Synopsis: This article steps through cryptocurrency trading for beginners. The important terminology is fully explained, which makes it particularly useful for those who do not have a background in finance. There are several helpful diagrams to help understand all the graphs and charts that come with cryptocurrency trading. The article also recommends specific exchanges where users can go to get started.
Beginning With Crypto Trading – Made Simple
This article provides anyone, no matter their level of experience, with all the tools they need to get started with cryptocurrency trading. Whether you intend to trade every day or just want to know the best way to get your fiat money into and out of the crypto universe, you need to know how to do this. And with this guide, you’ll soon be trading cryptocurrency like a pro.
Getting A Cryptocurrency Trading Account
Cryptocurrency trading is what happens when you want to increase or decrease your holdings of any type of crypto. It may or may not involve government issued money (or “fiat money”, as we will call it in the rest of the article). Cryptocurrency trading therefore covers three situations:
- Exchanging fiat money for crypto
- Exchanging crypto back to fiat money
- Exchanging one type of crypto for another type of crypto, without using fiat money as a go-between.
Doing any of these three things necessitates an online cryptocurrency exchange. You also need a cryptocurrency wallet, but the online crypto exchanges offer their own wallets to store your holdings. There are literally dozens of exchanges. Here are the main things you should take into account before choosing a crypto exchange:
- Can you get approved? (Some exchanges are restrictive about which country’s residents / citizens they will allow onto their platform).
- Does the exchange offer a way to trade fiat money for crypto? (Some exchanges are crypto only)
- Do they offer the crypto(s) you want to trade in?
- Does the exchange have a lot of activity? (The more activity there is, the better the prices should be).
- Do they have a strong crypto security reputation?
Here is a list of large, liquid exchanges, all of which offer fiat-to-crypto, crypto-to-fiat and crypto-to-crypto. Which exact exchange is best for you depends on which country you’re in, which crypto assets you wish to trade, and which user interface you prefer. Best will be to try out several of the below so that you can find your favorite.
Important! Start out with small amounts first. While you are still learning the ropes, it is definitely advisable to make sure that if you make any mistakes, or if the exchange you choose has a problem, that you don’t risk too much. Only consider risking larger amounts once you have picked an exchange which you have tried and are happy with. If you’re wondering which of the many different cryptos to buy, I advise you to gain Bitcoin first, as Bitcoin is the largest and best-established cryptocurrency. If you need a more detailed road map to help you to pick a exchange, read this article on the important differences between the various cryptocurrency exchanges. Additionally, this article covers what you need to do in order to make the sign-up process as painless as possible.
Strategies: Buy-And-Hold vs. Active Cryptocurrency Trading
When you’re just starting out, you probably won’t be trading all that often. You won’t be sweating on the minute-by-minute price movements. You might not even check how the value has moved every day. “Buy-and-Hold” investors are banking on the long-term future of crypto. On the other hand, active cryptocurrency traders are constantly monitoring how the markets are moving and are looking for short-term opportunities to make a quick buck. Active trading (or “day-trading”, if you prefer the finance lingo) is more difficult and time-consuming, but some people swear that it can be highly lucrative. Make sure you what you’re doing before you try your hand at active trading.
The Centralized Limit Order Book
Each exchange will show you the outstanding interest to buy and sell within trading pair (e.g. the USD / Bitcoin market). This summary is called the Centralized Limit Order Book. Regardless of which crypto exchange you’re using, it will look something like this screenshot from Bitstamp.
The centralized limit order book shows you the prices and amounts of:
- Bids (open offers that other traders are willing to buy crypto at)
- Asks (open offers that other traders are willing to sell their crypto at)
Remember, the ask is always higher than the bid. This is only to say that the overall marketplace will never offer to buy at a higher price than it is willing to sell at. Bids and asks are ordered in the centralized limit order book by price priority. As in, the most attractive offers are placed at the top (i.e. the highest-priced bids and the lowest-priced asks). When you engage in cryptocurrency trading, you have a choice over whether to submit a:
- Market order, where you order a certain amount of volume, and take the best prices that others are currently offering. In this case, you will buy at the ask price, and sell at the bid price.
- Limit order, where you specify a volume and price to offer into the centralized limit order book. Your order will sit there along with the others, and you need to wait for takers before your order gets executed.
For example, if you were to submit a market order to sell 0.5 Bitcoin in the above marketplace, the trade would happen instantly and you would get 0.46448645 of your Bitcoin sold at $6,860.06, and the remainder at $6856.50. If you were to submit a limit order to sell the same amount of 0.5 Bitcoin, you would need to specify the price. If you sent in your order at $6860.50, then your trade would not happen right away. It would sit on the “ask” side of the centralized limit order book and become the new best price on offer. But you’ll have to wait for another trader to come along and take you up on it. You may also see the centralized limit order book represented in a market depth chart, like the below one from CEX.io. This shows the centralized limit order book in graph form. Prices are on the x-axis, total volume is on the y-axis. It is less precise, but gives a quicker-to-understand picture of where the market is currently at.
How To Buy Altcoins
Every crypto exchange offers Bitcoin as an option to trade. Many will also offer the ability to buy some of the other largest cryptos directly with fiat. For instance, you might be able to use US dollars to buy Bitcoin, Bitcoin Cash, Ethereum and Litecoin – but the exchange might not offer a direct market between US dollars and some of the smaller cryptos (called altcoins – which is short for “alternative coins”). So to buy altcoins which aren’t covered by fiat, you will need to take two steps: 1. First, trade fiat money (e.g. US dollars) to buy a “base” crypto such as Bitcoin. 2. Next, trade your “base” crypto for the altcoins. If you want to sell your altcoins, you will need to do this process again, in reverse. Historical Price Charts It is also interesting to look at what the historical cryptocurrency trading price has been over time.
You will encounter graphs like this one from CEX.io.
This is called a candlestick graph. It shows:
- The time range (which can be adjusted to show a longer-term picture, or a more-detailed short-term view)
- The volume traded during the time period (represented by the bar graphs).
- The price range within the time period selected
- The top of the line is the maximum price it reached
- The bottom of the line is the minimum price it reached
- The box shows whether the stock closed higher or lower than it opened. If the box is red, it closed lower than the opening price. If the box is green, it closed higher than the opening price. The box itself shows the difference between the opening and closing prices.
What Drives The Price In Cryptocurrency Trading?
Finally, a word on what drives the cryptocurrency trading marketplace. Ultimately, it’s the forces of supply and demand that push the price of a crypto higher or lower. This supply and demand can be influenced by factors such as:
- Growth in the specific crypto’s community and user base
- Media coverage
- Validation from major crypto thought-leaders
- Being accepted onto major exchanges
- Security reputation
- Sentiment over the crypto space in general