What is cryptocurrency trading

What is cryptocurrency trading? What is cryptocurrency spot and futures trading? Their main differences. Basic terms. Trade risks. Exchanges for trading.

Cryptocurrency Trading: An Overview

Cryptocurrency trading refers to the process of buying and selling cryptocurrencies in order to make a profit. This can be done through various time frames, from short-term trades to long-term investments, using cryptocurrency exchanges as the main platform. The objective is to earn money by taking advantage of the price differences between buying low and selling high.

Cryptocurrency Spot Trading

In cryptocurrency spot trading, you purchase the digital asset directly, with immediate delivery. This means that cryptocurrencies are exchanged directly between buyers and sellers. If you wanted to buy Bitcoin, for example, you would go to a cryptocurrency exchange and find the BTC/USD trading pair, place an order to buy at a desired price, and then store the purchased Bitcoin in a spot wallet. The purchased cryptocurrency can be held until its value increases or traded for other altcoins.

Cryptocurrency Futures Trading

Cryptocurrency futures trading, on the other hand, involves trading contracts that represent the value of a particular cryptocurrency. In this case, you do not own the actual cryptocurrency, but rather have a contract with an agreement to buy or sell it in the future. Futures trading allows you to participate in price volatility and make a profit regardless of whether the prices rise or fall.

Their main differences

A major difference between spot and futures trading is leverage. In the spot market, you need to have the full amount of the asset to purchase it, whereas in the futures market, you can trade with a fraction of the cost using credit leverage. Futures trading also offers more flexibility in terms of long and short positions, as traders can participate in short-term price movements regardless of direction. Additionally, futures markets have higher liquidity and offer more trading opportunities compared to spot markets. The price of cryptocurrencies in the futures market is based on the spot price, with the addition of carrying costs.

In conclusion, cryptocurrency trading offers the opportunity to earn money by buying and selling cryptocurrencies, either through spot trading or futures trading. It is important to understand the differences between these two methods and to be aware of the trade risks and limitations. To start trading, one can use popular exchanges such as KuCoin, Binance, and Coinbase.

Key terms and trading indicators

Liquidity is the degree of ability to sell a given cryptocurrency at a given price on the market, its availability. The more liquid a cryptocurrency is, the more likely you are to sell it quickly.

The volatility of cryptocurrencies is an indicator that reflects the extent of price changes over a certain period of time.

A stop-loss order means that the asset will enter the market and become available for purchase only when it reaches a certain level in price.

A trend and support lines

A trend is the direction in which the price of cryptoassets is moving. Traders analyze them in an attempt to find patterns and “guess” how the price will move further. A trend is also called a tendency. The trend can be downward or upward. A bearish market is usually called a “bear” market – it is indicated by a red bar on the price charts and moves downwards. An uptrend shows that the price of the cryptocurrency is currently moving up. This chart is called a “bull” market. There is also such a concept as “flat” – this is a section on the chart where it is impossible to trace any trend, that is, sections with low volatility. Traders make money by selling assets when the trend is down, and buying when the trend is up. In addition to bear and bull markets, there are three market phases – accumulation, stabilization and distribution.

A set of graphs and analysis tools are used to analyze trends. Among the simplest are support lines and moving averages.

Support lines (or horizontal support and resistance) are the lines connecting the high and low points on the chart. Support lines are below, resistance lines are above. Resistance shows under what conditions buyers are no longer ready to buy assets, and support shows at what price sellers are not ready to trade.

Lines of resistance and support

A moving average is a chart that consists of dots showing average prices over a certain time interval. Such an indicator allows you to follow general price trends. The most popular types of moving average are indicators for 50, 100 or 200 days. The moving average graph is superimposed on the main one and looks like this:

Red line, moving average chart

Risks of cryptocurrency trading Volatility

  • Volatility

The high volatility of the cryptocurrency market is a major risk for traders. Market corrections can be significant and unpredictable, leading to sudden changes in price that can result in significant losses. The price of cryptocurrencies can fluctuate greatly in a short amount of time, making it difficult for traders to predict the direction of the market and manage their investments effectively.

  • Lack of consumer protection

Since cryptocurrencies are not yet widely recognized as legal tender, they are not subject to the same consumer protections as traditional currencies. This can leave investors vulnerable to fraud and other types of financial abuse.

  • Cybersecurity risks

Exchanges, wallets and other digital platforms storing cryptocurrencies can be vulnerable to cyber attacks, which can result in the theft of assets. Additionally, there have been numerous cases of scams involving cryptocurrencies, and inexperienced investors can be susceptible to these types of fraud.

The main exchanges for trading cryptocurrency

Choosing an exchange to trade and store your crypto assets is also a very important point. Because you need to choose exchanges only with great trust and experience to minimize the possible loss of assets due to hacking or simply bankruptcy. That is why you should be careful with each of them and it is desirable to diversify your assets on different exchanges. At the moment, the trusted exchanges are:

  • Binance
  • FTX
  • KuCoin
  • Gate.io
  • Huobi
  • OKX
  • Mexc
  • Whitebit
Main exchanges for trading

In addition to the ones listed, there are many other and stable exchanges, but these exchanges are familiar to everyone and have been tested by time.

Conclusion

In this article, you learned what cryptocurrency trading is. You also learned that spot trading is easy to understand and intuitive for most beginners. Thus, it is an ideal place for users who are not familiar with cryptocurrency or are just starting their journey in getting to know it. However, futures trading provides strategic advantages and allows you to maximize profits. Futures trading can be profitable if you have the appropriate knowledge and risk management techniques to avoid large losses. Therefore, before trading futures, you should strategize and do due diligence and understand both their benefits and risks.

Remember that trading is a very high-risk activity!

3 thoughts on “What is cryptocurrency trading

  • 12/02/2023 at 23:19
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    Thank you for your post. I really enjoyed reading it, especially because it addressed my issue. It helped me a lot and I hope it will also help others.

    Reply

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