Trading Bitcoin, Ethereum or Litecoin explained
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What is Cryptocurrency Trading?
The smart alternative of forex trading
Cryptocurrency Trading Overview
Cryptocurrency Trading is the Forex (Foreign Exchange) of cryptocurrencies. This means, you are able to trade different bitcoin and altcoin normally for USD and BTC. 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 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. If you want to start trading Forex, you need to open an account – this takes several weeks until they send you the sign up forms and access code. Then it takes some days until you transfer some money from your bank account to your Forex Broker.
We should not forget, that crypto-trading is also easy to leave. You 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 huge advantage over Forex are the low spreads. The spread is the difference between the ask and bid price of the market maker.
Spread Example: Let us analyse the spread of EUR/USD. The ask and bid are 1.0933 and 1.0931 respectively (data from 27.02.2016). The spread is 0.0002. Percent-wise, this is a spread of 0.0002/1.0933 = 0.018%
Now let us see the spread in bitcoin to USD. The ask price for 1 BTC is 429 USD, while the bid price is 428.999 USD (data from 27.02.2016). This equals to a spread of 0.001 USD or 0.001/429 = 0.0002%.
A smaller spread means, that when you exchange, you have made nearly no loss. On the contrary in Forex (btw. other than eur/usd have even higher spreads) after you exchange, you have already made a loss of 0.018%. Which is not insignificant.
Never the less, don’t forget to check your transaction fees at your exchange.
Margin at Cryptoexchanges
The features of leverage and margin trading is possible on some Forex as well as on Cryptocurrency Exchanges.
Margin Trading: You are allowed to use funding from peer-to-peer margin funding providers. This means, that you can borrow buying/selling power, but you need to alocate some funds (=margin) which won’t be accecible until you return the lending capital.
For example, you only have 429 USD but you want to buy 2 BTC. This is possible, but you will have to pay some interest after you close your position. For example, the BTC close at 450. So you have made 2*21 USD = 42$ winnings. Than you only need to subtract the low interest (about 2%) and you have your final earnings, which are higher, if you predicted the course of the trade correctly. Though you can lose more, when you have a losing position.
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. Normaly Cryptocurrency Exchanges offer a leverage of 1:10. This means, that for each dollar you get 10 dollars of buying power.
In conclusio this means a higher risk and a possible higher profit.
Getting started trading cryptocurrencies like Bitcoin
The first thing you need is a wallet. Only then you are able to buy crypto-currencies like bitcoin or ethereum 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 bitcoin at one place. This way you can minimize your risk of an exchange getting broke (f.e. MT GOX), being scammed or getting hacked.
Security: Don’t forget to activate your two-factor-authentication to be more safe. Most exchanges offer cryptocurrency trading with the need of bitcoin (for example: ethereum for bitcoin, or bitcoin for litecoin), this is why bitcoin is the first thing you should consider buying.
Now after you bought yourself some bitcoin, the time has come to choose your exchange place. This is where you are able to instantly trade from one cryptocurrency into a different one. 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.
Cryptocurrency CFDs (Contact for Difference)
Bitcoin and Ethereum CFDs offer a possibility to trade on the cryptocurrency market without the need of owning any coins at all.
A crypto CFD is a contract between the buyer and seller, where typically the seller will pay to the buyer the difference between the current value of the crypto asset and its value at end of the contract. CFD certificates are typically used on goods (derivates) that are hard to store/own like gold, oil barrels and in this case cryptos.
There are pros and cons of using CFDs to trade cryptocurrencies:
Pros and Cons on trading crypto assets over CFDs
The two benefits of using CFDs to trade cryptocurrencies are:
- Trust – Most CFD platforms have been established for many, many years. They are also highly regulated by the governments, which leads to a high level of security in comparison to cryptocurrency exchanges.
- Simplicity – Usually you can trade with fiat currency and you also don’t need to find yourself a wallet.
- Higher Fees – The fees can go up to 5% in comparison to 0.5% of normal cryptocurrency exchanges. Also, it is important to note, that many CFD platforms state that they have 0% fees, yet the spread between the buy and sell price of the crypto certificate is quite big.
- Less privacy – You will be asked for more personal information in comparison to normal crypto exchanges.
Example for a high-quality cryptocurrency CFD platform is Markets™
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 also should be followed in the cryptocurrency-trading-world! We are going to post our latest trades, suggestions and technical analysis on our blog, but you should not limit yourself only to us. Other sources are twitter hashtags for the crypto-coin and crypto-forums like reddit for example.
There is lot’s of value created by ‘pump- & dumpers’ so watch out! Always set a goal, which you want to achieve, for example 25%. 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 limit price is reached. For example, if you buy a dogecoin for 0.05 BTC. You can make a limit order for 0.075 BTC. This means, when the dogecoin gets a value higher than 0.075 BTC, your order will instantly be executed. This makes sure, that you dont pass out on the moment – it can always fall back to 0.05 before you can see the trade opportunity.
Golden cryptocurrency trading rules
Here is our list of most important trading rules, which we recommend you to follow:
- Hold NOTHING long term except BTC. (>2 weeks is dangerous).
- Never buy into a coin after a dump.
- Learn to understand the bitcoin (or any) chain.
- Learn to understand the correlation between bitcoin and an altcoin.
- Learn to understand candle stick 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 the market movement.
- Don’t trade if you have sleep problems 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 good 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 crypto-coins 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.
Hello, we have cleaned up the comment section, since many of you just wrote “please teach me how to trade like a master”. We have decided to further develop the content this website is offering, and increase our time spending on guides! But. But we need you to clearly define what you want to learn/see from us. For example, if you are interested into having a test-trading account, then say this, and not something too general in terms of cryptocurrency trading.
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Thanks for your understanding, Philip from Team CoinStaker.