in the market which offer products that are payable using crypto is quite limited.

This is a reason why more people have started investing in crypto: so they can speculate on their value.

Investing works exactly like Forex&CFDs trading. Bitcoin and other cryptocurrencies can be traded as CFDs in online platforms.

The most important things to do is to trade with the right strategy and to choose the best broker.

How to Start Trading Cryptocurrency

When investing, you should know that to get started with Bitcoin and cryptocurrency trading, you just need to follow 3 simple steps:

1. Find the best trading platform for cryptocurrency
2. Find the cryptocurrency trading assets
3. Have a good cryptocurrency trading strategy

Let’s go through each point:

Best Trading Platform for Cryptocurrency

To trade cryptocurrency is easy and similar to the normal traditional method.

One of the first things you need to do to get started is to open an account with a regulated crypto exchange platform.

Today all the leading online platforms offer the chance to trade cryptocurrencies. Bitcoin is normally the most popular one to trade.

Here you can find a list of the most important crypto plus a list of the best trading platform for cryptocurency to trade with. All the brokers are fully regulated and secure to trade with. 

Find the Cryptocurrency Trading Asset

Once you’ve opened an account, you need select and find the crypto you want to trade. To do this search for the cryptocurrencies available by typing one of the following crypto names:

• BTC for Bitcoin
• BCH for Bitcoin Cash
• ETH for Ethereum
• LTC for Litecoin
• XLM for Stellar
• XRP for Ripple
• EOS for EOS
• DASH for Dash
• ADA for Cardano

The list above features some of the most popular cryptos available to trade. So when searching in the asset section of a platform, you just need to type LTC or BTC for example and the crypto should be found.

After deciding which virtual currency you want to trade on the platform, you need to decide if you want to sell or buy.

As we’ve explained in how to trade Forex, crypto trading involves the financial leverage concept. This means that there are also lots used on cryptocurrency trading platforms.

So for instance, if you want to exchange 1 lot of Bitcoin you need enough money in your account to do it.

Let’s understand this better:

A common mistake people make is to think of crypto trading as the same process as when buying cryptocurrencies- but these are 2 different things!

Exchanging cryptocurrency is not like buying cryptocurrency!

In fact traders see cryptocurrencies as a normal currency pair. For example EUR/USD.

If you see it like this you are on the right track. Not let’s look at how the basic points you should know when it comes to opening a trade.

 

How do you buy and trade cryptocurrency?

One thing to know is that all the measurements such as 0.01 BTC or 1 Bitcoin have nothing to do with investing. What is important are the lots in these platforms.

So all the crypto trades are measured in lots, mini lots or micro lots.

Another crucial thing to set up in crypto trading is the leverage. Most  brokers offer a fixed general leverage on their platform for all the assets.

This means that a trader can use the same leverage to trade both EUR/USD and Bitcoin.

However, a few brokers also have different leverages available which a trader can choose for each separate position.

Once the crypto asset, volume and the leverage are all decided, it’s time to open the position.

There are just two choices you can make: buy or sell. 

After you’ve selected either buy or sell, you’ll be able to set up the relative stop loss and take profit for every single position. These two settings will help you to close the trade automatically.

The stop loss will close the trade when it reaches a loss at the selected price you’ve set. Whereas the take profit will close the trade automatically when it reaches the selected profit price.

Finally, when you decide it’s time to close the position manually in your platform, you just need to click the ‘X’ near the open trade and in less than one second the position will close.

 

Cryptocurrency Trading Strategy

For cryptocurrency trading, it’s very important to have a good strategy to use in your chosen platform. As we have explained, crypto trading is very similar to traditional trading.

This means that traditional strategies also work for crypto trading.

There are many strategies available, but because of the high volatility cryptocurrencies have, it’s very important to select the right one.

Day trading, scalping and Bollinger Bands indicators might not be very useful for bitcoins and cryptocurrencies because these are short-term strategies.

Some of the best strategies to follow in crypto trading are long-term strategies. This is a classic move to buy when the price is low and hold till it grows could be the best option.

Also analysing the trends that affected Bitcoin and Ethereum in 2017 can help you understand why we are saying that.

For instance, for a long time the Bitcoin price remained steady then suddenly boomed in value at the end of 2017. This is a good example of when a long-term strategy would have worked.

Because cryptocurrencies are still a relatively young asset in the market, there is always the chance that they could boom again in value another time.

This is why a long-term strategy could be the winning option.

 

Why do People Only Buy Bitcoin?

In 2017 a lot of people started to invest and buy Bitcoin. The Bitcoin market boomed, with prices starting to increase in May 2017.

But why did people just invest in Bitcoin and not in other cryptocurrencies?

The answer is very simple. Bitcoin is the most famous and recognised cryptocurrency compared to other existing ones.

This graphic shows data gathered from all the investing platforms. It clearly shows that Bitcoin is the main cryptocurrency in terms of Market Capitalization, Value and Growth Rate.

For 6 months in 2017, Bitcoin grew from $500 up to $18.000 which represents a growth of 3500%!

Nothing in financial history has had such an incredible growth as Bitcoin. Following the Bitcoin lead, the 2nd and 3rd most popular cryptocurrencies for 2017 were Ethereum and Ripple.

This data shows that not only was Bitcoin was the most popular, but also the most profitable digital currency to invest in.

In 2018 the general cryptocurrency market situation had a big drop. A lot of people say that the Bitcoin bubble exploded, others said it was just a temporary drop before a second growth.

At the same time, a lot of secondary cryptocurrencies appeared in many platforms. Some examples include Neo, Dash and Cardano.

The price of those new ICOs was fairly low in 2018, but they still have potential to grow and become as popular as Bitcoin in a few years time.

However, brokers have added them to their trading platforms, and they’ll continue to add new ICOs in the future if they look promising.

It’s always a good idea to get a full picture of what’s happening in the market so that you can understand which crypto has got good potential.

 

Cryptocurrency Trading vs Traditional Trading?

A lot of people are asking themselves if cryptocurrency is really worth, and if it’s really better than traditional trading.

There isn’t a clear answer to this question.

In 2017, after the Bitcoin boom, we can definitely say that crypto trading was worth doing. Especially as prices were increasing and there was more potential compared to traditional trading.

The prices of different crypto coins grew excessively for about 8 months. This brought a lot of profits to traders across the various trading platforms.

Investing in cryptocurrency was considered easy money by most of the traders.

But after the crash, we saw that at the beginning of 2018 the general mindset had changed. People started to move from crypto trading, back to the traditional assets.

 

Cryptocurrency Situation in 2022

2021 showed a promising price growth for crypto, especially for Bitcoin. Let’s see what can happen in 2022.

December 2021 saw the coin value surpass an incredible $45,000! This was mainly due to the Covid pandemic which pushed people and big companies to have more trust in the online and crypto world.

Most people think this was likely due to investors realising that even a social media giant like Facebook or a big company like Tesla believe in the future digital currency too.

At the same time, the pandemic which affected the world in 2020, brought a lot of instability in the traditional markets and trading platforms, pushing even more people to invest in cryptocurrencies which have been seen as a safer asset.

What we can say now is that there isn’t a fixed rule to follow, but the best thing to do in finance is diversification.

This means that it’s better to take a portion of your total capital in the trading platform for cryptocurrency and use it only for traditional trading. The remaining portion can be used for crypto trading, which still has potential, but is still fairly new and volatile on the marketplace.