How to trade cryptocurrencies

Learn how to get started with trading the exciting cryptocurreny markets

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Trading cryptos for beginners

Keeping an eye on new opportunities in the markets is crucial for traders who want to take advantage of them while still at an early stage. Sometimes, these opportunities come in the form of new markets altogether. Cryptocurrencies have been around even before 2009 when Bitcoin was created.

However, it wasn’t until this popular digital currency started hitting record after record, going as high as $10,000 in November 2017, that traders started to notice the extensive potential behind the rise of these fast-paced markets. While an increasing number of people are getting involved, the markets are still young, highly volatile and full of opportunities for the trader willing to understand them.

Getting started with cryptocurrencies begins with an understanding of the different options available. Whether you believe in the long-term value of cryptocurrencies or want to capitalize on daily double digits moves, below are the three most popular ways to get involved.

More on trading cryptos

What are cryptocurrencies

How to trade cryptocurrencies

Placing your first trade on Bitcoin

1. Buy and hold

Since Bitcoin was launched, early investors in the digital currency saw gains in the ranges of millions. An investment of $100 in Bitcoin back in 2010 would have been worth over 5 million in late 2017. Combine that with the innovative technology used by cryptocurrencies and this explains why some investors see cryptocurrencies as a long-term opportunity.

However, buying and keeping Bitcoin and other cryptocurrencies requires a deeper understanding of the technology involved. To buy cryptocurrencies, you first need an account with an online exchange. Since there are no banks involved though, storing and keeping cryptocurrencies safe becomes your responsibility.

Following the bankruptcy of Mt. Gox, the world’s first exchange that made Bitcoin available to the mainstream investor, clients lost access to hundreds of millions of dollars and traders lost faith in unregulated exchanges. That is why private digital wallets are often recommended, so that the owner is in full charge of the security of their cryptocurrencies.

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2. Trade on an exchange

Another way to get involved in cryptocurrency trading is to speculate on the price of Bitcoin, Ethereum, Bitcoin Cash, Litecoin and other cryptocurrencies through an exchange. The meteoric rise of the Bitcoin price has caused an equally meteoric increase in the number of cryptocurrency exchanges.

The most important task for any trader before getting started is to evaluate the security offered by the exchange. Due to the lack of regulation in the cryptocurrency markets, these exchanges are not regulated in the way financial institutions are and therefore full due diligence is recommended before opening an account and transferring money.

In addition to the security issue, traders who are serious about trading cryptocurrencies on an exchange should evaluate the leverage levels and the payment methods available. Those who wish to control larger positions than their starting capital, should first verify if the exchange offers margined trading, also known as leverage.

Although some exchanges do offer the option, the levels of leverage available can differ substantially. An in-depth analysis of the available payment methods is also a must, as it is not currently possible to make deposits simply by using your card on all exchanges. In some cases where cards are accepted, fees are so high that traders are better off with a slower but more cost-effective bank transfer.

3. Trade with a broker

For those interested in capitalising on the price swings of cryptocurrencies without having to deal with the hassle of a digital wallet or worrying about the security of their funds, trading cryptos with a regulated broker is the most popular choice.

When it comes to security, funds with any UK regulated broker are protected up to £50,000 for the unfortunate event of an insolvency. It is worth noting that some brokers offer higher protection than that at no extra cost.

The second benefit of trading with a broker is leverage. With an increasing number of cryptocurrencies offered through traditional brokers, traders can now get access to exceptional leverage on a wide range of cryptocurrencies. This is an excellent way to boost your winnings irrespective of how low or high your starting capital is. However, do note that leverage is a double-edged sword that should be used with caution in order to limit potential losses.

Trading cryptocurrencies with a broker is similar to trading forex. Cryptocurrencies are quoted against the US Dollar or the Euro and traders can use spread betting or CFDs to capitalize on the price fluctuations. With most reputable brokers offering reliable trading apps to keep you on top of the crypto markets while on the go, it is not surprising that an increasing number of traders are dipping their toe in these exciting markets.

4. Trading examples

Let’s take a look at a couple of examples to find out how trading Bitcoin and other cryptos works in practice.

Example of trading Bitcoin

Your research in the cryptocurrency markets suggests that the price of Bitcoin will go higher. You open a long position (buy) of 0.1 Lot on Bitcoin (BTC/USD) at $40,041. This corresponds to one-tenth of a Bitcoin and your profit or loss is calculated as the difference between the opening and closing price divided by 10.

In a few days the price rebounds and reaches $44,560. You decide to close your position and lock in your profits. Well done! You made $451.90.

After conducting thorough research, you’re convinced that the most recent rally in Bitcoin prices is about to fizzle.. You decide to place a trade confident that the BTC/USD price is going down in the near future and sell 0.1 lots of Bitcoin (BTC/USD) at $45,550. This corresponds to one-tenth of a Bitcoin and your profit or loss is calculated as the difference between the opening and closing price divided by 10.

After three hours fresh buying from large institutional investors push the price to new heights at $48,100, where your stop loss order is triggered. Your loss is the difference between the opening and the closing price. As a result, after stop loss order gets hit, your loss is $255 before commissions.

Example of trading Ethereum

Let’s suppose that after analysing the market, you’re confident that Ethereum prices are about to go up and hit a new high. Your technical analysis suggests that a good entry point is around $2900. You open a trade and buy 1 lot of ETH/USD, which corresponds to one Ethereum.

Despite your conviction, Ethereum’s price reverses and trails lower towards the $2,600 mark. You decide to exit the trade and close your position. Your loss is the difference between the opening and closing price. As a result, after closing the trade you lose a net of $300 before commissions.

In an alternative scenario, your analysis points that Ethereum prices are about to crash after news about a big wallet hack break. Your market view is that prices are about to drift lower and you open a trade and sell 1 lot of ETH/USD, which corresponds to one Ethereum at $3,300.

As the news about the hack spreads, Ethereum’s price sinks lower towards the $2,900 mark. Your take profit order at $2950 gets hit and your position gets closed. Your gain is the difference between the opening and closing price. As a result, after closing the trade you gain $350 before commissions.

Now that you know how to get involved in cryptocurrencies, it's time to
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How to trade cryptocurrencies

Trading cryptos for beginners

More on trading cryptos

1. Buy and hold

Are you ready to trade Bitcoin live?

2. Trade on an exchange

3. Trade with a broker

4. Trading examples

Now that you know how to get involved in cryptocurrencies, it's time to

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