In this article you will learn all you need to know to start trading crypto safely, from the platforms on which to trade crypto, the risks every beginner should know, terminology and techniques used such as technical vs fundamental analysis. Read on to start your new foray into the world of trading crypto.
Cryptocurrency and its benefits
A cryptocurrency is a blockchain-based digital asset that uses cryptography to secure its network. Cryptocurrencies tend to be decentralized, meaning they are not subject to control from a centralized government or financial institution. They use a peer-to-peer network, called blockchain, to facilitate transactions between their users. With cryptocurrencies becoming more widespread, scammers and fraudsters have been popping up trying to steal cryptocurrency from vulnerable investors.
Cryptocurrencies offer numerous benefits for individuals and businesses:
-They are pseudonymous, meaning that people who use cryptocurrency cannot be tracked or traced by governments or other third parties, unless they use centralized services tying them to particular addresses.
-They are secured by encryption.
-They can be used for payments anywhere in the world, without the need for a bank account or credit card.
How can a beginner get started trading crypto?
In order to begin trading cryptocurrency, make sure to register with a cryptocurrency trading platform. Crypto exchanges are online platforms allowing you to trade one cryptocurrency for another or for traditional currency. The main distinction between different exchanges is whether the exchange is centralized or decentralized.
Centralized exchanges control the trading via their centralized custodial venues. These exchanges have been criticized for security issues and their susceptibility to hacks. On the other hand, decentralized exchanges are venues where cryptocurrencies are traded peer-to-peer without an intermediary. These exchanges are more secure than centralized exchanges, but they can be less efficient.
Cryptocurrency exchanges are complex platforms matching crypto buyers and sellers, but trading on them doesn’t need to be that difficult. Once you decided whether to use centralized or decentralized exchange, all you need to do is to pre-fund your account via your preferred option, place an order, and then store your acquired crypto.
Trading vs investing, how can a beginner tell the difference?
Trading is the continuous activity of trying to time the market by buying and selling cryptocurrency (though more traditionally associated with stocks and shares) or other digital assets on an exchange. Traders use trading platforms to buy and sell cryptocurrencies at the right time, depending on the market conditions, hoping to pocket profits by doing so.
Investing refers to less active purchasing of crypto where an investor enters a long position on assets he thinks will appreciate in time. But where trading is more often for short-term gain, investings’ focus is on making long-term gains. Cryptocurrency trading is similar to investing in that you are hoping to make a profit, it’s just accomplished through different means. However, cryptocurrency prices tend to be much more volatile than regular stocks and bonds, therefore trading cryptocurrencies comes with an increased risk.
How to trade cryptocurrency?
There are several factors to consider in order to start trading cryptocurrency. Same as with investing, the first step is to find an appropriate trading platform, such as Redot. When you will be trading actively you want to make sure the platform offers all the necessary features allowing you to perform research and execute trades via advanced trading tools. Once you found the right platform, you will need to create an account and register with an email address. Next, you will fund your account and you will be good to start trading.
The process of buying and selling cryptocurrency is relatively simple, but it does require some level of knowledge in order to make informed decisions. It is also important to keep in mind that cryptocurrency prices are volatile, so it is important not to rely too much on historical data when trading. Instead, you should use technical analysis to help you make informed trading decisions.
What are the risks of trading cryptocurrency every beginner should know?
There are a number of risks associated with trading cryptocurrency every beginner should know. The most common risk is that you may not be able to recover your losses if the price of cryptocurrency falls sharply. Another risk is that you may opt for an unreliable trading venue that doesn’t meet your needs. Cryptocurrency values can be very volatile, so it is important to do your own research to make sure that your decisions are as informed as possible. Another risk is prevalent pump&dump trading to which many traders fall victim due to hopes of easy and quick profits.
What are the pros and cons of cryptocurrency trading every beginner should know?
The main pros of cryptocurrency trading are promises of greater profit if executed well. Professional traders who learn to time the market and enter/exit positions at the right moment can lock in high earnings. However, if doing so was easy, everyone could be a trader, which clearly isn’t the case. If you can devote sufficient time to analyzing markets and planning the strategies, trading might be for you. If you don’t have what it takes though, you will certainly fare better if you only focus on value-based long-term investing.
Trading vs. investing – how can a beginner know the difference?
The difference is subtle and lies in the frequency with which you place your orders and whether you actively speculate on market direction. If you just buy an asset and then HODL for years, it’s certainly investing. On the contrary, if you buy an asset and then in a couple of days you feel like selling because of recent macro factors just to buy another dip later, you can certainly call yourself a trader.
What is a market trend for beginners?
A market trend is a long-term pattern that can be observed in the prices of assets as they’re traded on crypto exchanges. Cryptocurrency markets are notoriously volatile, which means trends can be difficult to identify and follow. However, if you are actively trading cryptocurrencies by speculating on prices, it is important to stay aware of any patterns that may be emerging in the market. These trends are being identified using different tech indicators, trendlines, and price actions.
When the general direction of the market is increasing we’re speaking about an uptrend. Uptrend doesn’t mean that there can’t be a single drop in price in the short-run, but the overall trend should be pointing towards an increase. During the falling markets, we’re speaking about downtrend. It’s the opposite situation from uptrend where the general direction of the price is pointing towards a decrease in value of an asset.
Fundamental analysis vs. technical analysis – the beginners guide?
The best method for trading cryptocurrency may vary depending on your individual investment goals and preferences. However, if you are looking to invest in cryptocurrency for the long term, fundamental analysis is likely a more reliable strategy than technical analysis.
Fundamental analysis looks at the intrinsic qualities of an asset that should drive the price up in a long run since the asset’s use cases will create natural demand for the coin/token. Such analysis requires a detailed outlook of tokenomics, the team behind the token, its ability to market the product, the technology stack behind the platform, etc. If the project has strong fundamentals, it lines up well with long-term investments as the investor can be confident that regardless of short-term downtrends, the project has what it takes to deliver in a long run.
Technical analysis involves analyzing charts and trading signals to make decisions about whether to buy or sell an asset, but it can be riskier than relying on fundamental analysis. Technical analysis is a base for trading that relies more on charts and numerical values to make trading decisions. These values can be affected by factors such as price action, volume levels, and Bollinger Bands. However, technical analysts often disagree about which factors are most important for predicting future prices. There are many variables coming into this equation, with some of them not that obvious in the first place.
Let’s say you’re about to do a fundamental analysis on Ethereum. The first thing you might want to check is the Ethereum team. With Vitalik Buterin, probably the most influential crypto figure, in their ranks, the team would likely score very high. The next thing to look at would be tokenomics and whether ETH provides its holders sufficient value in return for their investment. To put it mildly, Ethereum did have a questionable start with its premine and a rather generous remuneration model skewed towards founding team members. While it could be something that might raise red flags, the team managed to persuade a huge amount of people to invest and participate in the network, hence most likely overcame this initial hiccup.
An important aspect to consider is Ethereum’s current transition from PoW to PoS which turns ETH holders to stakers generating yield on their holdings, hence making the ETH investment even more interesting. Generally, ETH tokenomics revolves around using ETH to pay for gas fees, therefore creating a demand for the token between the users interacting with the Ethereum blockchain.
You also probably want to look at the community size and whether this community can grow further. A large community implies vast decentralization which is something that blockchain users strive for. Without decentralization, immutability becomes only a word and crypto evolution is just another hyped event in history with a justification.
This way, you will proceed with all pre-determined criteria to see whether the asset of interest ticks all the boxes of an investment that should yield desired results.
This approach to forecasting future prices relies on analyzing past market conditions together with the current order book and other data. Many traders believe that if a sufficient amount of relevant data is analyzed, it’s possible to predict upcoming movements in asset prices. This analysis is often geared towards short-term trading strategies and requires continuous dedication to re-analyzing data depending on changing market conditions. Technical analysts typically work with volume and momentum indicators, price trends, chart patterns, moving averages, and support and resistance levels. Each of the methods requires a separate detailed guide which we aim to provide in a separate article.
So, we hope you now know all you need to start trading cryptocurrency. We wish you good luck with all your endeavors and forays into trading crypto and hope you enjoy your journey.
*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.