Where & How to Trade Cryptocurrencies in 2023

The revolution in cryptocurrencies has meant that many investors wish to benefit from this rapidly evolving medium. But many beginners don't fully understand some of the mechanisms that are used to make money from commodities such as cryptocurrencies.

Trading and investing are both common practices with cryptocurrencies, as well as stocks and other commodities. To take the first of these techniques initially, trading is a much more dynamic and exciting way of dealing with cryptocurrencies, but one which requires technical knowledge. Trading involves attempting to read the market, and making investment decisions based on short-term price direction. This is the form of investment that is often depicted in Hollywood movies, and it can be an excellent way to make a large amount of money in a short period of time.

Conversely, investing involves purchasing a certain token, and then holding it over a period of time so that what are believed to be strong fundamentals can unfold. Investors that really believe in the value of cryptocurrencies as commodities will invest in them over a longer period of time, and this significantly contrasts with trading, which is not based as much on market fundamentals.

Trading is a considerably more powerful activity to benefit from the price discovery of cryptocurrency trading, owing to the timescales involved. It is also significantly more agile, providing investors with increased flexibility and options. However, it is far riskier, and requires a good deal of technical knowledge on the part of the investor.

Crypto trading and investing are also usually carried out via cryptocurrency derivatives, such as CFDs, futures, and options. CFD contracts are possibly the most popular, as they allow the greatest amount of leverage. These contracts are ultimately settled in cash, with the amounts being based on the difference between opening and closing trade prices.

By contrast, options are financial instruments based on the value of the underlying securities. Options contracts enable investors to buy or sell assets, and then profit from decision-making. While futures require investors to settle at a predetermined date and price, options offer rights over obligations. Accordingly, the contracts themselves command a fee, called the contract’s ‘premium’

Balancing the various factors that impact the cryptocurrency market can be extremely challenging for investors. The type of derivatives entered into, the market behaviour at the time of investing, any risk profile, along with a variety of macroeconomic elements can all impact cryptocurrency prices. This means that there is no one strategy that can guarantee profits, but deeply understanding all of these factors and making judgements based on this knowledge is the skill involved in cryptocurrency investing.

Cryptocurrency Trading Analysis: The Key to Success!

Once you have made the decision to invest in cryptocurrencies, there are several approaches available to you. Among these is the possibility of engaging in different forms of analysis, including technical analysis and fundamental analysis.

Technical analysis is predicated on the analysis of price charts and other historical data, with investors attempting to project the market into the future based on this information. By contrast, fundamental analysis focuses on the true value of an asset, with factors such as breaking news, regulation, technical development, and macroeconomic elements all having an impact on decision-making.

There are other factors that can also impact cryptocurrencies, including the overall economic picture, whether the tokens have been in a bull market or bear market recently, general market sentiment, interest rates, and other economic decisions made by governments. 

There are a variety of trading methodologies and approaches available when dealing with cryptocurrency, and in this section, we will examine several of these.

• Swing trading

Swing trading is one of many popular ways of investing in cryptocurrencies. This approach sees investors attempt to capture a small slice of a larger generalised price movement in a particular asset. Thus, swing trading happens over a shorter period of time than some other trading strategies, although it can stretch over several weeks at times.

Swing traders engage in technical analysis when seeking trading opportunities, and are keen to analyse price trends and other data. Swing trading is rarely settled in a solitary trading session, but also seldom drags on for longer than a couple of months.

• Day trading

Day trading is the most exciting and dynamic form of trading, in which all trades are settled within a 24-hour period. All positions related to the trading strategy should be settled prior to the market closing in pure day trading. By engaging in this process, investors are able to take advantage of minor fluctuations in market prices. Often, specialist software is needed in order to achieve the snap decisions that are required for this type of trading.

• Technical Analysis

Technical analysis is one of the most important techniques involved in trading. Technical analysis utilises historical price charts and market statistics, attempting to use past information to predict future price discovery.

• Scalping

Another common technique within cryptocurrency trading is scalping. This approach to investment involves placing a huge number of small trades in a relatively short time period, with the hope of capitalising on tiny market movements. Scalping diversifies risk, by spreading capital over a large number of small trades, but still requires dedication to achieve results.

Sign Up on an Online Broker or Derivatives Exchange

Investors looking to trade cryptocurrency can choose from a whole host of different platforms, comprising both cryptocurrency exchanges and online brokers. Brokers use derivative contracts to give investors exposure to the price movements of cryptocurrency, whereas exchanges will also offer the direct purchase of coins and tokens through spot markets. 

Brokers are often more geared towards beginners and traditional investors, whereas exchanges may seem more daunting. Exchanges will often give users access to enormous levels of leverage — up to 200x in some cases — whereas some brokers offer copy trading, which permits novices to follow the moves of pro traders.

Deposit Funds

Depositing funds on cryptocurrency platforms has been made rather user-friendly, and begins by registering with the site in question. This will then require the investor to confirm their identity, usually via government-issued documentation and proof of address.

Once you have completed this initial registration, you will then be asked to add a payment method. Most brokerages and exchanges support all of the mainstream deposit methods that you would usually expect, with debit cards, credit cards, PayPal, Skrill, and Neteller supported by the vast majority of platforms.

You are then ready to deposit funds on the site, but before this, you should invest in a hardware wallet if you will be purchasing actual tokens.

Open Your First Cryptocurrency Trading Trade

Placing your first trade with a cryptocurrency token is an exciting process, but you must familiarise yourself with a variety of market principles before commencing this process.

Firstly, you need to make a decision regarding whether you're going to hold physical tokens. If you do wish to store some of the crypto that you are purchasing, a cold storage method like a hardware wallet is essential. Theft is still possible, despite the progress that the cryptocurrency niche has made in recent years with safety and regulation, so as much precaution as possible should be taken.

You should also finalise your trading strategy before commencing your actual investment. Define your entry and exit strategies, and also decide what you hope to achieve from your overall trading activity. Ensure that you have conducted a range of market research, and keep an eye on any relevant news stories.

Finally, if you're intending to execute your own trades, you must continue to monitor the market, along with any issues that could impact upon price discovery. Knowledge is power in many fields, but this applies to trading more than most.

Short / Long Position

One option with cryptocurrency trading is to take either a short or long position on the currencies involved. Here, you bet on whether you believe the cryptocurrency in question will increase or decrease in value. Those taking a long position believe in the market fundamentals of the coin, and are assessing that it will increase in price. Short sellers instead assert that the cryptocurrency will diminish in value.

Taking a long position can be seen as a stamp of approval for the validity of a particular cryptocurrency platform. Conversely, short sellers are essentially sceptics, who believe that a token is overvalued monetarily.

CFD Contracts

Another option for cryptocurrency investors is to use CFDs (contracts for difference), which are hugely popular across a wide range of financial instruments. CFD contracts are a type of derivative, and frequently enable a large amount of leverage. 

This means that they often find favour with professional and institutional investors, but that they are also risky propositions, which can expose traders to large deficits. CFDs also incur rigid margin requirements, and are perhaps a better option for more experienced investors than those just beginning their cryptocurrency journey.

Order Book

Order books are another critical aspect of the cryptocurrency marketplace. These are essentially documents that contain a vast amount of useful information on a particular token. Order books include information on all buy and sell orders, along with every market participant. Order books are always used at cryptocurrency exchanges as a record of trades, and can also be found on many other platforms, including some brokers.

Order Types

There are a variety of order types available with cryptocurrencies, and these enable traders to provide specific information to brokers on their desired trades. One example of this is limit and stop orders, which inform brokers that the current market position is undesirable. Having received a limit and stop order, brokers will then pause, awaiting assets to move in a certain price direction before recommencing trading. This automation of trading reduces the attention-intensiveness of the operation, potentially freeing up lots of time spent watching the markets.

Leverage

Leverage has been mentioned several times in this article, and can be considered a critical cryptocurrency concept. Professional and institutional investors often leverage to a great degree, which allows them to utilise money that is not their own. Leverage is thus effectively a form of credit, and can be used to make massive profits when trading. However, beginners will generally be advised to be cautious with leverage, as it exposes them to huge liabilities as well as profits.

Risk Management

Risk management is also an extremely important strategy for any future cryptocurrency trader. If you're not willing to engage in appropriate risk management, you are opening yourself up to potential losses. All professional, successful, and experienced investors always engage in risk management, as this makes it possible to hedge against your own misjudgements.

Due diligence and the restriction of emotion from entering into the trading process are always important in trading, and the best traders view risk management as an essential pillar in this process. Risk management policies are a form of insurance, in what can be a somewhat volatile marketplace.