What is Cryptocurrency Trading | How to Trade Crypto?

Gianluca Lombardi, 12 min read
Last Updated: 5 October, 2023

what is crypto currency trading visual

When I first heard about Bitcoin several years ago, I’ll admit I was skeptical.

Magic internet money created from thin air?

It seemed like a fad at best, or a sketchy scam at worst. But cryptocurrencies continued gaining traction and making headlines, my curiosity was piqued.

Could there actually be something to this decentralized digital asset class that so many tech-savvy folks were excited about? As an avid stock trader, I wondered if crypto could become a viable new market to potentially generate returns. But diving in would mean learning an entirely unfamiliar landscape of blockchain, wallets, miners, and more.

After doing some initial research, I realized that while risky and complex, cryptocurrency trading presented opportunities that I wanted in on. And so began my journey into the world of Bitcoin, altcoins, DeFi, non-fungible tokens (NFTs), and the innovative technology powering it all.

In the next lines I’ll walk you through everything important I learned in simple terms to get started trading digital currencies.

After reading my entire experience, you’ll hopefully gain some decent grasp of the key concepts and processes that go into trading cryptocurrencies. Let’s get started!

Quick Summary

  • Cryptocurrencies like Bitcoin run on decentralized blockchains instead of banks, allowing peer-to-peer digital payments.
  • Leading exchanges like eToro, Bybit and Binance provide platforms to easily buy, sell and trade hundreds of different cryptocurrencies.
  • Wallets store the private keys that allow you to securely access your crypto funds on the blockchain.
  • Analyzing factors like volatility and trading volume is key for deciding when to buy and sell crypto assets.
  • Core strategies range from long-term investing to short-term trading; many choose a mix of both.
  • Hacks, extreme price swings, crypto trading carries significant risks that must be carefully managed.

How Does Cryptocurrency Work?

I’ll start at the very beginning – what are cryptocurrencies exactly? Simply put, a cryptocurrency is a digital form of money that is secured by cryptography. Unlike fiat money issued by governments, cryptocurrencies operate independently using advanced coding to facilitate and record cryptocurrency transactions.

For instance, no single entity controls the first cryptocurrency Bitcoin – it runs via open-source software on a distributed network of computers around the world. The identity of Bitcoin’s creator(s), Satoshi Nakamoto, remains a mystery!

Since Bitcoin kicked off the crypto revolution, thousands of virtual currencies have been created. Some well known examples include Ethereum, Litecoin, Cardano, Polkadot and Dogecoin. Each cryptocurrency has its own specifications regarding transaction speed, supply limit, and other factors.

So how do cryptocurrencies like Bitcoin actually work under the hood? They rely on an ingenious system called blockchain technology. Transactions are recorded on public distributed ledgers called blockchains that anyone can inspect, but not alter. A global network of miners uses powerful computers to verify each transaction, avoiding the need for any central authority.

For their trouble, the miners earn small amounts of cryptocurrency with each block they successfully validate, which provides incentive to keep the network running smoothly. Sophisticated cryptography including public-private key encryption ensures security and accuracy at every step.

The end result is a remarkably reliable way to send and receive digital payments without requiring banks or government oversight. Furthermore, many believe the potential applications for blockchain technology go far beyond just cryptocurrencies. However, crypto remains the most widely adopted real-world use case so far.

The Basics of Cryptocurrency Trading for Beginners

Alright, let’s walk you through the step-by-step process of how I trade cryptocurrencies.

Here are the key steps every time I make a trade:

Analyze the markets

I start by analyzing factors like price trends, trading volumes, social sentiment, and news that may impact asset valuations. I lean heavily on technical analysis tools to identify promising trading opportunities.

Fund your trading account

I fund my account on a trusted trading platform with fiat currency, then use those funds to purchase the cryptocurrency I want to trade. Reputable exchanges accept USD, EUR, and other major currencies.

Execute buy and sell orders

Once I’ve decided on a trading strategy, I place orders to buy and sell cryptos to make a profit. Exchanges allow you to easily trade between hundreds of digital asset pairs 24/7.

Use risk management strategies

Given crypto’s extreme volatility, I always use savvy risk management. This includes prudent position sizing, limit orders, stop losses, and maintaining a reasonable leverage amount.

Monitor open positions

I closely monitor any open trades I have to account for shifting market conditions. If a trade goes against me, I exit the position before losses grow too large.

Move cryptocurrencies to your wallet

Once I sell crypto assets back into fiat, I withdraw the funds from the exchange to my bank account. I move any coins I’m holding long term to my secure hardware wallet.

Pay applicable taxes

When profitable, I set aside a portion of my gains to pay capital gains taxes that apply to cryptocurrency earnings just like other investment income.

Repeat the process

Successful crypto trading takes patience – I return to analyzing the markets, looking for new opportunities to profit from crypto volatility and trends.

The nuts and bolts of executing crypto trades may seem complex as a beginner, but I hope breaking it down systematically demystifies the process and top techniques seasoned traders use.

How Long Does It Take to Learn Crypto Trading?

The time it takes to learn crypto trading can vary widely depending on several factors including your starting point, the complexity of the trading strategies you wish to employ, and the amount of time you can dedicate to learning and practicing. However, a general framework is as follows:

Beginner Level (1-3 Months)

  • Understanding Basics: Familiarizing yourself with basic terminology and how the market operates.
  • Paper Trading: Practicing trades without real money.
  • Risk Management: Learning the importance of risk and money management.

Intermediate Level (3-6 Months)

  • Technical Analysis: Understanding charts, indicators, and patterns.
  • Trading Strategy: Developing and back-testing a trading strategy.
  • Real Trading: Starting with a small investment to understand the emotional aspects of trading.

Advanced Level (6-12 Months)

  • Advanced Strategies: Including leverage, futures, and options.
  • Portfolio Management: Diversifying and managing a portfolio across different assets.
  • Continuous Learning: Markets evolve, so continuous updating is necessary.

Some may become proficient in as little as 6-12 months of focused, consistent learning and practice, others may take longer to become skilled traders.

Choosing the Right Cryptocurrency Exchanges

cryptocurrency exchange monitor and graph

Once I understood the basics of how cryptocurrencies and blockchains work, my next question was how exactly do you buy and sell cryptocurrencies? This is where crypto exchanges come in. These are online platforms that facilitate digital asset transactions between buyers and sellers 24/7.

  • eToro: eToro’s intuitive interface made buying my first Bitcoin easy. They support copy trading and are highly regulated in Europe.
  • Bybit: Populated mainly by experienced crypto traders. Bybit focuses on derivatives like perpetual swaps allowing up to 100x leverage.
  • Bitget: Up and coming derivatives exchange known for lightning fast order execution. Has innovative trading products.
  • Binance: The largest global exchange used by millions of users with low fees and hundreds of trading pairs. Offers advanced trading features.

On exchanges, you can trade cryptocurrency pairs directly (known as spot trading) or use derivatives like contracts for difference (CFD trading). Many exchanges also facilitate trading between different cryptocurrency pairs, for example selling Ethereum for Bitcoin.

Browsing the order books on exchanges gives you a real-time glimpse into buy and sell orders being placed by other investors. You can use market orders to buy or sell immediately at current prices, or set specific limit prices for trades to execute.

When evaluating a new exchange, I make sure to consider factors like security, fees, available cryptocurrencies, and ease of use. Top tier exchanges make trading crypto seamless.

Winner
eToro-Icon
Hybrid

ecoinomy average rating:

9.5/10

Assets Traded Stocks, Indices, ETFs, Currencies, Commodities, Cryptoassets
Max Leverage Up to 30:1 (varies by asset)
Trading Fees Spread 1%
Regulations EU, USA, UK, Austalia, Middle East
Cryptocurrencies 79+ BTC-Coin-IconETH-Coin-IconMIOTA-IconBCH-IconRipple-IconDASH-IconADA-Coin-IconEOS-IconLTC-IconNEO-IconXLM-IconZEC-IconEthereum-Classic-IconBNB-Icon
Payment Methods PayPal, Visa, MasterCard, Skrill, Neteller, SEPA, WebMoney
Number of Users 30 Million+

9.7/10 - Safety

9.1/10 - Fees

9.6/10 - Ease of Use

9.3/10 - Customer Service


Start here

Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.


bybit logo
Exchange

ecoinomy rating:

9.0/10


Max Leverage 100:1
Headquarters Dubai
Deposit Fees Card 2%
Trading Fees 0,075%
Cryptocurrencies 470 BTC kryptowaluta logoETH logo della criptovalutaBCH logo della criptovalutaRipple криптовалута логоADA криптовалута логоLTC криптовалута логоTezos криптовалута лого
Payment Methods Crypto, Visa, MasterCard
Number of Users 3.000.000+

Security

Fees

Ease of Use

Customer Service


Start here

bitget logo
Exchange

ecoinomy rating:

8.9/10

Max Leverage 100:1
Deposit Fees Debit card 3-4%
Trading Fees 0.1%
Regulations
Cryptocurrencies 500+ BTC logo CriptovaluteETH Criptovalute logoIOTA logoBCH logoRipple logoDASH logoADA logoEOS logoLTC logoTezos logoNEO logoXLM logoZEC logoETC logoOmise-Go logo
Payment Methods Crypto, Visa, MasterCard, Bank Transfer, SEPA
Number of Users 2.000.000+

Security

Fees

Ease of Use

Customer Service


Go to Bitget


Binance logo
Exchange

ecoinomy rating:

8.2/10

Max Leverage 20:1
Deposit Fees By card 1,8%; minimum deposit 15 EUR
Trading Fees 0.1%
Regulations
Cryptocurrencies 650+ BTC logo CriptovaluteETH Criptovalute logoIOTA криптовалута логоBCH криптовалута логоRipple криптовалута логоDASH криптовалута логоADA криптовалута логоEOS криптовалута логоLTC криптовалута логоTezos криптовалута логоNEO криптовалута логоXLM криптовалута логоZEC криптовалута логоETC криптовалута логоOmise-Go криптовалута лого
Payment Methods Crypto, Visa, MasterCard
Number of Users 30.000.000+

Security

Fees

Ease of Use

Customer Service


Go to Binance

Crypto Wallets for Safe Storage

With this growing new asset class, I knew I needed secure storage solutions to protect my newly acquired crypto riches. Enter cryptocurrency wallets! These wallets handle the critical task of storing your digital assets and private keys.

Your private key is essentially your password or secret phrase giving you access to your coins on the blockchain. Whoever has the private key controls the coins, so you want to keep it safe and ideally offline in cold storage.

Here are the primary options for cryptocurrency wallets:

  • Hardware wallets: Physical devices like the Ledger Nano X that store private keys offline for robust security against cyber attacks. I use one for my long term holdings.
  • Software wallets: Mobile and desktop wallet apps like Exodus and Electrum that provide an easy way to make payments and trade, but are more susceptible to hacks than cold storage.
  • Paper wallets: Your keys generated and printed out on paper. Funds must later be swept into a software wallet to use.
  • Custodial wallets: Some exchanges provide built-in wallets for convenience, but they control the private keys.

For me, using a trustworthy non-custodial wallet from a provider like Ledger is essential for managing my own keys and minimizing counterparty risks. I get the best of both worlds by linking my hardware wallet to crypto trading apps for easy access when buying and selling.

How to Trade Crypto and Invest in Cryptocurrencies?

ceyptocurrency trading graph example

Once I had crypto assets safely in my wallet, I was eager to try my hand at trading to grow my portfolio. Here are some key concepts I learned about trading cryptocurrencies:

  • Buying and selling crypto at different price points is the core mechanic. Timing your trades well nets you a profit. Exchanges match up buy and sell orders between users.
  • Volatility presents opportunity but also risk. Cryptocurrency prices fluctuate frequently due to news events, regulations, whale investors, and hype cycles.
  • Volume indicates the liquidity of a cryptocurrency. High daily trading volumes make large buy or sell orders less likely to impact the price substantially.
  • Technical analysis involves studying historical charts and trends to forecast price movements. I lean on indicators like moving averages, Fibonacci retracements, and candlestick formations to time my trades.
  • Orders: When placing trades on exchanges, you can choose from different order types like market orders, limit orders, and stop-loss orders.

With crypto’s extreme volatility, proper position sizing and risk management is mandatory. I’ve learned to scale into trades gradually and use judicious leverage amounts through crypto derivatives like futures contracts. New traders should be very conservative with leverage.

Types of Cryptocurrency Investment Strategies

When I first started trading crypto, I assumed short-term trading would be the obvious approach. But after educating myself further, I realized investing in digital assets encompasses a variety of strategies. These largely fall into two buckets – long term holding versus short term trading.

Long-term cryptocurrency investors simply buy and hold onto crypto assets like Bitcoin for extended periods of time – often years. Historical price data shows that Bitcoin tends to increase in value over longer timeframes, despite any volatility along the way. I use this approach with a portion of my portfolio.

In contrast, crypto traders aim to profit by actively trading cryptocurrencies over shorter time periods. Common trading strategies include:

  • Dollar cost averaging: Buying smaller fixed amounts on a recurring schedule reduces my risk from volatility.
  • Momentum trading: I aim to open and close positions quickly within a day or week, riding the short-term highs and lows in asset prices.
  • Arbitrage: If I spot a large price discrepancy between exchanges, I buy on the lower-priced exchange and sell on the higher one.
  • Leverage: Some traders use leverage through derivatives like futures contracts to amplify returns, but leverage also compounds losses if used injudiciously.
  • Automated trading: automated crypto trading bots that leverage algorithms and historical data to systematically execute trades. Bots can help automate elements of trading, but human oversight is still crucial.

As a beginner, I am sticking to tried-and-true strategies to steadily build my knowledge. Taking the time to learn effective risk management techniques has also been crucial.

Risks to Consider When You Trade Cryptocurrencies on a Crypto Exchange

risks cryptocurrency

While I was tantalized by the upside potential of crypto trading, I quickly realized this asset class carries significant risks that I needed to understand and prepare for including:

  • Extreme volatility: Cryptocurrency values fluctuate wildly so traders must be comfortable with big swings, both up and down. Disciplined risk management is a must.
  • Exchange risks: Unlike regulated stock markets, cryptocurrency exchanges operate in legal gray areas and have been prone to technical issues, liquidity shortages, and security breaches.
  • Cybersecurity threats: The cybercrime world has inevitably taken notice of the billions flowing through the crypto ecosystem. I enable all possible security precautions like two-factor authentication.
  • Irreversible transactions: If I accidentally send funds to the wrong address, there is no way to get them back! I triple check addresses.
  • Uncertain regulations: Governments are still assessing how best to regulate cryptocurrencies. New laws that restrict trading access or impose taxes could negatively impact prices.

While risks like hacking and volatility can never be fully eliminated, through vigilance and prudent trading strategies I can greatly tilt the odds in my favor as a crypto trader. I’ve learned to embrace the mantra “invest with caution”.

Pros and Cons of Crypto Trading like Bitcoin and Ethereum

Now that we’ve covered the key concepts behind cryptocurrency trading, let’s summarize some of the major advantages and disadvantages I discovered as a beginner trader.

Pros

Potential for huge returns – Volatility works both ways, and savvy crypto traders have a shot at exponentially growing their investments if they play their cards right. Who doesn’t want a shot at hitting it big?

Low barriers to entry – You can open an account on a crypto platform with little starting capital and be up and running in minutes. It’s probably the most accessible speculative trading market out there.

No close times – The decentralized crypto market operates 24/7 with no downtime, allowing constant trading opportunities. I don’t have to worry about after-hours or weekend restrictions.

Be your own boss – There’s no overbearing boss or restrictive company policies involved. I set my own trading schedule and profit goals.

Innovative asset class – There’s no doubt crypto, blockchain and Web3 hold huge technological potential to disrupt finance and many other sectors. I’m excited to gain firsthand experience.

Portfolio diversification – Cryptocurrencies offer diversification from traditional assets like stocks and provide a hedge against inflation and fiat currency devaluation.

Cons

It’s risky business – In such a volatile market, I have to be prepared to lose a substantial portion of my capital. My risk management skills are constantly put to the test.

Takes substantial time – To trade crypto profitably, I have to dedicate many hours each week to researching the markets, analyzing charts, monitoring news, and executing trades. It’s not easy passive income.

Stress can run high – Wild price swings means my emotions are also on a rollercoaster ride. The highs feel great but the lows can get depressing, especially when I beat myself up over a bad trade.

Lots to learn – The technical learning curve just to get started feels steep at times. I’m constantly educating myself on new terms, trading strategies, and market developments.

Mistakes can be costly – When real money is on the line, botched trades or accidental transactions can be quite painful to my portfolio’s bottom line.

Lack of regulatory protections – Unlike stock traders, I can’t count on help from regulatory bodies if I run into issues on a crypto platform. I have to watch my own back.

As with most endeavors, the crypto trading journey has its fair share of highs and lows. For me, the educational rewards and thrill of navigating this new space outweigh the negatives. But risks and downsides should certainly be weighed carefully.

Trading vs Investing Cryptocurrency

Before diving into the various crypto trading techniques, it’s important to understand difference between crypto trading and investing:

  • Crypto trading involves rapidly buying and selling digital assets to profit from price fluctuations in the market. Traders employ technical analysis and utilize trading tools to capitalize on volatility and identify trading opportunities. Trading is considered short-term and higher risk.
  • Cryptocurrency investing involves acquiring and holding crypto for the long term. Investors buy when they believe the price is low and sell when the price becomes high. Investing is lower risk and relies on the long-term growth of the cryptocurrency.

The main differences:

Trading

  • Short-term
  • Frequent buying/selling
  • Higher risk
  • Aims to profit from volatility

Investing

  • Long-term
  • Infrequent buying/selling
  • Lower risk
  • Aims for long-term growth

Many cryptocurrency traders also invest in crypto coins for the long run. The two strategies can complement each other.

How Much Money Do You Need to Start Crypto Trading?

The amount of money needed to start crypto trading varies based on your trading strategy, risk tolerance, and the type of trading you wish to engage in. Here’s a general guideline:

Spot Trading

  • Minimum Requirement: Some exchanges allow you to start with as little as $10.
  • Recommended: A starting capital of $100-$500 is often suggested for beginners to get a feel for the market.

Margin Trading

  • Minimum Requirement: Usually starts at around $100 depending on the exchange.
  • Recommended: A higher starting capital of $500-$1000 is advisable due to the increased risks associated with leverage.

Futures and Options Trading

  • Minimum Requirement: Varies between exchanges, but generally starts at around $100-$500.
  • Recommended: At least $1000, since these advanced trading methods can be complex and risky.

Day Trading

  • Minimum Requirement: Typically, at least $500 to be able to take multiple positions in a day.
  • Recommended: $1000-$5000 to diversify and manage risks better.

Important Considerations:

  1. Risk Management: Never invest more than you can afford to lose. Start small and scale up.
  2. Transaction Fees: Consider the trading fees, as they can eat into your capital especially if you’re trading frequently.
  3. Liquidity: Make sure there is enough trading volume in the assets you choose to trade.
  4. Educational Investment: Before trading with real money, consider investing in educational resources or courses, and practice with demo accounts or paper trading.

Always do your own research and consider consulting with a financial advisor.

Visit our complete guide on – how to start trading crypto.

Conclusion: The Future of Bitcoin and Crypto currency Trading

Thanks for joining me on this write to cryptocurrency trading! We covered cryptocurrency fundamentals, popular platforms and wallets, trading strategies and techniques, and risks to be aware of.

While trading crypto profitably certainly won’t be easy, I feel far more equipped with the knowledge needed to make informed decisions on my crypto investments and manage the risks inherent to this asset class. I’m excited by crypto’s potential, while tempering that optimism with rigorous critical thinking.

For anyone curious about crypto trading, I suggest learning through reputable online resources, paper trading, and finding a community of supportive traders to engage with. Start small, get your feet wet carefully, and have fun learning about this dynamic new market! Let the trading begin.

FAQ about Crypto Trading and Buying Cryptocurrency

What amount of money do I need to begin trading cryptocurrency?

One benefit of crypto is that you can start small. Most exchanges allow you to purchase fractions of coins so you can begin trading with as little as $5 or $10. Of course, you’ll see faster gains with more start-up capital, but dip your toes in first to gain experience.

How much of my portfolio should I allocate to cryptocurrency?

As a high-risk asset class, experts recommend limiting your crypto allocation to between 1% and 5% of your overall investment portfolio when first getting started. Only risk money you are comfortable losing until you are an experienced trader.

Which cryptocurrencies are best for beginners to start trading?

For first-time traders, sticking with major coins like Bitcoin, Ethereum, Litecoin and Cardano is best. They have the highest supply and demand, liquidity and trading volumes. As you get familiar with trading, you can explore lesser-known altcoins but they come with more risk.

What causes sudden spikes or drops in the price of cryptocurrencies?

Large price swings are often driven by new regulations, adoption by major corporations, celebrity tweets, exchange outages, influencer recommendations, or other headline-grabbing news related to crypto. Government crackdowns and meme hype in particular can impact prices substantially.

Gianluca Lombardi

Gianluca is the editor-in-chief of this site. A finance graduate, he is an active trader who has tested all trading platforms and knows all their secrets. Technology is his passion; he spends much of his free time in the metaverse. Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology.