Cryptocurrencies are considered as digital gold. Currently, such currency has its value due to the demand and supply, and no federal body regulates under any law. All these currencies are decentralized, which makes it cheaper, transferable, secure, and confidential. Cryptocurrency can be transferred right away between two peers via entering the private and public keys. These exchanges of digital assets can be done with minimal processing fees and time. This concept is similar to the actual stock exchange.
Such trading involves speculation on price movements through a trading account where buying and selling the underlying coins are performed. We will observe more information about cryptocurrency trading in this blog.
A. Types of Trading
Cryptocurrency trading can be classified into two types as per the position purpose, which is given below.
1. Short-Term Trading
Short term trading is done like scalping or jobbing where traders are concerned to execute the position for smaller profits in a short period i.e., the trader does not wait for huge profits or bigger loss. They quickly react to the market for buying and selling of cryptocurrency, which is CFD (Contract for Differences). Due to their style of trading methodology, they create huge volumes in the market.
2. Long-Term Trading
In long-term trading, the long position traders have to keep their position for a longer period until the target point is achieved. In other words, the waiting time can be for several months also. They analyze the market based on fundamental and technical analysis to create the entry point, exit point, and position size. These traders are keen to manage the funds for assured or minimum return.
B. Risk Aversion Techniques
There are rewards and risks while trading cryptocurrency. In hindsight, the greater the risk, the greater the profit as it implies always. There are numerous ways to minimize risks. Therefore, we can analyze the market for the right entry and right exit, thereby avoiding the risk up to a certain level.
1. Technical Analysis
Technical analysis helps to avoid the risk by giving us logical points of entry and settlement. Technical analysis is based upon technical tools that are included with thousands of methods like MACD, RSI, and Candlesticks. Here, you can analyze the previous prices of the cryptocurrency and predict the upcoming price and the subsequent trend. It helps the traders to avoid wrong trades. Most of the technical traders are having a trading plan for everything from execution to settlement with the emotional control mechanism.
2. Fundamental Analysis
When we analyze the market based upon the news, information, or economic data, then this analysis is called fundamental analysis. Since this analysis is based on information, it influences the prices of cryptocurrency immediately. News and information drive the market, and therefore, traders are eventually updated with the market news to obtain good results while trading.
3. Cryptocurrency Management
We must generate various information, including the investment amount on cryptocurrency, free margin, and size of positioning. We should get an idea of the amount of money for investment purposes, funds to be kept for free margin, and timing to settle the position in the case of profit or loss. Management of cryptocurrency should be based upon tools and techniques with a logical reason. Thus, it helps to curtail the risk and enhances the chances of profitability.
C. Trading Account Opening
To trade via any cryptocurrency exchange, we must fulfill the account opening requirements as per the compliance norms and standards. After the verification, one may receive the user details for the trading account. These details can be a valid email id, username, password, proof of identity, resident proof, Two-factor authentication (2FA), wallet, bank account, among others. As cryptocurrency is online or internet-based, login credentials must be secured with strong passwords and wallets, so that your digital currency is in your control at all times.
The above discussion may help to understand the cryptocurrency trading in brief. However, there is no sufficient knowledge that is leveled as perfect for cryptocurrency. Therefore, you must adopt the process of continuous learning so it may help from judging the exchange to adjudicating the market for good investment decisions at the right time for potential returns.