Due to the recent explosion in popularity of the cryptocurrency market, traders now have a variety of options to speculate on market prices. We’ve put together a list of everything you need to know to get started trading cryptocurrencies, but it’s crucial to understand how the crypto market works before you create a position.
To make it easier for you to comprehend the cryptocurrency market and how to trade it, we’ve divided the process into five straightforward steps:
1. Decide on your crypto trading method
A CFD is a contract in which you consent to trade the difference in price of a cryptocurrency between the times you open and close positions. Instead of acquiring ownership of the cryptocurrency, you are speculating on the market’s price. If you initiate a long position and the value of the cryptocurrency rises, you will profit; but, if its price declines, you will lose money; the converse is true for a short position.
As an alternative, you can choose to purchase a cryptocurrency, which entails acquiring a piece of the virtual money outright with the aim of storing it in a digital wallet and earning money if its value rises.
2. Learn about the functioning of the crypto market
Before you begin cryptocurrency trading SA, it is essential to understand how the cryptocurrency market functions and the terminology used to describe it as it differs from traditional financial markets.
The bitcoin market runs through a system of peer-to-peer transaction checks rather than a central server because it is a decentralised digital currency network. Through a process known as “mining,” transactions involving the purchase and sale of cryptocurrencies are recorded on the blockchain, a public digital ledger that stores data.
Since cryptocurrencies are notoriously volatile, it’s critical to understand what is likely to influence the market. Examples include initial coin offerings (ICOs), blockchain forks, breaking news, and governmental regulations.
3. Open a trading account with a broker
Instead of purchasing cryptocurrencies, trading on them allows you to open positions considerably more quickly. A digital wallet or an exchange account are not required. In actuality, all you need to trade CFDs is a trading account.
4. Create a trading plan
For any trader, having a trading plan is essential to success, but cryptocurrency traders especially so because the market can experience extreme levels of volatility. Volatility makes the market incredibly alluring but also makes trading challenging.
Due to this, your trading plan should also include risk management tools, an overview of your objectives, a list of the cryptocurrencies you intend to trade, and a trading strategy—a mechanism for initiating and closing trades.
5. Open, and close, your first position
Simply open the deal ticket for your preferred market and you will see both a buy and a sell price posted, regardless of whether you have chosen to trade Bitcoin, Ripple, Ether, Litecoin, or another cryptocurrency.
You can select purchase to open a long position or sell to open a short position after determining the amount of your position. Keep in mind that you can put stops or limits to your trade to close it once it reaches a specific level and shield it from unneeded dangers.
In the ‘open positions’ part of the trading platform, you can keep track of your position’s profit or loss. You just need to execute an equivalent trade in the other direction when you’ve determined it’s time to close your position.