What you should know before getting into cryptocurrency trading

Table of Contents

cryptocurrency trading

Despite cryptocurrencies being relatively new and untested, their potential to influence the future financial landscape has made it increasingly difficult to dismiss the investment opportunities they present. We now hope to provide you with a good foundation that could help you understand the market and decide whether cryptocurrency trading is right for you.

Approaches to cryptocurrency trading

Just as there may be several methods of investing in stocks or other investments, there are also many ways to approach cryptocurrency trading. Short-term and long-term trading are just two broad schools of thought when it comes to cryptocurrency trading. Take time to explore which approach works best for you.

Read also: The ultimate guide to understand cryptocurrencies

Things to keep in mind include the time or financial commitment you are willing to put in, and your own analytical or technical experience:

Short-term trading

You may opt to invest in a certain digital currency to take advantage of expected price increases on the short-term. Cryptocurrency prices can move much more rapidly, compared to fiat currencies, which almost never move more than 1% per day.

These assets can be held for anywhere between a few minutes to a few months (“short” is a relative term), but the aim will always be to take advantage of cryptocurrency price movements and sell for a quick profit before prices might drop.

  • Advantage: Large cryptocurrency trading volumes mean it’s never too hard to find buyers or sellers to help you realize quick gains.
  • Disadvantage: Since digital currency prices can fall just as quickly as they rise, short-term trading requires stronger analytical abilities.

Long-term trading

Despite potential price volatility and fluctuation, cryptocurrency traders may sometimes choose to hold on to their digital assets for a year or more, based on the assumption that prices are generally bound to increase over the long term.

For many people, cryptocurrency trading only really came to their attention in 2017, when the price of Bitcoin peaked at $19,783.06. If you had invested at $0.003 when the first exchanges opened in 2010, you would have realized more than 6.5 million times your initial investment!

  • Advantage: After the initial purchase, this approach doesn’t require a lot of time or attention.
  • Disadvantage: Avoiding the stress of constantly analyzing the markets and updating your accounts might also leave you open to missing short-term opportunities.

Risks of cryptocurrency trading

While news surrounding cryptocurrencies can often seem positive and optimistic, it’s important to stress that nothing is guaranteed. Like undertaking any investment, it’s vital to understand the risks of putting real money in a digital environment:

New technologies can fail

If you think about it, cryptocurrencies are basically just data created by software programmed by people or companies, so there is always a risk of bugs or errors (or even deliberate actions) that cause the technology to fail. With thousands of cryptocurrencies popping up all over the place, you also have to be smart about avoiding scams that are riding this new wave.

Cryptocurrency trading can be compared to investing in tech or internet stocks. Many of these companies are hailed as the “future”. While some may indeed produce revolutionary technologies or software, many are simply overhyped or built on weak foundations. A recent example of this is the case of WeWork.

Tech-savvy investment

You’re not required to understand all the codes and nitty-gritty details in order to succeed while trading digital money. However, a good foundation in both the technological and financial fields will definitely help you better understand trends and analyze markets.

Since cryptocurrency is a relatively new type of asset, we don’t have as much historical data, expert research, or government oversight to help guide our crypto investment decisions. As a result, it will likely take more time and effort to build up your knowledge and confidence in the market.

So, it might be best to stay away from cryptocurrency trading if you are not yet able or willing to make this personal investment.

Unregulated market

There can be massive gray areas with regard to cryptocurrency trading, particularly with trading and dealing with brokers. The decentralized, anonymous, and unregulated nature of digital currencies is a double-edged sword that simultaneously decreases and increases the inherent risks.

The downsides include difficulties identifying fraudulent cryptocurrencies, exchanges or brokers, as well as finding legal and financial recourse for when things go awry. One way to at least avoid losing your digital money is to lessen its exposure to external events. This includes keeping the bulk of your cryptocurrency off exchanges, and instead having them securely stashed away in wallets.

Final tips for success in cryptocurrency trading

One of the toughest challenges in trading any financial asset is overcoming natural psychological hurdles. To wrap up this introductory guide to cryptocurrency trading, we’d like to leave you with some final tips that might help you concoct your own winning strategies or single out strong coins.

Keep an open mind and a level head

There may be some unique factors that surround trading digital money, but this advice holds true for any other investment or speculation in stocks or securities. Once your trading accounts are set up, be careful about overestimating your position and always try to keep a calm and objective mind.

Avoid panicking when you lose on a trade–this is all part of the learning process.

Only invest what you can afford to lose

Yup, better rip the bandage off now. You have to be prepared to lose some money when trading cryptocurrencies.

Before jumping in, make sure you’re in a good enough financial position and aware of how much money you can actually afford to put into the crypto market. It’s not advised to sink all your cash into any single investment or endeavor without at least an emergency fund to fall back on, so don’t put all your eggs in one basket.

Take notes and learn from your mistakes

The best traders in any commodity never stop learning. This is the only way you can continue recovering from unfortunate losses. Keep a record of your trades and take note of what goes right and wrong. Use that information to help you tinker with your trading strategies. It may seem like a lot of extra work, but it can help you figure out what factors lead to stronger gains.

Cryptocurrency trading markets appear exciting from an investment perspective, and are already influencing real-world financial markets. With all the information in this article and other similar resources, as well as the right amount of patience and discipline, you could be on your way to becoming a successful cryptocurrency trader.

Ready to start investing?

Invest in stocks, ETFs, and complex products from US and global exchanges, all commission-free. Start with as little as €5!

Financial news and market insights

Google finds a dividend

Alphabet announces its first dividend ever, while Microsoft beats expectations. Intel forecasts disappoints and Apple to grow in AI.

Recommended articles

Invest in what really matters to you

Whether it’s renewable energy or the latest IT giant,
invest in it with no commissions on FlexInvest.