Cryptocurrency Trading – What Do I Need to Know?
Guarda Wallet team is often asked about cryptocurrency trading. In this guide, we will provide all the necessary information that you need to get started. We do not want to try and cover all the advanced techniques and tricks out there, but rather comprise a handy tutorial for the beginners.
Everything You Need to Know to Start Trading Cryptocurrencies
Step one. Understanding how crypto works
To start trading, you need to have an idea of how cryptocurrency economics functions. The main factors that affect crypto price movements are:
- Supply and Demand
- Market Sentiment
- Mining Difficulty
Supply and Demand. Both of these factors hugely affect cryptocurrency prices. Take Bitcoin as an example. The circulating supply of BTC at the moment of writing is 17,634,262 units. Remembering that the Bitcoin supply is limited in general, the number of coins available on the market is quite low. When a cryptocurrency supply is low (and demand is high), the price can surge drastically.
Utility. If we are to simplify, utility denotes the usefulness of a taken crypto coin or token. The more “useful” the coin is, the more people will be willing to purchase it. Due to this, a “handy” cryptocurrency will be perceived as more valuable. For example, Ethereum provides users with both ETH cryptocurrency and a platform to build decentralized applications. Due to this, Ethereum is a valuable cryptocurrency with a higher price.
Market Sentiment. Before jumping into investments, you need to research the currency you would like to start with. Read articles, check hype posts on Twitter and Reddit. If a coin has no real media coverage, it might happen to be not the greatest investment choice.
Mining Difficulty. A lower mining difficulty means that cryptocurrency is easy to mine – this results in an increase in cryptocurrency supply. Logically, these types of cryptocurrencies are “cheaper”.
Step two. Getting familiar with cryptocurrency trading terms
With more and more people embarking on the cryptocurrency trading journey, it is important to set some things right. Some terms of trading need to be revisited and explained in common terminology. The one specific term we will cover here is the order book.
The order book is the number of orders (purchases and selling) that have been placed for a taken cryptocurrency. The order book is being constantly updated, so crypto traders find it quite useful for checking the hype around cryptocurrencies of choice. The order book is also known as the market depth and can be checked, for instance, here. Useful tip – the larger the trading volume of a cryptocurrency you are checking, the higher the liquidity.
Reading the market depth chart often confuses inexperienced users, so here we will break it down in a little bit more detail.
Check the chart above. There are two lines on it – BIDs (buy orders) and ASKs (sell orders). The red line indicates the people who are willing to sell and the green one the people who want to buy. The dollar amount is the price a participant is willing to buy/sell cryptocurrency for. The y-axis indicates the number of crypto units participants want.
Understanding market depth is crucial for the traders, as it provides information on how much you can sell or buy at the moment.
Cryptocurrency trading tips
There are also some tips for successful trading we would like to share in this article. Some of them are quite obvious, while others require a little bit more though. So, here is the list of useful tips Guarda Wallet team has comprised:
- Get a good cryptocurrency wallet and exchange. This is the most basic rule of trading. If you do not have great cryptocurrency storage and exchange service, it is quite pointless to start. When it comes to wallets, we know definitely know what’s good – you can read our cryptocurrency wallet guide and find all the necessary information. As for exchanges, check the reviews and the feedback on the services you are about to use. F something seems untrustworthy, it is really better to pass.
- Make use of stop losses. When you get into a trade, you need to know when to get our right in time. So, getting your stop loss level clear is a way to cut on the losses in general.
- Think about the risks. Experienced traders do not really run in the direction of gigantic profits. It is safer and better to get smaller profits from regular cryptocurrency trader, but be sure of them.
- Don’t get crazy because of the low prices. Cryptocurrency trading requires patience. First of all, you should not buy a coin just because the price is low. The decision to invest in a certain coin should be weighed and thought out.
- Diversify. Crypto investments can be unpredictable. When you are sure about some position you got bringing great returns, it might crash down in flames. Due to this, it is important to build a good portfolio. You need to diversify from having the same kind of asset to more different areas – this will spread the risks and help you trade more safely.