Cryptocurrency Trading Basics

The cryptocurrency market has been in the target lock for investors and traders because of its lucrative opportunities. But really, how does a beginner trader start trading crypto?

In this walkthrough, you'll learn the basic yet crucial aspects of cryptocurrency trading. Read on to start profiting effectively from the cryptocurrency market.

 

Lesson Highlights:

• Cryptocurrency trading involves buying and selling crypto assets (BTC, ETH, USDT) on a crypto exchange (Binance, Coinbase, CashApp). 
• The two most common ways to profit from the crypto market are to trade short-term market trends and hold them as long-term investments. 
• HODLing is one of the most lucrative strategies when trading crypto. When you HODL your crypto, you profit from the cryptocurrency's substantial value growth.

 

How to Start Trading Cryptocurrency

Cryptocurrency trading involves buying and selling digital coins like Bitcoin (BTC), Ethereum (ETH), or Tether (USDT) on cryptocurrency exchanges like Binance, Coinbase, or Cash App. By trading crypto, you essentially take advantage of market volatility's price fluctuations.

If you're just starting out in crypto trading, here are the staple crypto trading practices you need to be familiar with.

 

Pick a Trading Strategy 

Regardless of what you're trading, a sound, efficient, and personalized trading strategy can help you stay safe and profitable in the high-stakes environment of online trading.

When you're trading crypto, here are the best trading strategies you can use:
 

Strategy	Suitable for:
HODLing	Long-term traders
Trend Trading	Short-term traders
Scalping	Active traders

Remember, there are more trading strategies available. Make sure that the strategy you choose aligns with the prevailing market conditions, your risk tolerance, and your overall trading objectives.

 

Analyze the Order Book 

An order book is a one-page list serving as a reference for crypto traders, investors, and speculators. It allows crypto market participants to monitor the real-time supply and demand of the selected cryptocurrencies and their respective current prices.

Before entering a crypto position, thoroughly analyze the order book to see how the overall crypto market is performing. Moreover, with an order book, you get to see the bid/ask prices of cryptocurrencies.

 

Choose a Profitable Trading Pair

When you trade crypto, you can choose from the two main categories of market assets: the Crypto-Fiat pairs and Crypto pairs.

Essentially, cryptocurrency-fiat trading pairs involve a digital coin and a fiat currency like USD, JPY, GBP, etc. By using this asset, you can see the one-unit value of the cryptocurrency relative to the fiat currency.

On the other hand, crypto-to-crypto pairs involve buying a digital coin using another digital coin and, likewise, selling a coin at the expense of another one in the pair. If you're familiar with forex trading, the concept of currency pairs mirrors crypto's trading pairs.

When you're concerned with the crypto trading pairs, you also look at the base and quote currency pairs.

1. Base Currency: The first crypto in the pair. This is the base of your trade, whereas when you’re buying or selling this crypto when going long or short respectively.  
2. Quote Currency: The second crypto expressed in the pair. This represents the buying or selling value of the base currency.

 

Place Trade Orders

Constantly placing trade orders is an effective trading and risk management technique. With a trade order, you better control how and when your broker will execute your trade to the market.

This is especially essential for traders who want to place their trade at the best possible and most profitable market price.

Here are the three primary types of market orders you can use when trading any instrument in the financial market.
 

Trade Orders	Types	Function
Market Orders	Buy Market Order Sell Market Order	Immediate execution of buy or sell orders at the best available price.
Limit Orders	Buy Limit Order Sell Limit Order	Execution of buy or sell orders at a future and better price.
Stop-Loss Orders	Sell Stop Buy Stop Trailing Stop	Execution of buy or sell orders to get the losing trade out of the market.

 

Common Ways to Profit from the Crypto Market 

The value of cryptocurrency has an interesting nature. Unlike other financial instruments, the value driver of crypto lies solely in the sentiment of the market participants.

But here's the question: How do crypto traders profit from these values? Well, they either trade for a short period and take advantage of the value fluctuations, or they hold a long-term position while hoping that the market value will increase over time. 
There are two common ways cryptocurrency investors and traders profit from the market.
 

1. Active Trading

   Active trading is among the most popular trading styles in the financial market—not just in the crypto market. This type of trading refers to buying and selling assets, like a crypto pair, hoping to make a quick profit due to short-term price fluctuation.  
   Active trading includes day trading, scalping, and even swing trading. Remember, you must only participate in active trading if the market is liquid. In an illiquid market, it'll be harder for your trade to enter or exit the market.
   
    

2. HODLing

   HODLing is a buy-and-hold crypto trading style. Basically, this is a type of crypto investment where an investor or trader is optimistic or bullish about the long-term trend of the financial asset.  
   Remember, the primary risk of HODLing is short-term fluctuation. If you think your position and overall capital cannot weather these short-term risks, it may be best to stick with active or short-term trading.

This lesson taught you how to effectively make crypto trading lucrative, even for beginner traders. For the next lesson, you'll explore and understand the essential trading terms every crypto trader needs to know.