Trading in the crypto market involves speculations on price movements in cryptocurrencies. It could be through the exchange of underlying coins or a CFD trading account. In CFD trading, you speculate the price movements without possessing the underlying coins. You buy for speculation that there will be a rise in the cryptocurrency and sell for a fall. Going long refers to buying, whereas short denotes selling.
Trading cryptocurrencies through exchange involves purchasing the coins. You create an account, open a position, and hold the token until you are ready to sell. The method calls for you to ensure that you are up to date with the technology involved in cryptocurrencies. Accounts have a limitation on the deposit amounts and tend to have high maintenance costs.
Below are the top tips for trading in crypto markets:
1. Crypto market exchanges
The markets are not under a central authority and are therefore decentralized. However, there has been a rapid rise in centralized exchanges. Decentralized cryptocurrency exchanges (DEXs) use blockchain technology and has no company in control. Centralized cryptocurrency exchanges (CCEs) such as Binance involve a company that controls all the transactions, just like a bank.
A blockchain is the form of storage of the cryptocurrencies, which exists as a digital ownership record. It is a history of transactions of each cryptocurrency token, showing that there has been a change of ownership over time.
Sending to another user involves transferring the cryptocurrency units to their digital wallet. The transaction is not over until verification and mining, which in addition to the blockchain. It is in that process that there is a creation of new cryptocurrency units.
Both the CCEs and DEXs have their pros and cons. However, it’s important to note that the foundation of the cryptocurrency industry was blockchain technology.
a. Decentralized cryptocurrency exchange
The use of decentralized cryptocurrency exchange comes with several benefits.
The decentralized cryptocurrency exchange is less prone to hacking since it holds relatively lower amounts than the centralized ones. The centralized exchanges are experiencing an increase in trading volumes. Decentralized exchanges are thus becoming attractive to investors due to better security.
Decentralized exchanges have anonymous transactions, thus high levels of privacy. Other than possessing your wallet address, there are more registration requirements.
· Funds are under your control
Funds in DEXs are under the control of the investor. Therefore, you can access them all the time. Besides, in case the exchanges fall, your funds are not affected.
b. Centralized cryptocurrency exchanges
There several benefits that come with investing in centralized exchanges.
· Fiat/crypto exchange
Unlike the DEXs that exclusively exchange cryptocurrency, centralized ones provide fiat/crypto pairings.
Centralized cryptocurrency exchanges offer broad functionality. They have institutional trading tools, margin trading, and lending, among others.
Below are the top tips for trading in crypto markets:
2. Movements in cryptocurrency markets
Supply and demand are the forces behind the movement in the cryptocurrency markets. Unlike traditional currencies, these markets are free from political and economic influences because of decentralization. It is essential to note the following factors that may significantly impact the prices in crypto markets:
The number of coins available in the market and the rate of destruction, losing or release them.
The degree at which the cryptocurrency incorporates into the present infrastructure with ease, for instance, the e-commerce modes of payment.
· Major events
The key events impacting the price include setbacks on the economy, regulation updates, and security breaches.
3. Market Capitalization
You obtain the market cap as a product of the price per coin and the total circulation. It is an excellent indicator of the company’s value rather than the use of the individual cryptocurrency units. Through market capitalization, you get to know the risk once you choose to invest in the crypto markets. It is possible to classify the market capitalization as small, large, or mid.
The highest risk is in small-cap cryptocurrencies. It includes companies with a market cap under $1 billion and has relatively higher chances of failing. With small-cap cryptocurrencies, you may get substantial instant returns on your investment and a significant loss.
The intermediates are the mid-cap cryptocurrencies whose market cap ranges from $1 billion to $10 billion. The risk of investment is higher than in large-cap and lower than the small-cap. The mid-cap cryptocurrencies have more growth potential compared to the large-cap probably because they are still in the stage of accumulating their utility or market.
Large-cap cryptocurrencies have over $10 billion market cap. They are safe to invest in and are less volatile. However, your investments will be subject to only slight conservative growth.
4. Trading volumes
Trading huge volumes of crypto at any time may cause panic in the markets, which may force the prices to go up.
· Splitting transaction
There is a common trick to split a significant transaction into multiple parts and then sell over a long period. It is common for those with trading large amounts. However, the earnings may be less in the future since the value declines when there is more to sell than the market demand.
· Multiple exchanges
Another strategy is selling crypto on several exchanges. It is time-consuming since you have to split transactions between the exchanges. Besides, you have to calculate the fee for each of them.
· Direct deal
Some traders recommend setting a direct deal with a party that wishes to purchase crypto of an equal amount to the one you are selling.
5. Security measures
Security is a critical concern in the crypto markets. The following are safety measures you should consider when investing in the cryptocurrencies:
· Have a security expert
Having a security expert on your side will be crucial in case you come across obstacles. Many questions arise, especially on matters concerning security. Sometimes you find yourself depositing in the wrong address. Besides, you may be required to use anti-virus software. An expert by your side will ease your trading in crypto markets.
· Risk diversification
Just like you may consider it unsafe to carry all your worth in a wallet, the same case applies to cryptocurrency. Traders usually hold their crypto assets offline, just like cash in the safe. Whether you store them in a mobile app, desktop, or hard wallets, it is advisable to have an allocation of 10:20: 70 rations to the hot, warm and cold wallets, which will depend on your preferences and needs.
· Use of secure physical wallets
Like paper money and metal coins currency, it is possible to hold cryptocurrencies in a physical form. Most traders prefer physical to digital security. Cold storage is storing cryptocurrency offline and is among the most convenient security technique. The sole purpose of a hardware wallet is to store the cryptocurrency securely. As it becomes a predominant storage method, the security in the crypto market will seek to ensure they are tamper-proof.
The number of cryptocurrency holders is on rapid growth and currently ranges between 13 to 25 million. While it is a new, exceptional, and sophisticated technology, you now have the tips to help you secure and trouble-free experience in the crypto markets.