If you have been reading up on cryptocurrencies during the last few years, there’s a good chance that you’re going to want to try earning from these digital assets. As the public’s acceptance of cryptocurrency grows and new coins are entering the market, more people will want to get in on the action of buying and selling virtual currencies. Sooner or later, you too will find yourself dabbling in crypto for investment or crypto trading.
Essentially, there are two ways of making money in cryptocurrencies. The first is buying cryptos like Bitcoin and then holding on to them for an extended period, just as investors do with bonds. To profit from this strategy, you’ll hope that your selling price is more than the purchase price by the time you decide to sell your cryptos. In cryptocurrency slang, this is called HODLing, which means holding on to your crypto investment. The second way to profit from digital currencies is by crypto trading. It is buying and selling cryptos within a short time.
Below are the basic concepts that underlie how trading works and some of the best crypto trading strategies to try out if you’re a beginner: s
What Attracts Traders to Cryptos
Anyone can make money by trading traditional assets and commodities. But what makes cryptocurrencies attractive even to seasoned traders? Even until now, many people—especially older folks—are still baffled by the meteoric rise of crypto assets, and they are asking for an explanation. Discussing what makes cryptocurrencies tick can take days, if not weeks, and still wouldn’t cover all the related topics.
For an aspiring crypto trader, you need to answer why traders are attracted to crypto assets. Here are two reasons:
- Crypto prices are going up: The prices of cryptocurrencies have been steadily rising. For instance, Bitcoin started at less than 10¢ in 2010 and now it’s over $30,000 per coin. At this rate, cryptos are an excellent investment that has the potential to earn long-term profits.
- Highly volatile prices: Traders make money when markets are active. Price movements determine whether profits or losses are to be made. Cryptocurrencies are excellent trading assets because they are highly volatile. Fortunes are made or lost via short-term price movements. If you’re careful, you can easily make money or recover anything you’ve lost in a matter of hours or days.
Converting Fiat to Crypto
Before you can start trading, you need to buy cryptocurrencies like Bitcoin using fiat money like the U.S. dollar or any other acceptable paper currency. To do this, you need to sign up with a portal or exchange that sells cryptos in exchange for regular paper money. There are many crypto exchanges available now. Here are some essential pointers to keep in mind when signing up with a crypto exchange:
- Availability: Make sure to choose an exchange that does business in your country. Some exchanges are not allowed to operate in certain countries. Such limitations can make things difficult, if not illegal, when buying and selling cryptocurrencies.
- Reliability: Before signing up, you must check the background of the exchange you plan to use. Many exchanges have closed shop only to take money from unsuspecting clients and investors. So, don’t be a victim—choose only reliable exchanges.
- Security: Reputable exchanges will have some form of client verification, also known as the Know Your Client (KYC) process. It provides an additional level of trust for both the exchange and the client. Unscrupulous individuals will be weeded out from the exchange, while clients can prove ownership of their accounts—this is crucial for restoring accounts whose access details have been compromised or lost.
- Good exchange rates: Exchanges have different currency rates. Some sell cryptos cheaper than others, oothers charge expensive transaction fees and commissions. Before deciding on which exchange to use, make it a point to compare the rates among different exchanges.
How Crypto Trading Works
Cryptocurrency trading works just like foreign exchange trading. You make money by trading on the volatility of currency prices. The only difference is that forex trading uses fiat money—usually the U.S. dollar—to trade against other fiat currencies.
As a trader, you make profit or loss by opening or closing your position at your choosing. The best strategies use fundamental analysis and technical analysis tools to determine if the price movements in cryptos will result in gains or losses. For example, if you bought a crypto valued at $1 (open position) and the following day you sold it for $2 (close position), then you made a profit of $1.
You should note that you can also profit from cryptos even when the prices are going down. This strategy is known as shorting. Here you enter the market while the prices are in a downward movement. That means you can buy more cryptos and at cheaper prices. Once you become a seasoned trader, you can also trade cryptos via futures contracts and binary options.
CFD Trading for Cryptocurrencies
CFD is short for contract for difference. This method offers leveraged trading and can be used for any commodity or assets like stocks and fiat currencies. There are exchanges or providers now that offer CFD trading for cryptos.
Under a CFD, the trader and the provider or broker agree to replicate the specified crypto asset’s performance. When you open a CFD account, you don’t directly open a position in the crypto market. As the trader, you do not actually own the cryptocurrency you’re trading in—you only speculate on the movements of the crypto price levels. When you close your position and the price has moved in your predicted direction, you make money, which will be paid by the broker. But if the price went the opposite direction, you pay the broker and suffer a loss.
CFD trading is considered leveraged trading because a trader must only make a minimum outlay and then take out a contract that has a more significant value than the investment. In short, you gain access to a large amount of cryptocurrency by putting in only a fraction of that crypto’s value. CFD trading enables traders to maximize their profit potential, but it can also amplify losses if the market goes against the trader.
Cryptocurrencies are gaining more traction in mainstream society. As such, more people are finding ways to invest and make money in cryptos. Crypto trading is one of the fastest ways to profit from these digital assets. You buy and sell your crypto based on its price movements.
Before you can trade, you need to sign up with a reputable crypto exchange. Remember, you are dealing with a decentralized asset class. Therefore, there will be minimal protection from government institutions. The burden of protecting your crypto assets lies on you. Once you gain more experience, you may want to dabble in other crypto trading methods like CFD contracts and binary options.
Ultimately, cryptos are here for good. Many people have already made money from digital currencies. Now is a good time for you to start trading cryptos.