Cryptocurrency trading on the stock exchange for beginners
Digital platforms like Currency.com allow customers to buy and sell virtual assets. At the same time, users can earn a lot of money on trading. But it is important to know the rules for trading cryptocurrencies on exchanges for beginners. Otherwise, there is a risk of making unprofitable transactions.
What is cryptocurrency trading?
The term refers to the exchange trading of digital assets. The main purpose of such activity is to profit from cryptocurrency transactions. As a rule, users use a resale system – they buy cheaper and resell more expensive.
How the cryptocurrency market works?
As of April 2022, some users consider digital coins and tokens to be part of the global economy. But due to their specificity, cryptocurrencies belong to a separate financial market. It is worth understanding how it works.
Differences between traditional money and stock markets
Cryptocurrencies are not like other financial assets. The main differences between the digital market :
- High volatility: The market quotes of many cryptocurrencies are very volatile. Coins of some blockchain projects periodically show growth of 1000% or more.
- Low entry threshold: You can buy cryptocurrency on exchanges for $10. But brokers, for example, in the stock market often require large investments in the amount of $ 10,000 or more.
- Access 24h /24: Cryptocurrency exchanges work 24/24 and 7/7. Traditional brokers offer clients access to different markets at certain times.
And that’s only part of the difference. For example, blockchain projects with digital coins solve real problems like the lack of anonymity.
Types of cryptocurrency exchanges
All digital trading platforms work with blockchain, a distributed ledger technology. But they are still divided into 2 types:
- Centralized stock exchanges (CEX): are controlled by development companies and regulators (private and public). The efficiency of centralized platforms is ensured by trading cores. At CEX, a service fee is charged during transactions.
- Decentralized Exchanges (DEX): Their activities are not regulated by anyone. The performance of decentralized platforms is ensured by smart contracts. There is also a commission on DEX – it is charged to provide liquidity.
What influences the cryptocurrency market
The quotes of all tokens and coins depend on 4 main factors :
- Fluctuations in the price of bitcoin: This factor affects only altcoins. Analysts have long noticed that the price charts of minor cryptocurrencies often repeat the pattern of fluctuations in BTC quotes. As a result, when the price of Bitcoin rises, the value of almost all altcoins increases.
- Context of the news: Positive and negative headlines about cryptocurrencies in the media affect the entire digital market.
- supply mechanism. For example, native cryptocurrencies of Proof-of-Work (PoW) consensus networks are mined. At the same time, the maximum number of such parts is often limited at the software level. And due to the periodic decrease in the issue rate, the demand for coins begins to catch up with their supply.
- Crypto network improvements: After a successful hard fork of a particular blockchain, the price of its native coin may increase. A failed update has the opposite effect.
Market trends and cycles
In the world of digital assets, there is a concept of price movement trends. Market trends are part of the natural cycles of cryptocurrency. They have 4 phases. Their knowledge simplifies cryptocurrency trading :
- Accumulation: This period is considered the first by default. This comes after the cryptocurrency market reached its lowest level. At the beginning of the accumulation phase, investors make a failure purchase – they acquire assets at the lowest prices.
- Growth: This phase is called an uptrend. During the period of growth, the cryptocurrency market begins to reach the maximum exponentially (with increasing speed). During this phase, the general mood of traders and investors becomes more optimistic.
- Tray: This period means that the quotes have reached their peaks. In the plateau phase, traders and investors have mixed moods. At the same time, sellers are beginning to dominate buyers. Assets are traded in narrow corridors (quotation ranges).
- Fall: This period is called a downtrend. She is considered the most difficult from a psychological point of view. The pattern of the downtrend on the charts also has an exponential character.
How to start trading cryptocurrencies on the exchange?
Before that, you need to learn the basics of trading cryptocurrencies for beginners. You can’t trade without basic knowledge. Otherwise, the risk of losses is high.
Basic business skills
To successfully trade on the stock exchange, you need to have 3 main qualities :
- Analytical: For successful trading, you need to study cryptocurrency market news, quote charts, and more on a daily basis.
- Freshness: When negotiating, you need to remain calm in all situations. High emotionality impairs sobriety and prevents you from making the right business decisions.
- Patience: In case of loss of investments, sometimes it is enough to wait a little longer. Also, do not forget about the cyclical nature of the market.
It is easier for people with the described qualities to make money on cryptocurrencies. They are able to make correct deductions and do not become so-called hamsters.
Basic principles of cryptocurrency trading
Trading is not to be taken lightly. Crypto trading requires responsibility and discipline. For this reason, trading has the following basic principles :
- Always have a reserve of savings for additional purchases of assets: After investing, the price of the purchased cryptocurrency may fall. Then it is recommended to purchase an additional asset in order to level the losses and increase the overall profit.
- Write transactions or use stock reports: It is necessary to do this at least once periodically. Records and reports allow you to evaluate business results and adjust existing strategies.
- Do not trade on the last money or on borrowed money: One of the most difficult ways to make money is to trade in the crypto markets. For this reason, it is better not to risk and not dig a hole for a possible debt.
- Do not neglect to learn: Trading crypto assets is a nerve-wracking and difficult job. This requires perseverance and constant learning.
- Recognize losses: Unwillingness to lose savings and wait too long for growth leads to missed opportunities. If the investment was not successful, it is better to close the current positions and choose other investment projects.
- Trade must be based on these principles: Deviations from them increase the risk of loss of capital when trading cryptocurrencies on the stock exchange.
Technical and fundamental analysis
There are 2 main methods for studying the cryptocurrency market :
- Technical: Using this method, the trader mainly studies cryptocurrency charts. Various technical tools for analyzing and comparing current indicators allow you to identify repeated patterns (patterns), draw up pictures of current trends, etc.
- Fundamental: This method of study allows you to obtain information about the real prices and growth prospects of crypto assets. Fundamental analysis is based on the study and comparison of fundamental aspects: the technical indicators of blockchains, the number of users, their interest in projects, etc.
Individually, these methods do not give investors a complete understanding of the current situation. Technical and fundamental analysis should be used together.