For most trading in cryptocurrencies looks similar to that of trading in forex, equities, bonds etc. But, there are many fine differences which makes its completely different and also makes it a bit complex. Follow this guide “Basics of Crypto Trading” that will help you to understand the universe of crypto trading.
Pricing of Cryptocurrencies
The pricing of cryptocurrencies doesn’t only depend on its supply and demand, just like any other asset. The factors which come into play are its use cases, sentiments around the digital currency, mining difficulty and regulatory hurdles.
Cryptocurrency Exchanges and Wallets
Cryptocurrency exchanges are the platform that facilitates trading in digital assets. One thing that has to be kept in mind is that crypto exchanges are not regulated by any government agencies nor it has any affiliation. Because of this, exchanges offer a very limited withdrawal and deposit features. Those exchanges that allow you to deposit and withdraw funds straight from your bank account is known as fiat gateways. You can also find that many exchanges that don’t support fiat transfer and only facilitate trading in crypto to crypto pairs like ETH/BTC, XRP/ETH etc.
Trading cryptocurrencies also require you to have a digital wallet. There are two types of digital wallet available, Hardware Wallet and Exchange Wallet.
Hardware wallet is a physical device, just like any storage device that stores cryptocurrency by securing private keys. Some popular hardware wallets are TREZOR Wallet, Ledger Nano S Wallet and KeepKey Wallet.
Exchange wallet is opened at the time of registration with the exchange, and the cryptocurrencies are stored in the server of the exchange. Exchange wallet is less secure compared to hardware wallet, as there is a constant threat of stealing the cryptocurrencies through hacking or wrong motive.
Most of the cryptocurrencies are traded against legacy cryptocurrencies like Bitcoin and Ethereum. Due to regulatory hurdles, availability of trading fiat to crypto has been made limited by the exchanges and in most cases, it supports BTC/USD or ETH/USD. You can also buy a fraction of the cryptocurrency, as the numeric value of a coin can run up to five or more decimal points.
When trading against crypto to crypto pairs, calculation of profits becomes a bit complex as both are highly volatile in terms of price action. For example, if in the XRP/BTC pair, the price of XRP rises, but BTC falls, then actual profits in terms of USD will be less or may end up in losses.
The crypto market is extremely volatile and is very difficult to predict future movements. Though technical analysis of any coin can give you the short term picture, but as the market is still developing, large players can still affect the price of any particular coin either through the pump or dump schemes.
In crypto trading, you need to follow all the covenant of forex or equity trading to mitigate the risks, where you need to strictly follow the stop-loss rule to limit loss, check the order book to examine the liquidity position of a particular coin.
Trading in cryptocurrencies is extremely intimidating given the possibility of large profits in a very short period of time. You need to have a very strong understanding of the market condition in order to take advantage of volatility. Following all the risk mitigating rules will help you to excel in the world of cryptocurrency trading.
DeepanDatta has a strong interest in the capital market and currently, the emerging cryptocurrency space and the Blockchain technology has gained most of his attention. Before starting as a finance and cryptocurrency writer, he was working with a leading Fortune 500 corporation. Deepan is currently a blockchain journalist at Crypto-News India.