Litecoin Trading Guide For Beginners
An early fork of Bitcoin, Litecoin is ranked amongst the top altcoins and is preferred by many due to the changes its creator Charlie Lee had incorporated to make it lighter, hence the name. With a higher 84 million coin limit and a 2.5 minute block time, Litecoin trading is popular among investors who want to move beyond Bitcoin.
If Bitcoin is digital gold then LTC is silver, and if you are interested in learning how to trade Litecoin, this carefully researched guide will help you in understanding the ins and outs of the whole undertaking.
3 Reasons to Trade Litecoin Now!
The recent bull market doesn’t show signs of stopping and Litecoin is also experiencing growth. Though it has not been able to reclaim its all-time high which it achieved in the last crypto rush of 2017, it has still been a solid investment, with LTC continually rising for the past few months.
Better than Bitcoin
Of the many reasons Charlie Lee created Litecoin was what he saw as a flaw in Bitcoin. He believed that if the cryptocurrency’s code and technology were not scaled, it would lead to the network slowing down under load. Instead of having a 10 minute block time, the LTC network takes around 2.5 minutes to produce one. The faster production means that more transactions are executed and consequently leads to lower congestion and miner fees.
The entry of FPGAs and ASICs into mining made it impossible for the general public to participate in the mining and network security of traditional Proof of Work coins like Bitcoin. Litecoin uses an ASIC-resistant Scrypt hashing algorithm instead of SHA-256. Mineable using GPUs, more independent miners can join the process since they need less capital in comparison to other major cryptos, leading to much better decentralisation.
Litecoin Trading vs. Investing
There are several ways you can make profits through Litecoin and it is essential to understand them before you start trading LTC. The most used methods are either actively trading or investing in Litecoin. Before you begin, you must understand the difference between these.
Like any currency or asset, Litecoin can be bought and held for a long period of time. This method is called investing and implies that you hold on to your assets in anticipation of a rise in their value. On the other hand, trading does not involve holding LTC but entering into short term contracts that have their worth derived from Litecoin’s value itself.
In the end, both can lead to profits through the rising price of Litecoin, but holding cryptocurrencies has its own set of complexities such as buying it in the first place, storing it safely, and transferring it to an exchange to sell. Trading offers a simpler and more familiar alternative as you only deal with the price, not the digital asset itself. Typical forms of trading contracts are futures, options, perpetuals, and trading CFDs (contracts for difference).
Futures are contracts where a trader is obligated to buy or sell an asset at a predetermined rate on a set date. Options are a type of futures contract where the buyer can call off the contract before expiry (at the expense of losing a small fee, called a premium). Perpetuals are just like futures, but with no expiration time.
Contracts for difference (CFDs) are complex instruments, but in simple terms, give you the difference in the opening and closing price of LTC, settled in fiat money. Notice that in all forms of contracts, you never actually buy Litecoin, but only take the value as an input. Since these are derived from Litecoin’s value, such contracts are also called derivatives.
There are many different strategies for trading Litecoin, but all are dependent on the derivative, the market situation, your local regulations, and the risk profile of the endeavour. The best option is to take these things into account, match them with a strategy, and stick to it.
Litecoin Analysis: The Key to Success!
You reading this guide already shows your interest in trading Litecoin, and if you are seriously considering the possibility, there are a few ways you can try to understand the market’s movement and make accurate predictions leading to profitability.
Technical analysis is a game of numbers and trying to guage different levels of price support and resistance. The quantitative approach takes into account different past numerical data and employs algorithms to predict the future price and market cap of LTC. Technical analysis includes information derived from indicators such as moving averages, MACD, RSI, and candlestick patterns.
Fundamental analysis takes a qualitative route towards determining the future LTC value. Taking into account different factors that can affect the trading environment (market sentiment, upgrades to the network, halving etc.), a good trader can predict the intensity and direction of movement. Though this is not numbers-based and therefore, there is no way to estimate the price range, it does give a sound idea of the future LTC price.
There are many other factors that need to be considered for the successful trading of Litecoin. The overall general perception by traders, any regulatory or jurisdictional issue that you might face, and competitors’ advances are just a few of the things that can have an impact on Litecoin’s price.
Traders will factor all of these into their calculations and predictions before making a trade. There is no consensus on how all of these can be combined into a single answer to buy or sell LTC and it is a judgmental call made by the individual. As you trade, you will start gaining experience and will be able to decide what analysis is to be given more weight than others for your specific strategy and trading style.
Choose a Trading Strategy
Now that you are aware of the different fundamentals of trading, it is time you select a strategy for your trading activity. There are different trading strategies for trading LTC for profit. The strategy you choose will largely depend on your trading time frame, patience, the type of contract you need, and your financial prowess.
- Day Trading
As the name implies, a trader will start activity afresh each day and liquidate all positions before the trading day ends. It involves opening numerous positions during the course of the day and trying to close them as early as possible to capture LTC price movements.
- Swing Trading
A longer-term strategy, swing trading sees a trader opening up positions that can run for several days or weeks. The idea behind this is to not worry about small dips in the market and go for the larger swing and make more profits.
- Position Trading
The most die-hard followers use position trading. Traders buckle in for the long run that might last months or even years, capitalising on the major shifts in value. Given the timescales involved, traders do not worry about price fluctuations that would see even swing traders closing their positions. Even the trading chart they view is set to show timelines in days and months rather than hours and minutes.
The complete opposite to position trading, scalping is an intensive effort by a trader to open several positions and immediately close them on every small, favourable movement. The typical time frame for any trading order is between a few seconds to minutes. The idea is to tap into the small profit shifts to aggregate into one big prize. The movements at this scale can be too fast for many scalp traders and they usually employ trading bots to compensate for the increased speed.
Sign Up on an Online Broker or Derivatives Exchange
Cryptocurrency exchanges allow you to buy actual Litecoin tokens with fiat money and enable you to trade Litecoin against a variety of currencies and other crypto tokens. Brokers, on the other hand, employ contracts such as CFDs to give you quick and easy exposure to Litecoin without having to secure the tokens yourself. Both types of platform will typically give you access to leverage as well, however the amount you can access from your trading account will vary depending on your choice.
The first impression shows that using an exchange directly is more beneficial, offering better control over your positions, minus the broker fee. But the brokerage charges are greatly offset due to the better options for traders. Advanced trading solutions such as trading bots can help you with automated trades. Leveraged trading means you will be able to expose yourself to a larger LTC position than your funds would allow. Taking short positions in a bear market can still generate profits for you, and this is just one of the several benefits brokers can offer you.
With your choice of a crypto broker or derivative exchange selected, the next logical step is to fund your account. Before this, however, you will need to complete a KYC (Know Your Customer) check during your registration. This will involve uploading some government-issued ID and a proof of address to verify your identity.
Now you can fund your account. As trading is done using only the underlying value of Litecoin, most of the platforms you will sign up on will have fiat payment methods. The most common methods of acceptance are bank transfer and paying with debit or credit card. Depending on the platform, it might even accept PayPal or another form of money transmission. The exchanges and brokers can also limit funding to sources that are under your name only, so it is advised to check this out beforehand.
Open Your First Litecoin Trade
Even with all the theoretical knowledge you can amass, it is understandable that your first digital currency trade can be the most difficult. The overwhelming numbers running on the screen, the peaking and dipping charts, and numerous options to select and enter in data fields can be scary. However, with your technical and fundamental analysis of LTC coupled with your strategy and type of trading finalised, there are only a few things you need to know and execute for your first trade.
- Long and Short Position
If your analysis gives you confidence that Litecoin’s value will increase, you can take a long position. This is you simply opening up trade and closing when the price goes high to pocket the profits. Now what to do if your calculations show that the price is about to fall? One method is to wait for it to bottom out and then buy LTC. But you can capitalise on the bearish market using a short position. Shorting is a trading method where you bet that the price will fall. If your prediction is true, you make profits. Be careful though: if the price goes up instead of down, your short position will incur losses.
- Order Book
As the name suggests, it is a digital book where all the orders placed by traders (but not yet executed) are recorded. Order books can be a helpful tool in understanding the market’s take on LTC. There are two sides to the book: buy and sell. You can study the different asking prices for the orders and the amounts associated with them to determine if there is a buy pressure or a sell pressure, giving you insight on what asking price will execute your trade faster.
- Order Types
Each platform will offer a range of order types that you can employ to trade effectively. Mostly, you will find at least three of these. A market order gives you the option to buy or sell at the going market price. If you would like to define your preferred LTC price, you can always choose the limit order. Giving further fine-tuned control is the stop-limit order that lets you decide to open your limit order at a specific market price.
Brokers and exchanges can give loans to traders based on their risk profiling. Using these as multipliers, traders can open positions that are greater in value than their holdings (leveraging the loan). This gives them the opportunity to access greater profits with lower balances. Though appealing, leveraged trading can quickly lead you to lose your money. Only use this if you can afford to take the high risk of losing your money rapidly if you get your predictions wrong.
- Risk Management
LTC, like all cryptocurrencies, is subject to a higher level of volatility than traditional forex trading pairs or equity markets. It is prudent to conduct risk assessments before you place your order. Look at the charts and graphs for the recent movements. Check the order book and the gap in it. Keep a tab on the latest developments on the news and regulations side of Litecoin. In the end, it all boils down to your ability to take financial risks and absorb the losses.
Now that you have a fair idea of how to trade, you can select the type of derivative you want, decide either to go short or long, and even if you want to use leverage. With all the data entered, you can place your order and begin trading Litecoin.
Expert Insights: Common Litecoin Trading Mistakes and How to Avoid Them“ As any trader will tell you, losses are a part of the game. But this doesn’t mean that you have to suffer excessively. With good risk management, research, and keeping your wits about you, you can greatly reduce your chances of making mistakes that can lead to losses. Since the broker or exchange will be handling your money, make sure it is legitimate. A quick way to go about this is to look for their registration number (or email them for one) and look it up on the local regulatory agency’s website to confirm. Using an unregulated platform will have the benefits of lower KYC/AML issues and even higher profits, but ultimately at the cost of you potentially being scammed. Take time and review your orders before executing them. Hastily placed orders can often lead to losses as you end up clicking the wrong button or entering incorrect values. Another beginner’s mistake is related to FOMO, or the Fear Of Missing Out. Sudden price movements can trigger a panic mode where you can scramble to capture the move or mitigate your losses. Your research and workings should be telling you how much of a fluctuation in the market is acceptable by you and you can always safeguard against these easily. Finally, never bite off more than you can chew. Invest only small amounts initially to gauge your understanding of the trading environment as a whole and train yourself to control your impulses. Never invest more than you are willing to lose, especially in leveraged trading where a margin call by the platform can liquidate your investment completely. ”
Our Favourite Platforms to Trade Litecoin
There are several trading platforms, both derivative exchanges and brokers, that you can find today to begin your Litecoin trading experience. We have researched the best ones available so you can save time and get straight into trading. Following are our favourite LTC trading platforms.