According to the most recent data, there are more than 10,000 altcoins currently in circulation. With Bitcoin and altcoins opening the doors to the next generation decentralized world, there are many people who want to start cryptocurrency trading and use the financial potential and technology these coins offer. If you’re curious about how cryptocurrency trading works and want to understand all the logic of the system, from the process of choosing an exchange to how trading markets work, you’re definitely in the right place!
- Cryptocurrency trading is a general name given to the buying and selling of cryptocurrencies with the aim of making a profit through volatility.
- The cryptocurrency market can be moved by supply, market capitalization values, press, the technology of the coins, or key events.
- Any user can start trading crypto right after finding an appropriate Exchange platform and registering it. Choosing the right coin and learning the basics is important for further profit.
- There are different types of crypto trading strategies such as spot trading or futures trading in the crypto world.
That’s why we at CryptoShift have prepared a comprehensive crypto trading guide for beginners. For those who want to learn how the investing process and trading processes work, this trading will be a real help!
The Definition of Cryptocurrency Trading – Closer Look
Cryptocurrency trading is a general name given to the buying and selling of cryptocurrencies with the aim of making a profit through volatility. Just like in the buying and selling of fiat currencies or shares in traditional stock market platforms, investors and traders in the crypto money world aim to make a profit by buying and selling at the right time thanks to the price differences in the market. The key feature that distinguishes cryptocurrency trading from traditional trading activities is that there is no opening or closing time: Crypto exchanges are available 24 hours a day, seven days a week.
As a beginner, you basically need three things to start trading cryptocurrencies:
- A cryptocurrency wallet
- A cryptocurrency exchange platform
- Cryptocurrency or fiat currency to make your first purchase
Of course, it is also an important decision to start trading with Bitcoin or which cryptocurrency among thousands of altcoins. Beginners prefer mainstream coins such as Bitcoin or Ethereum because they do not yet have the experience to assemble different altcoin projects. It is also possible to buy coins that are still in their infancy at a low level by knowing the market well over time. Promising coins, which increase in value as soon as they are listed on major exchange platforms, decorate the dreams of traders.
How Do Cryptocurrency Markets Work?
Before you can understand the crypto trading process, you first need to know the basics of crypto exchange markets. These are platforms that operate decentralized and are not affiliated with the central bank or government institutions. All transactions take place via computer networks and nodes, rather than through banks. Cryptocurrencies can be bought and sold on these exchange platforms. Trading users also have the opportunity to store their crypto coins in hot or cold wallets.
The working principle of cryptocurrencies is actually quite simple: They can be thought of as assets that are produced and stored on a blockchain. These cryptocurrencies, which work completely decentralized and cannot keep records of any official institution, are stored by their owners through digital wallets. Unlike traditional wallets, cryptocurrency wallets do not physically store money, but instead, give the owner access to the coins in the Blockchain network and can be used with a private key. When users want to send cryptocurrencies to each other, they send each other’s wallet IDs. When buying and selling cryptocurrencies through Exchanges, this can happen with peer-to-peer, peer-to-contract or peer-to-exchange logic. We will talk about three different processes later in the content.
The ecosystem in which cryptocurrencies are produced and stored is called the blockchain. Don’t think that there is only one Blockchain, there are multiple blockchain ecosystems produced using the ledger distribution technology. These can be diversified as Blockchain with Bitcoin, Ethereum Blockchain with Ether, Solana Blockchain with SOL, Hedera Hasgraph Blockchain with HBAR, and many others.
Blockchain is a network of blocks and chains connecting these blocks. The network operates completely decentralized and each transaction adds a new block to the network. The fact that the system is decentralized and not recorded by a particular institution can create insecurity about the data. To avoid this, Blockchain networks use a number of consensus mechanisms. Consensus mechanisms require that in the network, where each user’s individual device acts as a node, each node must have a copy of the entire chain’s information, and each new transaction must be approved by all nodes. In this case, a new transaction that will occur in the network will not be considered complete until it is approved by the nodes. Each block carries information about the ID of the previous blog and consensus mechanisms allow the blockchain to be reliable.
Where To Make Crypto Trading?
You can take advantage of decentralized and centralized exchange platforms when trading with cryptocurrencies. Each of these uses a different mechanism to move cryptocurrencies.
Peer-to-peer: Decentralized Exchanges
This system, which is generally used by decentralized exchange platforms, allows users to exchange cryptocurrencies with each other directly without any intermediary institution or third party. DEXs, or decentralized exchanges, make not only buying and selling but also DeFi technologies feasible for users. For example, borrowing and lending between users, providing liquidity between the user and the pool, staking, and yield farming programs are other advantages of DEX’s decentralized network that allows peer-to-peer trading.
Peer-to-contract: Automated Market Makers (AMMs)
Unlike on-chain DEXs, automated market makers, which also serve in a decentralized way, calculate the prices of cryptocurrencies not through order books, but through a mathematical formula they have determined. Each AMM can determine this formula, in which the total liquidity remains constant and the price fluctuates according to variables such as market volume. Users trading cryptocurrency on this platform are not trading directly with each other, but against the smart contract, they are affiliated with. So the value of the cryptocurrency is determined by the formulation in the smart contract, not the order books that host the sell-buy orders. Many popular DEXs such as Uniswap, Pancakeswap use this system.
Peer-to-exchange: Centralized Exchanges
Transactions in which the users do not have custody over their own funds, the money deposited by each user is collected in the exchange’s own pool, and the transactions are traded against the stock exchange instead of a peer-to-peer transaction can be called peer-to-exchange. Centralized exchanges generally operate with this logic. Until users withdraw their money from these exchanges, they are given UIO. All buy and sell orders created in the order book processed at the center are collected, matched and transactions are processed as quickly as possible. Many popular exchanges such as Binance, Coinbase, Kraken use this system.
Why Are Cryptocurrencies So Volatile?
The first step to getting started with cryptocurrency trading is, of course, understanding how the markets, in other words, the value of cryptocurrencies are moving. This gives you a background that can help you interpret values much better when looking at boards while spending time on exchanges
Decentralized currencies are less affected by the day-to-day political and social events that traditional currencies often do. However, it would not be right to consider them completely away from these changes in the real world. For example, a decision taken by the USA government about cryptocurrency exchanges, a statement about the interest rates to be provided for dollar investment, or developments that increase distrust in the current economic system, such as COVID-19, can cause mobility in the cryptocurrency market. Nevertheless, it is possible to say that it is most affected by the movements of the actors in this market due to its nature. That is supply and demand.
|Supply||It is important that the total announced supply for a given cryptocurrency is not so high that it depreciates, but is large enough to attract investors.|
|Market capitalisation||Investor perception means a lot in the cryptocurrency world. Investors’ approach to all existing cryptocurrencies and their ideas on the development of the technology offered by the cryptocurrency regarding the Blockchain world give the project, hence the coin, the market capitalization score.|
|Press||Telegram and Twitter are really having a huge impact in the cryptocurrency space. Talks in communities, news shared on Twitter about a whale movement, or a single tweet by a popular whale can cause significant movements in the market. This can mean both significant income opportunities and a large number of small fish being swallowed by the big fish.|
|Integration||Another thing that will cause you to head towards there in trading, thinking that there will be an increase in the market value of a particular cryptocurrency, is the rate at which decentralized technologies developed through the coin can be integrated into the real world. For example, a coin launched to finance new solutions in areas such as virtual payment systems, data storage technologies, and IoT technologies creates long-term activity in the market.|
|Key events||Important events that closely affect the cryptocurrency market, such as hacking of stock markets, security breaches, and updates or forks on the chain, can cause activity in the cryptocurrency market.|
We will cover this part in two stages so that you can understand how crypto trading works. Part one will cover the steps you need to follow to get started with crypto trading. The second part will cover the concepts that you must know before you start trading. We know you don’t have much time, let’s get started right away.
Steps to Take to Start Cryptocurrency Trading
Are you just a beginner and starting trading is too complicated for you? To trade cryptocurrency smoothly, simply follow the steps below:
Step 1: Choose a cryptocurrency exchange.
Do not forget that you have many options for your choice. But if you are going to buy cryptocurrencies for the first time, you have to do it with decentralized exchanges. Because debit or credit cards are not used in DEXs, only cryptocurrencies can be used.
You can consider many factors when choosing an exchange. Some of these can be listed as follows:
- Number of coins supported
- Accepted payment methods
- Trading fees
- Platform security measures
- Platform options offered (desktop, web, mobile app and so on)
- Transaction volume
- Supported trading order types
Compare different platforms with each other in terms of the above factors and start trading with one.
Step 2: Register on the cryptocurrency exchange.
Centralized exchanges may request a number of information and documents during registration within the framework of Know Your Customer (KYC) policies. Among the requested documents, there may be various documents such as a driver’s license, ID document, a photograph with the user’s face clearly visible, and a residence document. The purpose of this measure for exchanges is to prevent identity fraud on the platform and to be accountable in case of any regulation / audit.
Complete the registration phase by collecting the information and documents requested by the platform.
Step 3: Fund your account.
After creating your account and activating various security measures such as 2FA, which the platform offers you, you need to deposit money into your account. For this, debit cards, third-party payment tools, credit cards or other crypto currency wallets can be preferred. Be sure to complete the deposit-taking into account the details on your preferred site, as each method may have a different fee.
TIP: Generally, the easiest way to deposit on cryptocurrency exchanges is to choose Wire Transfer.
Step 4: Choose a cryptocurrency to invest in.
There are more than 10,000 altcoins in the cryptocurrency world and of course the star player Bitcoin. Not all of these altcoins are listed on decentralized exchanges. For example, Binance has around 500 coin options. Binance US, which is designed for US users, is limited to only around 60 coins. Coinbase, on the other hand, provides services with approximately 124 cryptocurrencies. Therefore, after choosing, you will have to choose between the coins supported on your preferred exchange. When choosing, it may be helpful to do the following research about the coin you will be trading:
- Explore the coin’s latest support and resistance points. We are sure that you will not want to lose your trade for a long time by buying the currency from the wrong spot.
- Check if Coin has news to be announced soon. Partnerships, next-generation deals, or a new project to be launched may mean an increase in prices in the short term.
- Check out Coin’s team, and the technology they offer. Do they offer a really workable solution in the blockchain world? Is their liquidity sufficient to support the project? Do they have a solid team? If the answers to your questions are positive, you are in for a good coin for a long-term investment.
Step 5: Place an order.
To buy the cryptocurrency of your choice, you need to place an order. You can make the purchase from the market value or by specifying a certain price. The order types offered by the exchange platform can enable the purchase of the number of coins you specify automatically when the value of the asset reaches a certain point, instead of constantly monitoring the chart.
Here are the common order types and settings:
- Market order: When you choose this order, your buying or selling transaction is executed at the market value as quickly as possible without any price limit.
- Stop order: When the asset reaches the price you set, the system automatically performs the sale.
- Limit order: The limit order you can create for buying or selling allows you to specify the minimum price for the transaction to take place. In this way, the transaction takes place only at the price you set or at a higher level. If the asset does not reach these levels, the transaction will not take place.
Step 6: Find a way to store your cryptocurrency.
You need cryptocurrency wallets to store your purchased tokens. You can find answers to all your questions in the comprehensive review we wrote about crypto wallets. For now, we can say this: It is possible to keep your assets in cold or hot wallets.
- Cold Wallets: If you do not want to use the currencies you have purchased for shopping or other coin purchases, it may make sense to keep them in cold wallets. Cold wallets are wallets that cannot be accessed online and keep your coins with their private keys on a hardware device. In order to transact through these wallets, you need to connect the hardware to the computer and access your assets pending on the Blockchain network with your private key. See the most popular cold/hardware wallets of 2022.
- Hot Wallets: If you are going to continue to actively trade cryptocurrency, you can choose hot wallets if you plan to follow the board and place buy and sell orders to ensure short-term profits. Hot wallets allow you to access your cryptocurrencies online. These can sometimes be used as a web extension, sometimes as a mobile app and sometimes as a desktop app. When users prefer a hot wallet, they can shop and transfer money on online platforms with their wallet addresses.
Key Concepts to Know About Cryptocurrency Trading
Before you start trading your chosen cryptocurrency, you need to be familiar with a number of concepts so that you understand how various metrics can be interpreted and can enter accurate order information when opening a position. These can be listed as follows.
|Spread||In the blockchain world, spread rates can be defined as the difference between the buy and sell prices of a cryptocurrency. While creating an order on an exchange, you come across two different prices of the same asset. If you are making a leveraged transaction and want to create a long position, you will be subject to the asset’s buy price. This is usually slightly above the market value of the asset. If you are trading with leverage and opening a short position for the same asset, you will be subject to the asset’s sell price. This value is also slightly lower than the average market value.|
|lot||The cryptocurrency tokens used to standardize the transaction size during trading are called lots. Traders buy and sell lots on exchanges. Since cryptocurrencies, especially altcoins, have high volatility, one unit of lots usually also refers to one unit of cryptocurrency.|
|Pip||The concept of pip in the crypto money world is a concept developed in the Blockchain world to interpret the value change movement of a coin at a specific level. A pip can have different values for different cryptocurrencies. For example, for a coin, 1 pip can represent a decrease or increase of $ 1, while for a cryptocurrency that is still in its infancy, 1 pip can mean 1 cent.|
|Margin||In the world of cryptocurrencies, the concept of margin refers to the minimum deposit amount you need to deposit to open a leveraged position. Users aim to earn a value much higher than margin when trading with margin. The margin you need to invest for a given leverage ratio will usually vary depending on the rules of your preferred broker platform. A percentage of the entire position is usually taken to calculate margin. For example, if you want to open a short position on Ethereum, 10% of the total position value can be margin. In this case, if you are opening a $10,000 position, you only need to make a deposit of $1,000.|
|Leverage||Is it possible to generate income even when the world of cryptocurrencies has grown to red color almost everywhere? Not if you’re an investor who isn’t very into leveraged trading. But cryptocurrency lovers who trade with leverage can still earn huge amounts of money even when the market is down. Leverage means that even if you don’t have the exact value of the trade you will make, you can make a claim at this value. You deposit a smaller amount of coins, also known as margin, as a deposit and claim, for example, that Bitcoin will drop 10 percent within the time period you specify. If the leverage is 1:10, you will receive rewards worth 10x your margin. If your bet is not fulfilled, you will lose the entire deposit.|
What is Spot Trading in Crypto?
Spot trading in the world of cryptocurrencies is when a trader constantly buys and sells coins with shorter maturities and aims to increase her capital by profiting from the price difference between buying and selling.
When you implement this type of trading strategy, you do not need to research projects that will bring profit in the long run, or examine the visions of the projects. The main purpose is to examine the current charts, follow the latest news in the crypto money world, and find the coin that will catch the rise even if it is only in a half-hour interval, and buy it beforehand. The coin sold after making a profit in the short range is then used to buy another coin. In this way, a revenue model is created with lower profit rates. Cryptocurrency users who adopt this strategy are also called daily traders.
Benefits of Spot Trading
Spot markets consist of three basic components: buyers, sellers, and the order book. Exchanges, where traders buy and sell, can be found as over-the-counter trading or third-party-exchanges. While the first of these hosts only the transactions of buyers and sellers without the intervention of any intermediary, there is also an intermediary who earns a profit from the transactions in third-party exchanges.
Here are the potential advantages of the spot trading process, whose technical details we have described above:
- When trading spot, you can bargain. This means that users seek the best price for maximum benefit in a completely fair environment.
- You have a high probability of making a profit. Because you can buy and sell at the same time.
- You can buy coins very quickly or sell the coin you have. This is a system that fits well with the logic of day trading.
- By spot trading, you can buy tokens at very low prices and thus sell them at higher prices. The logic of the system is quite suitable for making a profit in the short term.
- In this system, which works based on the on-the-spot logic, transparency about trading prices is at the maximum level.
- With no minimum entry limit, traders can profit from price fluctuations with as little investment as they want. This makes spot trading logical, especially for beginner cryptocurrency holders.
What are the Cryptocurrencies with Highest Trading Volume?
If you want to start crypto trading, but you can’t decide which coin to choose, we would like to list the 10 cryptocurrencies with the highest values in terms of volume at the time of writing this content. These can help you get an idea of the market:
- Binance USD
- Bitcoin Cash
- USD Coins
- Shiba Unu
Is Cryptocurrency a Good Investment?
Investing and trading in cryptocurrencies can involve a number of financial advantages and risks. We would like to present them to you one by one and leave the decision to you.
4 Risks of Cryptocurrency Investment
The potential risks of investing and trading with cryptocurrencies are as follows:
- Currency values have high volatility.
- The threat of regulation can cause your cryptocurrency to drop in value or make you inaccessible when you wake up one morning.
- High competition means a constant fluctuation and change in the market. That’s why traders are almost always worried about watching the board and getting the right position.
- Especially if you are using a non-custodial wallet, losing your private key will mean losing access to all your savings.
5 Perks of Cryptocurrency Investment
The advantages of cryptocurrencies and decentralized Blockchain world for traders and investors are as follows:
- Having high volatility can allow you to make more profit in the short term than you can from traditional assets.
- There is no limit on market hours. You can buy and sell twenty-four hours a day, seven days a week.
- Since they do not have a connection with a central institution, there is no tax payment status on the investments you make with these currencies. In addition, the decentralized technology makes it possible to transfer large sums of money with minimal transaction fees.
- The world of DeFi, financed by cryptocurrencies, could offer credit and finance opportunities that traditional banks would not.
- The fact that the information is completely transparent but the personal information of the traders is anonymous provides both financial freedom and accountability at the same time.
What is Bitcoin Futures Trading and How to Invest in Bitcoin Futures?
The high volatility of cryptocurrencies has resulted in many traders avoiding transactions that require instant tracking, such as spot trading. Fortunately, there is another way to generate income with cryptocurrency trading: Future Trading.
Investors who choose this type of trading strategy speculate about its movements within a certain period without holding the relevant cryptocurrency in their hands. The trader, who turns these speculations into a deal through smart contracts, receives rewards in line with the leverage rate specified in the contract if his speculations turn out to be correct. Contracts are usually concluded for a long term, such as 3 months or one year.
Decreased Losing Risk – Hedge Price Risk
Hedge is a type of investment made to reduce the risk of loss caused by unexpected price movements in any financial asset. The purpose of the hedge is to open a position against the main trading direction at a certain rate, thus minimizing your losses in the scenario where your speculation is not correct. While trading Bitcoin futures, you can also benefit from Hedging services to minimize your possible losses.
Leverage Rates in Crypto Futures Trading
The main thing that makes Bitcoin futures trading attractive to many investors is that they happen as leveraged transactions. The leverage ratio that each exchange platform will offer for different maturities and investment rates may be different from the other. For example, Kraken offers leverage of up to 50x. You can learn about the leverage they offer by browsing the futures trading category of exchanges.
Benefits of Futures Trading in Crypto
The potential benefits of investing in futures instead of investing directly in cryptocurrency are as follows:
- First of all, let’s give good news to users who are looking for a little more security for such high-rate transactions. Futures transactions are traded on exchange platforms regulated by the Commodity Futures Trading Commission.
- Futures trading is a process regulated by cash. So as a trader you can trade Bitcoin futures even if you don’t have a Bitcoin wallet. No real Bitcoin is used in the transaction, it simply involves speculating about the price of particular crypto by propounding a certain percentage of cash.
- Also, to protect investors from the very high volatility values in the cryptocurrency world, there are position and price limits in the futures trading world. These make gains or losses more reasonable.
Can one earn a living by day trading in crypto currency?
Because of their high volatility, cryptocurrencies can certainly provide traders with enough income to survive. But in order not to take dangerous steps, it is necessary to follow the market well.
How long does it take to get good at cryptocurrency trading?
The answer depends on the methods you choose and the extent to which you pay attention to financial variables throughout the trading process. However, on average, it can take between 8 months and 1 year to get to know the market well and gain a professional familiarity with the different actors.
How do I learn crypto trading?
Today, in addition to the paid or free crypto trading courses on platforms such as Udemy and inLearning, numerous Youtube video series can answer all your questions about the buying and selling processes. In addition, the content that we at Cryptoshift offer is aimed at learning trading from A to Z.
How can someone convert a cryptocurrency to real cash?
You can sell your cryptocurrencies on centralized exchanges and buy any fiat currencies supported by them. It is possible to withdraw the asset that you have converted to fiat currency through the payment channel you want and convert it to cash.
What are cryptocurrency trading bots?
Cryptocurrency bots are software that automatically creates a transaction order by analyzing the current status and movements of the market with certain metrics and insights. This software also has a large number of users, although many professional traders prefer to use a range of order types rather than working with bots. If trading bots are to be used, it is very important to find a truly reliable source, as bots are integrated with the wallet.