Cryptocurrency trading is process of buying, selling or trading digital assets on crypto exchanges. Those who are willing to learn the essentials, track market trends and control their risks can potentially benefit from cryptocurrency trading. Some of the most popular cryptocurrencies are Bitcoin, Ethereum, BNB, Cardano, Ripple, Polygon MATIC and other Altcoins In this blog post we will provide a step by step guide to how to start cryptocurrency trading.
How Cryptocurrency Trading Works?
Cryptocurrency trading operates by utilizing a network of computers called nodes. It authenticates and registers transactions on a public ledger which is called blockchain. Every transaction is coded and has a unique identifier known as a hash. The nodes compete to solve intricate mathematical problems to validate transactions and receive rewards known as mining. The verified transactions are then appended to the blockchain as blocks forming a chronological and unalterable record of all transactions.
Cryptocurrency trading can be done for various reasons like speculation, hedging, arbitrage and diversification of digital assets. Some traders use technical analysis which is the examination of price patterns and trends. It also helps to predict future price movements and recognize trading opportunities. Others use fundamental analysis which is the assessment of the intrinsic value and potential of a cryptocurrency based on its technology, adoption, innovation and market conditions.
Step by Step Guide on How to Start Cryptocurrency Trading –
Step 1 – Choose an exchange
The initial step to start trading cryptocurrency is to choose an crypto exchange that complete your needs and requirements. An exchange is a platform where you can trade cryptocurrencies using fiat currency like USD, INR etc. There are several factors to consider while selecting an exchange –
- The availability of cryptocurrencies you wish to trade.
- The fees and commissions imposed by the exchange.
- The exchange reputation and security.
- The user interface and customer service of the exchange.
- The exchange payment methods and withdrawal options.
Coinbase, Binance, Kucoin and Huobi are some of the most popular and trusted crypto trading exchanges with having such large volume. You can also compare all different exchanges by using website CoinMarketCap.
Step 2 – Create an account on crypto exchange and verify your identity
Next step is to create an account on your selected cryptocurrency trading exchange. Some basic information is required for signup on cryptocurrency exchanges like name, phone number, email address and password. Depending on the policy of crypto exchange and regulations in your country, you may also need to verify your identity. It can be simply done by uploading a copy of your ID card, passport and utility bill. This process called Know Your Customer (KYC) which meant to prevent fraud and money laundering.
Step 3 – Fund your account
After creating and verifying your account, you can fund it with fiat currency such as USD, INR and cryptocurrency. There are various payment methods available for transactions includes Bank transfer, credit card, debit card and PayPal are some payment features on crypto exchange. Some exchanges may have minimum deposit requirements on how much you can deposit and withdraw per day or month. You can check these details on the exchange’s website or FAQ section.
Step 4 – Learn the basics of trading
Before you begin trading it’s essential to understand some fundamental concepts and terms used in the cryptocurrency market. Some of the most common crypto trading terms are –
Market order – A market order is an instruction to buy or sell a cryptocurrency at the prevailing market price. It’s executed instantly and is appropriate for traders who want to quickly enter or exit a position.
Limit order – A limit order is an instruction to buy or sell a cryptocurrency at a specific or better price. It’s executed only when the market reaches that price or better. It’s suitable for traders who want to set a target price for their trades.
Stop loss order – A stop loss order is an instruction to sell a cryptocurrency when it reaches a specific or lower price. It’s used to limit losses in case the market moves against your position.
Take profit order – A take profit order is an instruction to sell a cryptocurrency when it reaches a specific or higher price. It’s used to lock in profits in case the market moves in your side.
Bid price – The bid price represents the maximum amount that a purchaser is willing to pay for a given cryptocurrency
Ask price – Ask price is lowest price that seller is willing to accept for a cryptocurrency.
Spread – Difference between the bid price and the ask price known as spread. It represents the cost of trading on an exchange.
Volume – The volume is the quantity of cryptocurrency traded in a given period of time. It indicates the liquidity and activity of the market.
Volatility – The volatility is extent of variation in the price of a cryptocurrency over time. It indicates the risk and opportunity of trading.
Step 5 – Select a Trading Approach
A trading approach comprises a collection of rules and directives that help you determine when to purchase and sell cryptocurrencies based on your objectives, risk tolerance and market circumstances. There are several types of trading approaches –
Fundamental analysis – Fundamental analysis is predicated on assessing the intrinsic worth of a cryptocurrency founded on its technology, team, adoption, innovation and other factors. This process necessitates scrutinizing the project’s whitepaper, roadmap, news, social media etc.
Technical analysis – Technical analysis is predicated on scrutinizing the historical price movements and patterns of a cryptocurrency using an array of tools such as charts, indicators, trends and so forth. It involves recognizing support and resistance levels, breakouts, reversals and other factors.
Sentiment analysis – Sentiment analysis is predicated on assessing the emotions and opinions of other traders and investors in the market through diverse sources such as forums, blogs, tweets and so forth. This process involves identifying fear, anxiety, optimism and other factors.
Crypto Trading Risks and Challenges for Beginners –
Trading in cryptocurrencies can be an exhilarating and profitable but it can also present challenges and risks. It is crucial to establish a clear goal and plan for your trading activities and observe some best practices such as –
- Before investing in cryptocurrency it is important to conduct thorough research and due diligence.
- Invest only what you can afford to lose without causing financial strain.
- Diversify your portfolio across various cryptocurrencies and asset classes.
- Implement stop-loss and take-profit orders to manage your risk and reward.
- Monitor your trading performance and learn from mistakes.
- Keep up with the latest news and developments ongoing in cryptocurrency market.
- Be mindful of potential scams and fraudulent schemes that may target unsuspecting traders.
