Here is an overview of the mechanics of cryptocurrency trading, the disclosure of useful terms used to describe market conditions, such as bearish and bullish, long and short positions and etc., as well as the explanation of different types of trading.
Finrazor readers have been already provided with the way to earn on crypto via mining and mining pools. This article and the following ones are going to explain how to invest in Bitcoin and other altcoins and start making a profit out of it. Here you can get familiar with the general idea of cryptocurrency trading and understand its basic terms and ideas.
Bitcoin, the first cryptocurrency, was born about ten years ago. Since then, the blockchain industry has been steadily growing with mostly ups but not without downs. The cryptocurrencies market is well on its way to a properly regulated legitimate entity. It is a place where millions of people make their living off of trading.
Trading cryptocurrencies refer to the process of buying and selling cryptocurrencies or corresponding financial derivatives with the purpose of making a profit. The general mechanics of crypto trading is similar to that of stock trading: buying low and selling high.
People use special terms to describe markets conditions. When the prices of cryptocurrencies are steadily going down, the market is often described as bearish, or the bear market. When the prices are on the rise, the market is bullish, or the bull market.
Trading, in its sincerest form, implies speculating on prices, and there are two positions you can take: long or short. Long position is betting that the prices will go up. Shorting is, on the contrary, betting on the depreciation of cryptocurrencies. In crypto market, most cryptocurrencies largely depend on bitcoin, and if it’s on the bull run, most altcoins follow suit. Going short is risky, and there is a good chance of coming short. For more detailed analysis, check out our article.
A trading portfolio is a group of assets belonging to an individual trader.
Types of trading
Day trading involves buying cryptocurrencies and selling them at higher prices within the same day or a short period. Day-traders operate on exchanges and trading platforms. Exchanges are different: some support fiat money, others are crypto-to-crypto only. Exchanges can be centralized (all orders are done through a central stock of assets) or decentralized (the exchange matches traders based on their orders). Some of the more established exchanges are Bitfinex, Binance, Coinbase, GDAX (for experienced traders).
In margin trading, a trader borrows money against its existing deposit on the exchange to increase their buying power and then returns the borrowed money often with interest. The borrowed money, the leverage, depends on the deposit, the margin. Depending on the exchange, the leverage-to-margin ratio can 2:1, 5:1, 10:1, etc. A few examples of exchanges that support margin trading: Bitfinex, Bitmex, Plus500, Poloniex.
Trading derivatives are buying and selling contracts that mirror prices of their underlying cryptocurrencies. CFDs (Contract-for-Difference), futures contracts, and options are tools that allow traders both short or long crypto assets without actually buying or selling them. Among exchanges that support bitcoin and altcoin derivatives are CBOE, CME, AVAtrade, Bitmex, Deribit.
Tether is a blockchain platform that hosts fiat-backed cryptocurrencies. This types of cryptocurrencies are called stable coins. USDT is a stable coin backed by the U.S. dollar at 1:1 ratio. EURT is tied to euro. Tether aims to bring more stability to an incredibly volatile cryptocurrencies market. Tether allows individuals to manage and store fiat money in a decentralized way without the fear of the crypto market crashing down. Most popular exchanges that support USDT and EURT are Binance, Bittrex, Poloniex, Kraken.
Trading is not the most reliable way of making money. It implies a lot of speculation, guessing, and luck. This article is descriptive in nature and aims only to give a picture of cryptocurrency trading. Do you own diligence and act at your own risk.