Since the creation of Bitcoin in 2009, it has opened the way for other designs of its kind to come alive. Apart from Bitcoin, there are more than 1000 cryptocurrencies in existence, and they are collectively known as altcoins.
With the total market cap of over $750 billion, cryptocurrency trading has become a sort after path, as everyone is eager to get a share. You might wonder, “What is cryptocurrency trading?” We are going to explain what cryptocurrency trading is and how to trade it.
What Is Cryptocurrency Trading?
Cryptocurrency trading involves either buying or selling a particular coin through an exchange or speculating on cryptocurrency price movements through a CFD trading account.
As earlier mentioned, cryptocurrency trading can fall under two categories. Either by buying and selling coins or by trading CFDs.
Buying and selling cryptocurrencies through an exchange
This form of cryptocurrency trading involves buying and owning cryptocurrency. The trader can make this purchase on any exchange platform. To buy and sell cryptocurrencies, a trader must first open an account with an exchange and create a wallet to store the cryptocurrencies.
Trading cryptocurrencies through CFDs
Unlike actual buying and selling, where you purchase some coins and keep them in your custody, you can’t claim ownership of the coins in CFDs trading. CFDs trading involves speculating on the price movements of a cryptocurrency.
After much speculation, the trader would then decide on ‘buying’ or ‘selling the cryptocurrency.
How to go about cryptocurrency trading
Before going into trading, there are some basic things a trader needs to know and do to ensure a successful training ride. The following are steps on how to go about crypto trading.
- Learn about the cryptocurrency market
The cryptocurrency market is based majorly on speculation. This speculation would not always be correct, leading many traders to lose funds. Before embarking on a trading journey, understand the factors that affect the market and how it would help you to scale through.
Some of these factors can include news reports, significant events in the cryptocurrency economy, demand, and supply. By studying these factors, you will know when to perform transactions.
- Find a reputable crypto platform.
The type of cryptocurrency exchange you choose for trading partly determines how your trading journey would be. To avoid losing your funds on a crypto platform and also survey different trading features, you have to do your share of research on them.
The following are a list of criteria to look out for in cryptocurrency exchanges:
Reputation: To find out the reputation of a platform before opening an account with them, you can search for such companies’ reviews.
Safety: To ensure your funds’ security, look for exchanges that require some form of identification when creating an account. To avoid falling victim to scammers, ensure that the cryptocurrency platform you are choosing is regulated.
Validity: Some exchange platform has country-restriction, meaning that a platform’s services might be made accessible to only members of a particular country. Therefore, before opening an account with any platform, confirm if their services are available in your country.
Features: Features like available cryptocurrency, types of accounts, fees, exchange rates, and so on are what you can confirm before choosing your trading platform.
- Create a safe wallet
How you store your coins are as important as your trading strategy. Not providing safe storage for your funds can be compared to fetching water and pouring it into a container with holes. That is a futile journey.
Similarly, a trader’s efforts are wasted if his funds keep on disappearing from his wallets. To avoid falling into the hands of hackers who would strip you of your funds, use a cold or hardware wallet.
This type of wallet is safer than a software wallet since it does not require an internet connection.
- Open an account
After concluding your search for the right broker to trade, register, and open an account with your new platform, then fund your online wallet. You can choose to buy your funds with fiat currency or using other cryptocurrencies.
So far, we have considered what cryptocurrency trading is. This article also mentioned the two categories of trading. Then it concluded with four essential steps a trader needs to take to succeed in trading cryptocurrencies.