Trading cryptocurrency involves buying and selling of digital assets such as Fiat, Bitcoin (BTC) and Ethereum (ETH) with the aim of making a profit. These transactions are recorded in a public blockchain.
Exchanges are platforms for buying and selling the assets. An example of such a platform is The New York Stock Exchange (NYSE). Cryptocurrency exchanges offer the same service as the NYSE. Following are some of the cryptocurrency exchanges you can trade on:
1. Kraken
2. Gemini
3. Bitstamp
4. Bitfinex
5. itBit
Best cryptocurrency exchanges do not operate in a similar way. Different exchanges specialize in the cryptocurrencies they trade. They have different cryptocurrencies’ prices and they have varying volumes of trades. To choose the best exchange that suits your trading needs you need to look into the following factors.
1. Reputation
Search online on the reviews that have been made concerning the platform. There are forums such as Bitcoin Talk or Reddit that you can ask as many questions as possible concerning your chosen exchange.
2. Fees
Exchanges have deposit fees, transaction and withdrawal fees. These fees vary from one exchange to another.
3. Payment Methods
Before committing to an exchange, it is also important to know their payment methods. There are exchanges that may not offer convenient payment methods for you. Choose an exchange that you can access their payment method.
4. Identity Verification
Some exchanges need personal details in order to access their payment platform. Some of these verification requirements may be quite detailed and you would prefer to remain anonymous.
5. Geographical Restrictions
Some exchanges offer some of their services only within certain countries. It is important to ascertain whether the exchange you sign into can offer all the trading services within your area/country of residence.
6. Exchange Rate
Exchange rates vary from one exchange to another. Take some time and compare rates on different platforms to get the best offer.
Steps of Trading in the Cryptocurrency Exchanges:
1. Open an Account
Once you have settled on an exchange that best suits your needs, you need to open a trading account. This entails creating a digital currency wallet to store your digital funds. Secondly, you will need to connect to a bank account, a credit or a debit card so that you make payments and exchange digital currency to local currency and vice versa.
2. Choose a Trading Strategy
There are a number of strategies to trade on cryptocurrency. Strategies help to maximize profit. You will pick a strategy depending on the currency you trade on, the time to trade and available funds.
Below are some of the strategies that are popular among cryptocurrency traders:
• Swing Trading
Swing trading is the strategy that involves buying and selling of assets at a relatively high frequency. The trader buys the assets at a lower price and sells at a higher price. This strategy calls for the consistent timing of trades due to the high volatility of cryptocurrencies. Swing trading can be done once a day or every other day.
• Day Trading
Day trading is similar to swing trading. However, day trading has a higher trade frequency. The sale of assets is made more than once in a single day with the aim of benefiting from small market fluctuations.
• Margin Trading
A trader can borrow trading funds from another broker to buy and sell assets. This is called margin trading. Margin trading can be risky because assets can lose value and debt is accrued. However, a trader who can benefit from an additional buying power if the assets increase in value.
• Hedging
Hedging is an action taken by a trader to cushion themselves from possible loss. For example, if the trading charts show unstable markets, a trader can dispose off an asset that is most unstable and invest in one that appears to rise within a given time. Hedging is the best way to avoid risk.
• Holding
This trading strategy is popularly known as to “HODL”. It is a practice by some cryptocurrency traders to hold onto their assets awaiting better prices in the future. Holding can help you to make an extra profit but there is no sure way of determining that the prices of the particular cryptocurrency you hold will improve.
3. Build a Trading Plan
Once you have chosen a trading strategy you will need to build a trading plan. You need a trading plan in order to make better trading decisions. Trading plans will guide you on when to open or close your trades. It also outlines risks that are acceptable to you.
The most import thing to do when venturing into cryptocurrency trading is research. Make sure you have enough information on the type of assets available, their cost and their performance on the market. Make use of trading charts to make sense of cryptocurrencies’ market dynamics and to maximize your trade.
