Trading Bitcoin, Ethereum or Litecoin explained
What is Cryptocurrency Trading?
The smart alternative of forex trading
Cryptocurrency Trading Overview
Cryptocurrency Trading is the Forex (Foreign Exchange) of cryptocurrencies. This means that you are able to trade different cryptocurrencies like Bitcoin, Ether, Litecoin for USD. Most Altcoins (cryptos that are not Bitcoin) are paired with Bitcoin. The bigger ones are also paired with fiat currencies.
Cryptocurrency Trading is an alternative way to get involved in the Crypto-World! It doesn’t require mining hardware nor investing in bitcoin hyips or bitcoin cloud mining (which always has risk involved in their integrity).
Why trade Bitcoin and not other Forex?
Easy to enter
To start trading bitcoin and earning money, you really need less than an hour – for the how to steps, just scroll down.
On the other hand, if you want to start trading Forex, opening an takes several weeks. They usually need to follow security measures and send you your the sign-up forms and access code per mail. Not to mention that it takes days until the transferred money from your bank account is arrives at your Forex Broker.
It should be also mentioned that crypto-trading is easy to leave. Just transfer your Bitcoins out of the exchange into your wallet and you are done. We don’t even want to start talking about how nerve-racking it is to quit your broker.
One big difference to Forex are the big spreads. A spread is the difference between ask and bid prices. The ask price is the highest price that someone wants for a given cryptocurrency, this is essentially the buying price. The bid price is the lowest price someone is willing to give you for a given cryptocurrency, this is basically the selling price.
The spread of BTC/USD is intuitively bigger than the one of USD/EUR, since the market is less liquid. There is no rule of thumb, but you should expect that the spread is at least 10 times bigger in the crypto world!
A bigger spread opens up the possibility for the trading strategy called cryptocurrency scalping. Often utilized by market makers.
Leverage at Cryptoexchanges
You have the option to use leverage trading on some Forex and Cryptocurrency Exchanges.
Leverage Trading is the possibility to trade an amount, which you don’t have at your disposal. Normally Cryptocurrency Exchanges offer a leverage of up to ten to one (10:1). This means, that for each dollar you get 10 dollars of buying or selling power.
In conclusion, this means a higher risk and a possible higher reward.
Margin at Cryptoexchanges
A margin is required to be able to leverage a trade.
Margin Trading: You are allowed to use coins from peer-to-peer margin funding providers. This means, that you can borrow buying/selling power, but you need to allocate some funds (=margin) which won’t be accessible until you return the lent coins.
Let us make a 10:1 leverage example. Let the Bitcoin price be $500. Let us assume that you only have 500 USD but you want to buy 10 BTC. This is possible, but you will have to pay an interest for borrowing $5000 after you close your position. For example, the BTC closes at $550. So you have made $500 or a 100% earnings for only a 10% price increase. From this earnings, you will only need to subtract the interest rate (about 2%) and you have your final profit/loss, which is higher if you predicted the course of the trade correctly.
Never forget, that if in the same example the Bitcoin price would have fallen to below $450, then the crypto exchange would have liquidated your position and your account value would be zero.
It is also possible to employ margin trading with a vast number of brokers that offer CFD trading on the Bitcoin and other cryptocurrencies. According to InsideBitcoin’s crypto trading guide found here, it is possible to go both long and short as well as access the leverage of 20:1 with such brokers as eToro. Next to this, the platform is available for both EU and US traders and provides a platform full of useful features, the main one being the Copy Trading.
Getting started trading cryptocurrencies like Bitcoin
The first thing you need is a wallet. Only then you are able to buy cryptocurrencies like Bitcoin or Ether and protect them. We have made a guide on how to obtain Bitcoin already, check it out if you don’t already posses one.
The majority of cryptocurrency exchanges have a free a wallet along the ability to trade, but we suggest, that you don’t put all your cryptos in one place. This way you can minimize your risk of an exchange going broke (f.e. MT GOX), being scammed or getting hacked.
Most exchanges offer cryptocurrency trading with the need of Bitcoin (for example Ether for Bitcoin, or Bitcoin for Litecoin), this is why Bitcoin is the first thing you should consider buying. Most exchanges also accept different payment methods like online bank transfers, PayPal or Creditcard.
Security: Don’t forget to activate your two-factor-authentication to be more safe.
Now after you bought yourself some Bitcoin, the time has come to choose your exchange platform. This is where you are able to instantly trade one cryptocurrency into another. Take note of the currency trading pairs – each exchange has a list of their own. There are exchanges, where you are able to only exchange Bitcoin to Altcoin, but not Altcoin to any other Altcoin. This hinders the ability to trade fast and flexible. That is why we have made a list of the best crypto-exchanges. On this list you can find the most competitive bitcoin brokers available, offering lowest transaction fees.
After opening an exchange account, you need to transfer an amount of Bitcoin from your wallet to your exchange account. Another option is to deposit fiat currencies (like USD, EUR etc.) – but take into consideration the fact that there are higher fees attached to those transactions.
Difference between Cryptocurrency Exchanges and Brokers
On the first look, a cryptoexchange trading platform and a brokers platform might look the same. But there is indeed a big difference.
- A cryptocurrency Exchange is trying to match buyers and sellers, bids and asks.
- A cryptocurrency Broker is buying or selling the cryptocurrencies directly to you.
This is why Brokers tend to have rates slightly above the exchange if you want to buy from them, or slightly above if you want to sell to them.
Though most cryptocurrency brokers are licensed to do what they do, so you can see this as a big plus.
Forex exchanges offering cryptocurrencies
Now that you know what forex and cryptocurrency exchanges/brokers are. We wanted to present you a list of so-called cryptocurrency forex exchange hybrids – initially forex platforms, which now also offer crypto as a trading option:
Automated Bitcoin bot trading
The human mind can only follow several indicators at a given time. A Bitcoin (or other crypto-currency) bot can follow and try all the indicators at any time on all the cryptocoins. A Bitcoin bot doesn’t need sleep – a bot can be active at any time you wish, this allows to have a better sound, because you can be sure, that the bot will trade if something crucial happens.
Bitcoin Bots are accessible
Financial bots have existed for many years, but they were only accessible to the brokers and banks. Just the Bloomberg API cost 10000$ per year. Bitcoin Bots are different. They are managed on an external cloud/server, which means you don’t need to have your computer running all the time. The strategies are pseudo-coded – so you can say for example, if this indicator crosses that indicator, then buy. Else wait for that indicator. Most bots are user made with different ratings, which allow you to choose easily from several strategies, without the need to program any code at all. For example Cryptotrader.org – this way you can follow one of the profitable trading bots. Check out our CryptoTrader Review & day to day test to see if this is something for you, or not!
Trade the rumor – sell the news
This is an old saying in the stock-trading scene, which is also valid in the cryptocurrency-trading-world! We are going to post our latest trades, suggestions and technical analysis on our Bitcoin blog, but you should not limit yourself only to us. Other sources are twitter hashtags for the given coin and crypto-forums like reddit for example.
There is lots of value created by ‘pump- & dumpers’ so watch out! Always set a goal, which you want to achieve, e.g. 2% or 35 USD per day. If you don’t check you exchanges daily, then the best thing you could probably do is add a limit order. A limit order is executed, when a specific price is reached. For example, if you buy Ether for 0.05 BTC. You can make a limit sell order for 0.075 BTC. This means that you will automatically sell your Ether when the value is higher than 0.075 BTC. This assures, that you don’t miss any big price movements- it can always fall back to 0.05 before you can see the profit opportunity.
Golden cryptocurrency trading rules
Here is our list of most important trading rules, which we recommend you to follow:
- Always do you’re homework and read the fundamentals of a coin. If you read the whitepapers, you will know more than 90% of the people we know trade cryptos.
- Go to crypto events. That is the place you will find the hottest coins!
- Buy weeks before a roadmap (of development) gets revealed. It is like the stock earning releases – something gets so hyped-up that even a good report can’t help it.
- Never buy into a coin after a dump.
- Learn to understand the Block (or any) -chain.
- Learn to understand the correlation between Bitcoin and an altcoin.
- Learn to understand candlestick charts. They offer significant information, which can’t be figured out of normal lined charts.
- Secure winning & limit losses
- Learn technical analysis. This plays a major role in reading current market movement.
- Don’t trade if you lose your sleep because of a single trade. That is just not worth it.
Ad. The numbering does not showcase the importance of the statement.
Please help us make the list even bigger. You can always easily contact us over here.
Storing Bitcoins on Cryptoexchanges
Important notice for Bitcoin newcommers: Like stated above, hacks on crypcurrency exchanges do happen. This is why, if you just trade occasionally there are two things you can and should do:
- Store your cryptocurrencies at your cold bitcoin hardware wallet – so your coins are 100% secure, or
- If you want to maximize the return of the coins you currently have, then you should read our article on bitcoin lending on exchanges
Why do we suggest the first point? Well, because the point of a decentralized currency is, that one can be his own bank! And one has full control over his cryptocurrencies.
Summary on cryptotrading
We see the cryptotrading as a great opportunity to make good money. Many coins quadruple their value in less than a week. Though you always need to be cautious, because there are lots of fake coins, pump & dumps, schemes and ponzis.
Follow our (and your own) rules and you will be able to take advantage over the people who don’t. Also, you will be able to detect which cryptocurrencies are scams and which have potential to skyrocket like Bitcoin. This shall be a journey, which we will take with you, where we will try to find the safest and most promising opportunities on the crypto-market!
As a conclusion you need to be careful where you invest – and don’t forget: never invest what you can’t afford to lose.