July 6, 2020

How Does Cryptocurrency Trading Work?

Despite the fact that there are already markets with high levels of liquidity (as in the case of Forex and commodities) that, regulated, offer acceptable profit opportunities to anyone with a solid knowledge of finance and trading. However, today we are going to emphasize the crypto market and go over some aspects on how cryptocurrency trading works

Disclaimer: All the content shared in this article shouldn’t be considered investment advice.  

How does cryptocurrency trading work?

Trading cryptocurrencies is as simple as determining price patterns by analyzing a particular cryptocurrency. Although this market does not have the same amount of money moving daily as Forex, these assets are volatile and present many opportunities for profit.

The first step will be to locate the graph corresponding to the pair or cryptocurrency that we want to study. Both bullish trends can be predicted if we put together a group of confirmations (which you will get in the form of candles, market volume and trading indicators) and then wait for the right moment to position your order.

Orders must have their take profit and stop loss to secure your funds at all times. If you buy a cryptocurrency and don’t specify a take profit level, the price may reach the target area and you may not realize it, thus missing an opportunity to secure profits. Otherwise, the price could fall and make you lose more than expected if you do not set an acceptable stop loss.

What kind of trading should I use for crypto?

In order to understand how cryptocurrency trading works we must first decide how we will position our orders. In other words, our level of experience will tell us exactly what trading methodology and what tools we can use.
Margin trading: It is a trading mode designed to amplify traders’ profits through a leverage system, which works like a loan and you have an available margin (your funds) to cover your trading power. In general, margin trading allows you to position long / short orders to benefit from buying and selling assets that you don’t really own.

Spot trading: The Spot market is designed so that you can invest in cryptocurrencies by directly buying the tokens, which you can save in a wallet. For this reason, most exchange companies that offer spot market have wallets for the user to store the tokens that they buy. This mode of trading is more suited to medium / long-term investors, especially since if the price goes against you you can hodl them up to sell at a reasonable price.

Futures trading: Cryptocurrency futures are contracts that can be purchased to protect both parties against market volatility, at least until the expiration date arrives. Each contract has a price and you can position leveraged orders by the number of contracts available depending on your margin. This trading mode suits better for traders who really know how crypto trading works, as they have a better understanding of the market.

After building your strategy through your favourite trading mode, set up a safe risk management for assuring profits and minimizing losses. It should be noted that although margin trading leads to big earnings, it also leads to dangerous trades. We recommend traders to place high leveraged positions with no more than 5% of their capital. If your margin funds are emptied, your position will be liquidated and your account might reach 0 (usually you get a margin call before that happens).

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The AltSignals writing team consists of experts dedicated to the world of finance and technology, with a particular focus on cryptocurrencies and forex. Our writers bring a broad range of knowledge and experience, cultivated through years of arduous and direct involvement in financial markets, as well as intense technological collaboration.

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