Once you have started to learn about cryptocurrencies and made your first investment into cryptocurrency like Bitcoin – you have done a small but significant part of cryptocurrency trading.
You have invested into the coin because you think it will increase in value, thus increasing the value of your investment.
Then, do you check out all the talks about prices going up or down, and wonder if you take benefit of price movements of cryptocurrencies?
Leading to common questions like:
- What is trading in cryptocurrency?
- How to trade in cryptocurrency?
- What is the difference between spot, margin & future trading?
- Do I need to keep money in the exchange for trading in cryptocurrencies?
- And many more similar questions…
Then bookmark this post, because it is a big post, where I have covered everything that you need to trade cryptocurrency as a beginner.
- 1 What is trading in cryptocurrency?
- 2 Types of Crypto Trading
- 3 Steps to start trading cryptocurrencies
- 4 How to start trading in crypto
- 5 Common Mistakes to avoid when trading Cryptocurrencies
- 6 Risks of Crypto Trading
- 7 More Questions
- 7.1 Difference between crypto trading wallet & crypto wallet?
- 7.2 Do I need to keep my coins in crypto exchange for trading in crypto?
- 7.3 What is difference between spot, margin & futures on crypto exchanges?
- 7.4 What are the business hours of cryptocurrency trading?
- 7.5 Is trading cryptocurrency profitable?
What is trading in cryptocurrency?
Trading is done with simple goal of earning money from buying something at lower price and then selling it when the price has increased.
For example, you might buy a stock when the price was $100 and then sold it when it reached $105. Now this difference of $5 (minus taxes and brokerage) if you profit.
In case of stock and forex market, it is done like the way mentioned above.
In the case of cryptocurrency trading, it is slightly different. Different the way of how to start trading in crypto trading. And then, with types of crypto trading.
Types of Crypto Trading
As we just read that crypto trading is different from other types of trading. That is because there are two main types of crypto trading:
- Fiat to Crypto
- Crypto to Crypto
I will explain both these types of trading in a bit. Just a few words before that.
Important suggestion before you start:
No, this post is not about cryptocurrency trading being risky. Everything is risky if you are not careful.
Whereas, if you proceed step by step, understanding each step, and don’t fall for any get rich quick trap, you will make money.
None of these types of trading is better than the other. You can earn good money from either of them. It depends on your trading skill and what you find natural to you.
This is something that every beginner takes time to learn before getting over to the level of pro crypto-trader.
So, my suggestion will be to try a bit of both and see which one is giving you more profit vs time invested and then grow in that method – even if it boring
So, here we go:
Fiat to Crypto – Buy, hold & Sell
Till now this was the most common way of crypto trading.
In this type of trading, you buy crypto like Bitcoin, Ethereum and other currencies using your base fiat currency (USD, EUR, etc.).
And once the price have appreciated enough, you sell the cryptocurrency and get back to your base currency.
For example, whenever there is big fall in Bitcoin prices, you buy it and then the prices have recovered, you sell it. Like it happened recently in May, 2020 and many times before that.
Crypto to Crypto – Swap & Back
This type of trading is also called as AltCoin trading. And when done at the time of bull market, this is one of most profitable form of trading.
In this type of trading, you keep a established cryptocurrency like Bitcoin as your base currency. And when you find a good alternative coin, which is getting traction, you switch to that coin for time being.
Once the price has escalated (it usually does so in matter of couple of days to week at maximum), you swap your currency back to Bitcoin.
In this simple transaction, you actually increase your Bitcoin.
For example, you start with 0.1 BTC and you swap into Alt Coin like BNB. Alt Coin appreciate in value very fast. So, it not uncommon to see 100% growth within matter of days. (Because most of them start from ultra low value).
So, when you sell your Alt Coin, you will be getting back to BTC but of much more quantity then what you started with. Something like 0.1 BTC growing into 0.2 BTC when you swapped back.
Steps to start trading cryptocurrencies
Here are the steps you need to start trading in cryptocurrencies:
Crypto Trading wallet
You will need a trading account/wallet at any of the leading crypto exchanges.
You can choose any of the leading Crypto trading exchanges for opening your trading account.
One thing you need to check is that the exchange is available in your country. For example, right now, Binance is #1 Crypto Exchange worldwide from the last few years. But, it’s not available in the USA, yet. So, you need to go through the list of best cryptocurrency trading exchanges and see which one is available in your country.
When you sign up on the exchange, it’s good idea to complete the KYC process right away, so that you don’t any steps left for fund movements later.
The default account that will open up, when you sign up on the exchange is spot trading account. These exchanges also offer other types of accounts like:
- Margin Trading
- Futures Trading
- Arbitrage Trading
All these accounts require little more knowledge about trading and leverage. So, please stay with spot trading, till you get comfortable.
A trading wallet is different from your crypto wallet. Check the FAQ below to know the difference.
Once you have opened your crypto trading account, you need to transfer funds to it.
You can transfer funds by any of these two means:
- Directly through FIAT currency (USD, EUR, INR, AUD etc.)
- Transferring Bitcoin from your wallet to trading account wallet.
Best of the crypto trading exchanges provide facility to directly fund your account from your bank account or credit card. So the process is straight forward – explained below.
But, in some cases, you might need to first access the local crypto exchange to buy the coins and then transfer them to your trading exchange wallet.
Two important steps before you start crypto trading
This is one of the most important steps.
To make profit from crypto trading, you need to have a strategy.
Your strategy can be as simple as buying Bitcoin when prices are down and selling when prices have increased. Or, it can be as advanced as using AI-based bots to trade on your behalf.
Whatever your strategy, you need to backtest it, so that you know the trader aspect of trading.
I would strongly advise, that when you are just entering into world of crypto trading, you keep your strategy as simple as possible.
Only when you have understood and developed a strategy that is showing good results, you should devote your time to fine-tune it further.
Money Management & Risk Management
An equally important step to understand before you actually start trading in cryptocurrencies.
Trading is not a get rich quick scheme. It takes time and emotional control to make money from trading in cryptocurrencies.
Risking too much money can create emotional pressure on you, which can lead to trading mistakes.
Risk Management and money management helps you to manage this part of your trading.
Basic rule that you need to follow is – don’t trade with your sacred money.
This means, don’t start trading with money that you can’t afford to lose.
Till then time, when you are getting the required understanding as a beginner – Deposit anywhere between $ 500-1000 only. Only when you have traded a few times, you increase your capital or you let your initial crypto capital to increase by keeping your profits in cryptocurrency only.
How to start trading in crypto
Now that you have got the basics, let’s move to knowing – how to actually start trading in cryptocurrencies?
For this example, I am using screenshots from Binance – currently, the best created and top crypto trading exchange.
So, head over to Binance.com and click on register:
Register your account using email and password. In Binance, if you have note done KYC, then withdrawal limit is 2 BTC for a day. You can do it later once you have little more time (and coins to withdraw) on your hand.
Now, once you have verified your email id and account active, time to fund your account on the exchange.
You either do it via crypto to crypto or you can directly buy crypto from Binance itself.
Once you have funded your account, it’s time to trade cryptocurrencies.
For this example, in the previous step while funding your crypto trading account, you chose to buy USDT (one of the stable coins).
And then you see that Bitcoin is about to go up, then we will buy Bitcoin.
So head over to spot market – choose classic layout or advanced layout:
From the classic layout – scroll down and below the chart you will see the options to place orders:
And here you choose how many BTC you want to buy – you can use the slider to see how much of your funds (USDT) will be required for that. And then click Buy BTC (the green button).
That’s it. You have made your first trade in cryptocurrency 🙂
Common Mistakes to avoid when trading Cryptocurrencies
This is by far the most common trading mistake when you are trading cryptocurrencies.
FoMo means – fear of missing out.
Because cryptocurrencies have volatile price moves, there are chances that you will miss a trade here or there. What this leads to be early entry next time because you don’t want to miss out. Please avoid this itch.
Always take entry as per your trading strategy – not out of fear of missing out.
Trading without strategy
This one is more related to trading in Alt Coins.
The mistake is to plan to trade in an Altcoin that you yourself have not researched about. If you are buying an Altcoin, after reading an article/blog about it or hearing about it in group, then that’s not a strategy.
Avoid the mistake of trading without a proper strategy about what you doing.
Lack of research
Always, I mean always, combine the advice that you receive (or read online) with your own research. That is the best risk management.
Without your own research and reason, you won’t know when to exit a trade or if you should actually take the trade or not.
Always, I mean always, add your own research to any advice that you get from your friends who are into crypto or what you read on internet, before deciding to take a trade in any cryptocurrency.
Using money you can’t afford
Trading in cryptocurrency has one of highest profit potential. But, it’s not a guarantee.
No trade is 100% sure to turn into profit. Your stop loss getting hit is quite possible before your next profitable trade. Which means there will be times, when you will lose money.
That’s why it is highly recommended, as a beginner, to fund your crypto trading account with funds you can afford to lose. Till the time you learn to trade more profitably.
On a side note – One of the best ways to avoid risking money when you are learning about crypto trading is to try paper trading.
Repeating a mistake
When you are starting out in trading in cryptocurrencies (or any trading for that matter), there are bound to be mistake. That’s why it is suggested to maintain a trading journal. It helps you to keep track.
One of the best way to turn into an awesome profitable money making trader is to learn from your own and others mistake.
And the only way you can do that is by nothing down the reason of each trade, with chart if you are using technical and analyse it after each trade. This habit alone can make huge difference in your trading results over time.
Risks of Crypto Trading
Crypto trading is not without its own fair share of risks. Here is are the common risk when you are trading in cryptocurrencies:
- Volatile price movements: This one goes without saying. Prices of Bitcoin and AltCoins have seen some strong price movements. So you basic technical analysis-based stop losses won’t work. Especially, if there is any significant news related to the coin.
- Absence of regulations: One of the biggest strength of cryptocurrencies is also it’s the biggest weakness. This part is mainly for Altcoins. It’s not uncommon to see shady paperwork for new Altcoins. The only defence is your own research and keeping tabs of different coins using credible publications.
Difference between crypto trading wallet & crypto wallet?
Your crypto wallet is your personal wallet, where you hold your coins. Something similar to your bank account, but not associated with any bank.
A trading wallet, on the other hand, is your wallet in trading exchange for the purpose of trading.
You need to transfer your coins from your wallet to trading wallet in exchange for trading in cryptocurrencies.
Do I need to keep my coins in crypto exchange for trading in crypto?
The answer is both yes and no.
Yes, you need to keep your coins/funds in the exchange before you can take a trading position.
No, you don’t need to keep your coins in the exchange all the time.
Actually, when you are not trading, it is good idea to move the coins to your own crypto wallet. It’s always safer there.
What is difference between spot, margin & futures on crypto exchanges?
Spot trading is the most basic type of trading in crypto. It means you buy a coin and then hold it till you sell it (in profit if you are right). So, in this, if you have $1000 worth USDT in your trading account, you buy $1000 worth of Bitcoin only.
Margin trading is leveraged spot trading. Which means you use funds supplied by the crypto exchange (for which you pay interest fee) to buy a coin at multiple of your funds. For example, if you have $1000 with of USDT in your trading account and you use margin of 5x, then you can buy Bitcoin of worth 1000*5 = $ 5000. Thus increase your profit potential with less trading capital.
Leveraged trading is for experienced traders who understand the risk of taking leverage.
Futures trading is part of derivative trading. You can read about derivatives in crypto in this post.
What are the business hours of cryptocurrency trading?
Cryptocurrency exchanges are operational 24 hours of the, 7 days of week and 365 days of the year. The are operational round the clock and you can trade anytime, suitable to you.
Is trading cryptocurrency profitable?
Yes, cryptocurrency trading is profitable. The only problem is that you need to have discipline, patience & proper trading strategy.
It is strongly advised to check your system in paper trading before taking trades with real money.