If you want to learn how to trade cryptocurrency, you’re at the right place. There are mountains of information available on the internet, which could easily overwhelm anyone, including a seasoned trader.
To help you out, this edition of the knowledge crunch blog will be covering the 5 W’s of the who, what, when, where, and why for a detailed guide to cryptocurrency trading for beginners!
Table of Contents
What is Cryptocurrency Trading & How Does it Work?
What is the Difference Between Buying & Selling Cryptocurrency?
Step #1: Decide What Kind of Coins You Want to Invest in
Step #2: Set a Budget for Your Investment
Step #3: Open an Investment Account
Step #4: Decide How You’ll Invest
Step #6: Manage Your Investment Portfolio
Frequently Asked Questions (FAQs)
What is Cryptocurrency Trading & How Does it Work?
The basis of cryptocurrency trading is the act of speculating on cryptocurrency price movements via a trading account, or buying and selling the underlying coins via an exchange. The value of a crypto is determined second-by-second, day-by-day by a market that never sleeps.
Trading can range in scale and complexity from a simple transaction, such as cashing out to a fiat currency like the U.S. dollar, to using a variety of trading pairs to profitably ride the market in order to grow one’s investment portfolio. Of course, as a trade increases in size and complexity, so does a trader’s risk exposure.
How does cryptocurrency trading work?
To purchase cryptocurrencies, you’ll need a “wallet,” an internet software that stores your funds. In general, you open an account at a cryptocurrency exchange and then use real money to purchase cryptocurrencies like Bitcoin or Ethereum.
Crypto trading consists of a buyer and a seller. Since there are two opposing sides to a trade (a purchase and a sale) Having a basic understanding of how the cryptocurrency markets operate can help minimize potential loss and optimize for potential gain.
When a price is agreed upon between a buyer and seller, the trade is executed (via an exchange) and the market valuation for the asset is set. For the most part, buyers tend to set orders at a lower price than sellers. This creates the two sides of an order book.
When there are more buy orders than sell orders, the price usually goes up, as there’s more demand for the asset. Conversely, when more people are selling than buying, the price goes down. In many exchange interfaces, buys and sales are represented in different colours. This is to give the trader a quick indication of the state of the market at a given moment.
What is the Difference Between Buying & Selling Cryptocurrency?
There is a difference between the prices of the “Buy/Sell” feature and the market price. This is called the spread.
Typically, the spread centres on the market price; in other words, the market price will be somewhere in the middle of the buy and sell price.
The price at which you buy will always be higher than the price at which you sell your cryptocurrencies on Buy/Sell. Additionally, because of the spread, the price you pay/receive will be slightly different to the market price.
In times of high volatility in the market, this spread may increase due to the rapid price changes. Additionally, the nature of the coin itself (in particular low volume coins) can also influence the spread.
Step #1: Decide What Kind of Coins You Want to Invest in
Different cryptocurrencies have exploded in popularity over the last several months. Of course, the most popular remains Bitcoin. Although some other smaller cryptos are gaining serious steam as well, the concept of digital currencies continues to seep into the public consciousness. But which coins would be the best choice? Well here’s a look at the cryptocurrencies you should look into. Keep in mind, this is a volatile asset class, so proceed with caution when investing.
Source: Pixabay
1. Bitcoin
Since its invention in 2009, it’s been tough to understate the importance of Bitcoin and the underlying concept of the blockchain that accompanied it, but 12 years later, Bitcoin’s first-mover advantage has compounded to put its market capitalization above $1 trillion.
As the premier “blue chip” cryptocurrency, BTC is not only tried and true but is still setting new milestones: Tesla’s decision to put Bitcoin on its balance sheet and El Salvador’s move to make it a legal tender are two landmark 2021 actions illustrating how mainstream BTC has become. With trillions of dollars on corporate balance sheets still sitting idle in cash or cash equivalents, BTC’s penetration of corporate finance is still in the early innings.
2. Ethereum
Ethereum emerged as a force to be reckoned with in 2015 and is perhaps the only other token with any business being regarded as a blue-chip crypto. Ethereum’s market share in the nascent and fast-growing field of decentralized finance, or DeFi, has the digital currency slowly chipping away at Bitcoin’s share of the overall crypto market.
At the beginning of 2021, Bitcoin accounted for 70.7 per cent of the cryptocurrency market, with Ethereum accounting for just 10.8 per cent. At the time of writing today, that gap has now dramatically narrowed, with Bitcoin accounting for 45.1 per cent of the market share and Ethereum at 18%.
3. Ripple
Ripple has been around as a payment method since 2012, making it one of the oldest cryptocurrencies around. Despite its age, it hasn’t really seen the “ballooned value” of other super-hyped cryptocurrencies. This means it’s less likely to have a bubble burst as most cryptos go. Ripple has a centralized group that works on keeping its value stable and ensuring its success.
Bitcoin’s price is no longer the pennies or dollars that it once was. Right now, it’s possible to get Ripple coins for a couple of bucks, or even pennies. One has to remember that Ripple’s revenue had grown by over 28,000 per cent last year. The same thing might happen to Ripple this year and the next—even if growth is slow.
4. Bitcoin Cash
Bitcoin cash is a cryptocurrency created in August 2017, from a fork of Bitcoin. Bitcoin Cash increased the size of blocks, allowing more transactions to be processed and improving scalability. It had a high point shortly after it was launched of around $3,785 per coin, though the price has been fluctuating between around $200 and $1600 in the past year.
If you can stomach the roller-coaster volatility of Bitcoin, if you can keep up with its complex and always-evolving technology and you’re OK with the fact that it’s not backed by any institution that you recognize, then you could certainly make an argument for Bitcoin Cash. Like Bitcoin itself, Bitcoin Cash offers the potential for otherworldly profits, but also like Bitcoin, high risks, big bubbles and crazy price swings are part of the package.
5. Litecoin
If Bitcoin is seen as the gold of the cryptocurrency realm then Litecoin is the silver. Was released via an open-source client in October 2011. Litecoin was designed to provide fast, secure and low-cost payments by leveraging the unique properties of blockchain technology (mainly based on Bitcoin).
Since then, it has exploded in both usage and acceptance among merchants and has counted among the top ten cryptocurrencies by market capitalization for most of its existence. Overall, Litecoin is beginning to gain footing in a hypercompetitive cryptocurrency ecosystem and is transforming itself into something more useful. That makes it a worthwhile holding for investors seeking to put their money into altcoins.
Step #2: Set a Budget for Your Investment
When it comes to cryptocurrencies, one of the biggest challenges for investors is not getting caught up in the hype. Digital currencies have quickly risen to a place of prominence in the portfolios of many retail and institutional investors.
If you’ve decided to invest in cryptocurrency, like any other investment, it’s important to do your research before you hand over any money. Below, we’ll explore the things you should consider before investing.
Source: Pixabay
Thing to consider #1: Financial Safeguards
First and foremost, every investor needs to prepare themselves for the time when things don’t go according to the plan. With cryptocurrency, it happens often. The price of these virtual coins fluctuates frequently and wildly.
So having a backup plan or an emergency fund for those rainy days when prices drop is a wise move. Though this industry has rewarded some investors quickly with handsome returns, investors should plan for the long term.
Thing to consider #2: Research, Research and even more Research
Though some cryptocurrencies are more popular and more talked-about than others, there are technically thousands of digital coins on the market that you could potentially own. Rather than just say “it’s time to buy crypto,” spend some time researching different currencies to land on the right one.
Thing to consider #3: Timing Is Key
After diligent research, you’ve likely developed a feel for the cryptocurrency industry and you may have determined one or more projects in which to invest. The next step is to time your investment. The digital currency world moves quickly and is known for being highly volatile.
Thing to consider #4: Diversify
You will be tempted to invest in more than one coin. Most experts believe it is a good strategy. Diversifying the portfolio reduces the risk. And you can invest in more than one coin via the same exchange and its mobile application.
Thing to consider #5: Have a Goal
New investors must be clear about what they want to achieve with their investment. That goal should be realistic, based on the market condition. Also, a clearly defined goal helps in making quick decisions – like when to sell an asset or when to purchase more of the same.
Step #3: Open an Investment Account
Now that we have gone through our thought process of how to trade cryptocurrency, we’ll now start on how to open an investing account in just 4 steps on ZuluTrade.
Step #1: Open a trading account on ZuluTrade
First, head over to the ZuluTrade website and click on the register button to create a real account. You will then be prompted to choose your account type (Classic or Profit Sharing).
Step #2: Choose a broker
After you’ve chosen the account type, you then need to select one of our supported brokerage firms. You can use the filters provided to view Brokers with specific features and requirements that match your investment needs. Once chosen, you then add your funds for investment.
Step #3: Account created
Provided that everything is submitted correctly and filled out properly, ZuluTrade will then send you the login details for your account, after your account is fully set up and funded through your Broker.
Step #4: Begin your trading journey
You can now invest and copy trade in cryptocurrencies like Bitcoin, Litecoin, and Ethereum. ZuluTrade enables you to choose from multiple CryptoTrading options and auto-trade pairs such as BTC/USD, ETH/USD, LTC/USD, BCH/USD, through ZTP, with its fully-fledged web-based Trading Station.
Now that you’re set up and primed to invest you may want to read on about how you actually decide to invest.
Step #4: Decide How You’ll Invest
On ZuluTrade, the two main ways you can invest in crypto is through manually trading or by copy trading them. Both have their pros and cons but what’s important for you as a trader is that you pick the way you are most comfortable trading. Let’s take a look at both:
Source: Pixabay
Option #1: Manual trading
Here, the trader has to do everything on his/her own. From analyzing the trends in the crypto market to deciding what coins to trade to executing trades, everything has to be done by the trader themselves.
The trader has to learn about the crypto they’re trading, the tools they are using and methods of making the trading decisions such as technical analysis and fundamental analysis. Although It’s very important to note that this all takes a very long time to learn.
Cryptos are not like forex pairs. The crypto world moves fast and it’s vital to be alert for any news concerning cryptos (mostly through social media) For example, Elon Musk has been known to make prices of cryptos rise and fall from just one tweet.
Manual traders indeed have a bit more control over what to do when and how but this all comes down to the individual trader. For most new traders, emotions are the driving factor from what makes a good decision to a bad one. Be sure you know what you’re doing when trading manually… If not then you may want to look at copy trading.
Option #2: Copy trading
Copy trading cryptos can help you learn how others succeed. It’s a great way to learn from other experienced Traders who have their signals strategies with trading crypto pairs. Not to mention copy trading can help you diversify your investment allowing you to choose from among diversified strategies built from combinations of the best Traders.
You don’t need to know everything about USD/Bitcoin or even about every single crypto to start your trading journey. Just save time and build that passive investment by following the Traders who have experience with the markets and when they do well, you do well. It’s that simple.
Doing all of this on Zulutrade gives you peace of mind because of features such as ZuluGuard, an account protection feature that monitors each Trader’s behaviour and automatically removes a Trader when detecting a trading strategy that has deviated from its expected loss profile.
Step #5: Buying Your First Coins
Figuring out what to buy or what to do with Bitcoin, Ethereum and or any other cryptocurrencies can be confusing at first. Thankfully, it’s pretty simple to learn the ropes. You can start investing in cryptocurrency by following these four easy tips.
Tip #1: Don’t put in more than you can afford to lose
The prices of crypto coins swing wildly from minute to minute. While the market is basking in the glow of bull run, it has endured painful and protracted corrections and almost certainly will again.
Tip #2: Research thoroughly
Before you invest a significant amount of funds in any digital currency, spend hours upon hours researching the coin so you understand the value proposition and the risks. Once you think you’ve researched everything there is to know, do even more.
Tip #3: Resist ‘fear of missing out’
Fear of missing out (FOMO) is a sure way to destroy whatever wealth you may have accumulated over the years. The problem is that it’s a gut reaction to something that should be researched first. Trading based on your gut will quickly lead to an upset stomach. Don’t succumb to peer pressure. Research. Then research again.
Tip #4: Verify and Protect
The world of cryptocurrency is ripe with misinformation and scams, and to make sure you don’t fall victim to the same. Do not blindly trust every piece of information you get from social media and the internet when it comes to crypto! Also, remember to securely store your crypto in safe software or hardware wallets, so that your hard-earned investments are not accessible
Now that you might have bought your crypto, we should now look into how you manage it.
Step #6: Manage Your Investment Portfolio
If you want to start manually trading then this section is for you.
There is a common misconception among beginners that have just started investing in crypto. Many people believe that merely holding some Bitcoin will make them millionaires in the future. Sure, investing in Bitcoin can be a good starting point. But you also have to consider the fact the crypto ecosystem is far more extensive than Bitcoin.
There was a time when investors were extremely bullish on Bitcoin. In early 2021, the value of Bitcoin skyrocketed like never before and recorded its all time high. What followed after that was a nosedive. This is why managing your portfolio is so important. Let’s go through some tips you can do to manage your portfolio:
Balance with Diversification – Holding onto just one coin leaves you susceptible to the ups and downs of news that solely impacts that coin. All you have to do is look at the intro for the section for an example… be smart and don’t put all eggs in one basket!
Be Rational – Crypto prices can be extremely volatile, with wild swings to both the upside and downside. Additionally, blockchain technology is a relatively new technology and truly exciting. However, don’t let all of the hype put your emotions into overdrive, all you need is just stick to the plan.
Develop a Strategic Exit Strategy – A good trader is going to think about their exit plan BEFORE they enter a trade. This way, it is clear at what price they’ll close out the trade for a profit, and at what price they’ll close out for a loss. Again: stick to your plan.
Now Over to You
That pretty much wraps up our beginners guide for cryptocurrency. If you believe that cryptocurrency usage will become increasingly widespread over time, then it’s probably a smart idea for you to buy some crypto directly as part of a diversified portfolio.
That being said, you should remember that all crypto investments do carry risks and we can’t stress enough that you should always carry out your own research before investing in any asset, digital or not.
We hope you enjoyed this edition of the knowledge crunch blog just as much as we enjoy writing them! Stay tuned for more and be sure to check out our other helpful blogs with advice and tips to reach your investment goals with ZuluTrade.
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Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance which does not constitute a promise or a certainty for a future one.
Frequently Asked Questions (FAQs)
Q1. Is crypto trading profitable?
Investing in crypto assets is risky but also potentially profitable. Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency, less risky but potentially less lucrative alternative is to buy the stocks of companies with exposure to cryptocurrency.
Q2. What is the best way to trade cryptocurrency?
There are two routes to trading cryptocurrencies: speculating on their prices using CFDs or buying the digital currencies in the hope they increase in value. As for what’s best is completely up to you.
Q3. What moves the cryptocurrency market?
Cryptocurrency markets move according to supply and demand. However, as they are decentralised, they tend to remain free from many of the economic and political concerns that affect traditional currencies.
Q4. Can you trade cryptocurrencies using a Forex or CFD platform?
Yes, you can. However, there are significant variations that apply to crypto trading on forex and CFD platforms that must be taken into account when compared to trading the underlying asset on a crypto exchange.
Q5. How much money do you need to buy crypto?
You can buy crypto with any amount of funds but the amount should be with what you’re potentially prepared to lose.
Q6. How many cryptocurrencies are there?
At the time of writing this in 2021, there are nearly over 6000 cryptocurrencies out there.