Understanding Cryptocurrency Trading: A Beginner’s Guide

Understanding Cryptocurrency Trading: A Beginner's Guide

Cryptocurrency gives its owners lots of opportunities for earning. One of the most popular methods is crypto trading. This may seem like something complicated, but it’s not like that. With the right approach, crypto trading can become a very profitable occupation. But what is the best way to buy cryptocurrency? In this article, we will discuss the basic concepts and first steps in trading.

Choose a Platform to Trade

First, you need to choose a suitable cryptocurrency exchange platform. Centralized (CEX) and decentralized exchanges (DEX) represent the majority of cryptocurrency exchanges available today.

Both types of exchanges have been created with the same goal, but differ in the way they work.

A centralized cryptocurrency exchange is a platform managed by a single center that provides services for buying, selling, storing, and exchanging digital assets. The exchange acts as an intermediary between the parties to the transaction and is responsible for the security of assets and user data.

A decentralized cryptocurrency exchange is a fully automated platform based on blockchain technology (a distributed ledger). It works as a peer-to-peer exchange, and there are no intermediaries. User assets are not held by the exchange. The transactions are performed on the basis of smart contracts.

For most users (especially for beginners), a centralized crypto exchange will be a more convenient solution for cryptocurrency trading. CEXs allow 24/7 trading and do not require technical skills to manage transactions, unlike DEXs.

CEXs are also distinguished by greater liquidity, user-friendly interface, support for fiat transactions, and a wide range of trading tools (for example, market order, limit order, etc.).

There are many CEXs, but not all of them can be called high-quality and safe. Don’t forget about the factors that must be considered when choosing an exchange:

  • its reputation and how long it has been working;
  • security, measures taken to protect against possible external attacks;
  • the number of supported cryptocurrencies, fiat, and trading pairs;
  • high liquidity and trading volume;
  • methods of depositing and withdrawing funds;
  • technical support for users;
  • available trading instruments;
  • user reviews, etc.

Choose Your Investments

There are more cryptocurrencies than Bitcoin and Ethereum. The total number of currently available assets already exceeds 10,000. What crypto to choose for investment? There is no certain answer to this question.

Since the crypto market is in development and is characterized by high volatility, the right choice depends largely on your strategy and goals, as well as the situation in the market.

At the same time, there are many factors that must be considered when choosing crypto to minimize possible risks:

  • experience and reputation of the founders of the project;
  • demand for what the project offers by the industry;
  • blockchain features;
  • trading volume and market capitalization;
  • history and price charts;
  • active community and supporters among famous personalities and organizations;
  • asset liquidity, etc.

Do not forget that cryptocurrency is a high-risk asset. That’s why it is necessary to remember a number of financial security rules:

  • portfolio diversification (distributing capital among several assets);
  • regular portfolio reviews (taking into account the current situation and new market trends);
  • basing investment decisions on their own financial capabilities and investing only the amounts that they are ready to lose;
  • using special trading tools to sell an asset when certain conditions are reached.

Choose a trading strategy

The goal of any trader is to develop their own winning strategy to make a profit. Due to volatility, it is quite difficult to predict the behavior and dynamics of cryptocurrency development. At the same time, using various trading strategies, high returns on the difference in cryptocurrency rates are possible.

Most of the current strategies are based on the use of technical analysis and many different indicators. Let’s take a look at some of them:

Scalping. A trader makes many transactions during the day to get a small profit. Profit is fixed immediately after the chart moves in the right direction.

Crypto arbitrage. It involves making money on the difference in prices on different exchanges or trading pairs. Opportunities for crypto arbitrage may arise during periods of high market volatility.

Copy trading. It is a strategy based on copying trades of other traders using specialized software or on a signal. It is popular with beginners as it does not require you to follow the market, news, etc.

Keep in mind that we mentioned only a part of the trading strategies used by traders in this beginner’s guide. Study all available information, experiment, work on your own strategy and achieve your financial goals.

It is impossible to ignore the integration of cryptocurrency into the lives of modern people.

It might be worth spending some time learning additional materials and practicing with small amounts.