Cryptocurrency trading can be a profitable activity that tests your knowledge, research skills, and patience. As lucrative as trading can be, it’s often highly complex, which may be overwhelming for many newcomers. If you want to become a crypto trader but are unsure where to start, then you’ve come to the right place.
Today, we will discuss the basics of crypto trading. We’ll touch on topics such as the various crypto coins to buy, the difference between exchanges and brokers, and the most popular trading strategies. We’ll also give you insight into some crucial mistakes to avoid as a beginner trader. Let’s begin!
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Cryptocurrency Coins
The cryptocurrency markets are packed with tons of crypto assets to buy. The first basic step of becoming a crypto trader is learning about the different types of cryptocurrencies. This will help you to diversify your portfolio and effectively predict price swings since each type of coin behaves differently.
The Different Types of Crypto
Here are the main types of crypto coins and tokens you can trade:
- Stablecoins – Pegged to another asset, stablecoins are the least volatile type of cryptocurrency. The value of a stablecoin is pegged to a single asset such as fiat currency (dollar, euro, pound), another crypto coin, or an exchange-traded commodity. Example – Tether (USDT).
- Utility tokens – Traders can use utility tokens to access a specific product or service within a blockchain ecosystem. They do not represent or provide any investment stake or ownership in a project. Example – Ethereum (ETH).
- Security tokens – Unlike utility tokens, security tokens represent the ownership of an underlying asset or security. This type of token is most similar to the share of a specific stock, for instance. Example – Exodus (EXOD).
- Governance tokens – These tokens allow users to govern a decentralised organisation. They can do this by using their tokens to vote on proposals, allocate funding, and suggest changes to a specific project. Example – Solana (SOL).
- Memecoins – These coins have no real-world use cases and usually rely on community support to gain value. Example – Dogecoin (DOGE).
Crypto Exchanges and Brokerages
After deciding which cryptocurrencies you want to trade, you’ll need to join a crypto exchange or brokerage. With these services, you can trade crypto whilst benefiting from other beginner-friendly features. The best service for you depends on your experience level, goals, and preferences. Let’s check out the key attributes of both exchanges and brokerages.
Crypto Exchanges
A cryptocurrency exchange is a digital marketplace where traders can buy and sell thousands of different crypto coins. These exchanges usually have low fees and top-tier security measures. However, with exchanges, you’ll have no extra guidance and will be left to trade on your own. Therefore, this option is best suited for traders who already have some experience and confidence.
If you’re interested in using a crypto exchange to trade cryptocurrency, we suggest that you try out Kraken. This exchange is full-featured, reliable, and has plenty of additional features for you to use to your advantage.
Crypto Brokerages
Crypto brokerages are similar to exchanges but have a few key differences. A broker acts as an intermediary for traders, supporting them as they buy and sell crypto assets. They typically have a selection of specialised tools that can help their users gain confidence and refine their skills. Due to this, brokers are ideal for inexperienced traders who need extra support when trading. You may be wondering how to find such a platform that not only meets your needs but it is also trustworthy and reliable. If that’s the case, we highly recommend you give Immediate Bitmasters a try! This crypto platform is the perfect example for a service that ensures to match you with a compatible broker who can effectively help you as a trader. What is more, the security and data privacy of its users is of utmost importance to the platform’s team.
Crypto Trading
After you’ve created an account with either an exchange or brokerage, your next step will be to make a deposit. Depending on the platform or service, you can make this deposit through payment methods such as bank transfers, debit cards, PayPal, or e-wallet. You’ll then have to wait a couple of days for the platform to verify this deposit.
Next, you can start buying a selection of coins. To begin with, we suggest trading just a few coins, such as four or five. This gives you a decent-sized portfolio without having too much to manage. Over time, you can begin to slowly expand your portfolio with other cryptocurrencies or similar digital assets.
Popular Crypto Trading Strategies
The rate at which you buy and sell cryptocurrencies depends on your trading strategy. There are plenty of strategies to try out, with some being more popular among beginners than others. Here are a few effective strategies you can try out when trading cryptocurrencies for the first time:
HODLing
HODLing, short for ‘holding on fir dear life’ is a strategy that involves buying crypto assets and refusing to sell them. HODLers will hold their crypto tokens regardless of market trends and price movements. This is one of the most beginner-friendly strategies as it doesn’t require any technical and fundamental analysis. It’s also a great option for traders who don’t have much time to set aside for rebalancing and updating their portfolios.
Dollar-cost Averaging (DCA)
DCA is another strategy that provides minimal market exposure for traders. With this strategy, traders will systematically invest equal amounts of their funds at regular intervals. DCA traders do not need to spend much time analysing the market and aren’t required to invest large sums all at once.
Day Trading
With day trading, traders are capitalising on short-term price movements by buying and selling assets within a single day. The goal of day traders is to make a notable profit within a small period rather than waiting for days, weeks, or even years. Day trading can be demanding and stressful, but it’s still a popular choice among beginner and experienced traders alike.
Mistakes To Avoid
When trading cryptocurrencies, there are lots of mistakes that you’re likely to make as a beginner. Don’t fret, as this is simply part of the learning process. However, if you do want to increase your chances of success when entering the crypto market, check out these top most common trading mistakes to avoid.
Lack of Research
A lot of the time, beginners end up buying crypto assets that they know nothing about. This common mistake can result in large losses early on in your trading career. Without understanding a particular coin, its use cases, and industry, you won’t be able to guess how it will perform. You may end up investing in an asset that is dropping in value or is no longer being supported by its development team.
Therefore, you must always be sure to research any coins you want to trade. You should start by heading to the website of any crypto that interests you. Here, you can read the whitepaper, which will give you insight into the purpose of the coin, its future prospects, and real-world use cases. Next, you can search for the coin on various social media sites to see how the community feels about it. Typically, cryptos with active social media support are more likely to rise in value.
Emotional Trading
Another mistake many crypto traders make is allowing their emotions to take control. If you’re experiencing some losses, you may want to chase them, but this is a bad idea. Chasing your losses rather than sticking to your strategy can lead you to dig an even deeper hole for yourself.
You may also experience the fear of missing out (FOMO) as a trader, which happens to everyone at some point. You may notice others making gains from a particular coin, and, of course, you’ll want to get in on the action. But, again, straying from your strategy can be disastrous, so try to refrain from making impulsive decisions based on feelings such as FOMO.
No Diversification
Last but not least, traders often fail at making their portfolios fully diversified. A diversified portfolio allows you to withstand the pressures and volatility of the crypto markets. By investing in a variety of assets, even if one or two of them plummet in value, you’ll still be able to offset your losses.
You can balance and diversify your portfolio in a couple of ways, including:
- Token type
- Use case
- Industry
- Market cap
- Geographic region
Tax Implications
Finally, when trading cryptocurrency, you must be aware of tax implications. Depending on your location, you might have to pay taxes for your crypto holdings. For instance, in the US, the IRS classifies crypto as property, meaning that all coin transactions are taxable. In other countries, you may also have to pay capital gains tax. To fully understand what taxes you’ll need to pay when deciding to trade cryptocurrencies, you should refer to your local government website.
Conclusion
Now, you’re ready to start trading. In this article, we’ve given you the basic information on cryptocurrency trading that will allow you to jumpstart your journey. To summarise, there are a wide variety of coins to invest in, each with its own attributes and use cases. If you want to increase your chance of making a profit, then you should invest in a handful of different coins rather than just one.
Once you’ve decided which coins to trade, you can join either an exchange or brokerage, depending on your own preferences. Next, you can decide which trading strategy to use. Popular strategies such as HODLing, DCA, and day trading are all great options. Finally, you must remember to do your research before making any investment decisions, try to keep your emotions in check, and ensure you understand all applicable tax implications.