What is crypto trading?

Crypto trading is, essentially speaking, the buying and selling of crypto assets, coins, or tokens on an exchange, such as Kraken or eToro. It involves speculating the value of different cryptocurrencies with the intention of selling at a higher price than the original purchase price. Whilst the cryptocurrency market is well known for its high volatility and unpredictability, there are still strategies and models used by crypto traders depending on their experience and goals, such as day trading, swing trading, and position trading. 

In this article, we take a closer look at the ins and outs of crypto trading, how to read crypto markets, how crypto trading works, and the risks involved in trading such an unpredictable asset. Let’s explore

How to start trading crypto

Trading cryptocurrency can seem daunting for beginners, even to those who are used to trading other asset classes such as stocks, bonds, or real estate. But breaking it down into manageable steps makes the process more accessible. The first step is to open an account on a crypto exchange, which involves selecting a platform that suits the trader’s needs and preferences, including the range of cryptocurrencies available, and completing an identity verification process in order to register. Once the account is set up, the next step is to fund it with FIAT currency to start trading and then select which crypto(s) to trade. 

It is important to decide upon a trading strategy in order to understand and work effectively with the volatility of the market, not against it. Once the trader has selected their assets and strategy and has an objective in mind (such as short-term or long-term investment), trading can begin. Once the cryptocurrency has been acquired, another essential step is also to decide how to store it. There are both online and offline storage options, including hot wallets, which offer online access and are convenient for many traders, and cold wallets, which are offline but offer higher levels of security. 

Establishing a crypto trading strategy 

To establish a crypto trading strategy, traders must understand how to analyze market trends and, from there, determine an approach based on risk tolerance and investment goals. Crypto exchanges not only serve as a portal for buying and selling assets, but they also allow traders to closely monitor current prices and past performances of different tokens. They also provide information about trending tokens, newly listed coins, and popular assets. However it is important to remember, when choosing an exchange, that some offer greater availability of crypto than others, which tends to correlate with higher fees. 

Out of the many strategies traders can follow, the three main ones are day trading, swing trading, and position trading. Day trading, as the name suggests, involves buying and selling tokens within the same day to capitalize on short-term market movements. This method can offer quick returns depending on how much traders have to play with, but the risk is also higher. Swing trading, on the other hand, involves holding coins for weeks and leveraging price trends to make strategic trades. Finally, position trading applies a long-term perspective that focuses on potential gains over long periods of time. This helps to minimize the need to monitor daily market movements and allows traders to start small and build up a balanced portfolio over time, acquiring knowledge and experience along the way. 

How to read the crypto market

Reading crypto markets involves understanding how several key factors, namely supply, demand, sentiment, and competition, converge and impact the market. In the crypto space, limited supply and greater scarcity can drive prices up, while an increased supply tends to force them down, although this is not always as black and white in the crypto space as it is on the stock market. 

Another factor that can influence the market and crypto prices is competition. Competition is affected by the performance of existing assets and the introduction of new ones, which can impact price movements. Crypto enthusiasts will recall when the release of meme coins such as Dogecoin or Shiba Inu caused a stir and drastic price movements based on market sentiment and an emotional reaction from quick-to-act investors. 

Market sentiment also influenced the price of Bitcoin in January 2024, following the launch of several Bitcoin ETFs that added mainstream credibility to the cryptocurrency market in general and sent prices skyrocketing. In both these examples, the increase in value was short lived, something that is not always possible to predict, but that traders must always be cautious of before investing in any kind of asset. 

In short, the crypto market is difficult to read in both the short and long term. Whilst the price of a given cryptocurrency can shift dramatically in a space of 24 hours, it may then remain relatively stable for the next month. In either case, traders must be aware of the inherent volatility and risks involved in trading any kind of asset and never invest more than they are willing to lose. 

To find out more about crypto, trading, and ForumPay, our crypto-to-FIAT payment solution, visit www.forumpay.com.