There are many ways to profit (or lose money) from trading crypto. We break down how to trade cryptocurrency in Canada, including trading methods to consider and platforms that let you buy and sell crypto.
How to trade cryptocurrency in Canada: 5 easy steps
1. Research crypto investing to find out if it’s right for you
Cryptocurrency is a notoriously volatile asset, and it’s possible to lose substantially. Read guides, explore the blockchain and observe moves made by experienced traders to see if crypto trading suits your investment goals.
Remember to never trade more than you can afford to lose. Speak with a professional financial adviser before getting started.
2. Decide if you want to do long-term or short-term trading
Traders are typically divided up into 2 groups: long- and short-term. Both are very different.
Long-term trading
Long-term traders buy and hold cryptocurrencies for weeks, months or even years, with the intention of selling at a profit or using it later.
Short-term trading is about taking advantage of short-term cryptocurrency price swings by creating and executing a trading strategy.
It’s more active, stressful and risky than long-term trading, but it also offers faster and larger potential returns for those who do it right. It also lets you profit from crypto prices dropping as well as rising.
3. Choose the trading method that’s right for you
The next step is choosing a trading method. Some crypto exchanges offer several different types of trading. For instance, there are 3 main methods of making short-term cryptocurrency trades.
A. Trade cryptocurrencies directly against each other
You can trade a pair of cryptos against each other or against fiat currency, with the goal of making a profit through buying low and selling high. This might mean buying a cryptocurrency before an important event (for example, Cardano adding smart contracts) and selling it into a stablecoin once the hype begins to wear off.
If you do it right, your funds grow. If you do it wrong, your funds shrink over time, as bad trades and changing markets can eat away at your holdings. The value of your crypto will rise and fall, but there’s no risk of immediately losing all your money to a bad trade. This method requires timing the market accurately, which can be difficult and requires a lot of research.
Good for: Avoiding excessive risks, keeping things simple.
Not so good for: High-risk/high-reward strategies, profiting from markets dropping.
B. Trade cryptocurrency derivatives
You don’t have to own any cryptocurrency to trade crypto derivatives. You can “bet” on the markets instead. However, this is a complex strategy that’s only suitable for experienced traders, as it can be a fast way of losing money.
There are several types of derivatives, such as futures, options and perpetual swaps, which are different but can be used simultaneously.
Crypto derivatives trading often includes using leverage, which can substantially magnify gains and losses. Traders can also open short positions to directly profit from cryptocurrency price drops, mitigate their risks by hedging and make big trades even if the markets are relatively quiet.
Good for: Leverage, large profits (or losses) even in flat markets, fast gains or losses, high-risk/high-reward strategies, flexibility in any market conditions.
Not so good for: First-time cryptocurrency traders.
C. Trade cryptocurrency CFDs
Cryptocurrency CFDs (contracts for difference) are a specific type of derivative that lets you place bets on the price movement of an asset. Like other derivatives, they let traders go long (bet on price rises) and short (bet on price drops), and utilize leverage without owning the underlying asset.
Unlike other derivatives, CFDs don’t involve buying and selling derivatives in an open market. Instead, you’re just buying from and selling to whichever trading platform you’re using. While most cryptocurrency derivatives treat crypto as a commodity of sorts, CFDs typically approach cryptocurrency similar to forex trading.
Good for: Leverage, large profits (or losses) even in flat markets, fast gains or losses, people who are experienced with forex trading and want to try their hand at crypto.
Not so good for: Beginners; due to the elevated risks, the potential for larger losses and all the additional tools and jargon you’ll have to know.
4. Learn how to place trades and read charts
Before you start trading, you need to be sure cryptocurrency trading is right for your circumstances and that you understand the risks associated with it. You’ll also need to know how to read technical graphs and how various order types work.
Here’s an example from the Binance trading platform, showing the Bitcoin/USDT market with the important parts annotated. (Note that you can’t open a Binance account in Canada, but there are alternative platforms).
The red and green box at the top is the price chart. At the bottom is where you place your buy and sell orders. Sandwiched between them is where you can click through to derivatives if this is offered in your country. It’s a completely separate market, where people trade futures contracts rather than Bitcoin itself.
Let’s zoom in on the bottom section, where you place buy and sell orders. There are 2 things to pay attention to here: your order type and the amount you want to buy or sell.
In this case, Binance offers 3 basic order types: market, stop-limit and OCO.
Market. Place a buy or sell order at the current market price to execute your trade immediately.
Stop-limit. Once you select this, you will be prompted to choose a stop price and limit price. Once the asset (Bitcoin in this case) reaches the stop price, it will sell for at least the limit price if possible.
OCO “One cancels the other.” This is 2 stop-limit orders combined, where one cancels the other if it’s triggered. You will need to set an active duration for both stop-limit and OCO orders.
Market and stop-limit are the basic order types you’ll find on almost all exchanges, while OCO is a bit less common. Different exchanges will sometimes have additional order types or slightly different rules about how they can be placed.
5. Choose an exchange and start trading
When choosing a cryptocurrency trading platform, consider factors like the order types, derivatives and leverage is available and how easily it integrates with crypto trading bots. High-volume traders should also consider how fees will impact their overall profit.
More investors looking for the best crypto exchange in Canada
According to results from the Finder: Consumer Sentiment Survey Q1 (CSTQ1), approximately 1 in 5 Canadians either invest or trade in cryptocurrency.(1)
However, investor confidence seems to ebb and flow. On average, just over 1 in 5 investors (21%) considered the first quarter in 2023 (between January and March) to be a “good time to invest in cryptocurrency,” according to results from CSTQ1. Crypto trader confidence dropped slightly between April and June, with an average of 18% of investors who thought it was a “good time to invest in cryptocurrency,” according to Finder: Consumer Sentiment Survey Q2 (CSTQ2).(2)
In general, younger investors and men were more likely to trade in cryptocurrency. According to CSTQ1 results, 26% of Gen Z investors trade crypto, compared to 21% millennial investors, 19% of Gen X investors and 6% of Baby Boomers. On average, 23% of men hold crypto, compared to 15% of women.
How to make a crypto trading plan
The difference between gambling and trading is having a plan. The most important part of creating a plan is ensuring it suits your specific trading goals. In general, a trading plan involves a three-step process:
1. Look for patterns
The basic principle of reading charts and creating trading plans is to look for patterns in previous price movements and then use those to try and predict future movements.
Some patterns emerge frequently enough across multiple markets that they’re given their own names, such as resistance and support. Others can be much more obscure and aren’t given names of their own.
For example, if you think Bitcoin goes up when Ethereum goes down, or that Bitcoin rises when the US dollar falls relative to the Chinese renminbi, or anything else you can think of, that could be a pattern you can trade on.
While patterns can be very helpful for traders, it’s worth remembering that past performance is not always a reliable indication of future performance.
2. Make a plan and stick to it
The following are the two basic components of a trading plan:
A point where you take profits
A point where you cut your losses
For example, someone’s basic plan might be to sell 33% of their Bitcoin for every US$1,000 the price goes up (taking profits) or to immediately sell all their Bitcoin if prices drop below the current support line (cutting losses). To lay out this plan, they could set up a series of stop-limit orders.
This is not necessarily a good plan, but it would ensure that the amount they gain or lose is within sensible boundaries no matter what the market does.
As traders get more experienced, they can create increasingly sophisticated trading plans that tie together more market indicators and allow for much more nuanced trading strategies.
Experienced traders typically use cryptocurrency trading bots to execute their strategies because they tirelessly follow complex trading plans faster and more reliably than a human ever could.
3. Experiment
It’s good to test trading theories before throwing real money at them. Paper trading or backtesting can be useful here. Both features are often found on trading platforms.
Paper trading is a way of using fake money on markets, so you can test a trading strategy in real, current conditions. Backtesting is when you put a trading strategy through historical market movements to see how it would have performed.
If you’re a beginner trying to get your head around the basics of reading charts and spotting patterns, you may want to read the step-by-step guide to cryptocurrency technical analysis for a sense of how to start spotting patterns.
What to watch out for
Cryptocurrency trading incurs many of the risks of trading on any other market as well as some unique challenges.
Volatility. Cryptocurrency is volatile. This is one of the things that makes it attractive to traders, but it also makes it very risky. Double-digit intra-day price swings are common, and drastic shifts can happen in just minutes.
Unregulated, manipulated markets. Compared to traditional markets, crypto is largely unregulated. Crypto is highly volatile, and market manipulation is common. It’s relatively easy for wealthy “whales” to manipulate prices and force liquidations.
Inaccurate patterns. Markets will often follow patterns, but often they won’t. This is a risk when trading anything, but the unique characteristics of the cryptocurrency market mean it’s a particular challenge there.
Being over-exposed. Don’t bet more than you can afford to lose. Limit your exposure and consider setting up “take profit” and “stop loss” orders to limit your exposure in the event of drastic swings.
Using excessive leverage. Many cryptocurrency exchanges will offer up to 100x leverage, dramatically magnifying the potential risks. The volatility of cryptocurrency, combined with high leverage trading, can see positions be liquidated extremely quickly.
Not knowing when to fold. Whether you’re up or down, it’s important to know when to close a position and either take profits or cut your losses.
Crypto trading vs stock trading
Crypto trading involves buying and selling digital assets through a cryptocurrency exchange. Crypto and stock trading both rely on identifying trading opportunities and managing risk, but crypto markets are generally considered riskier and more volatile, and liquidity is comparatively low.
Stock trading involves buying and selling stocks through a stock exchange. Cryptocurrency markets are open 24/7, while stock markets have set opening and closing hours.
Stocks represent fractional ownership of a publicly listed company. Shareholders may be protected by national securities regulators. Some stocks come with company voting rights and dividends. Cryptocurrency ownership doesn’t necessarily entitle you to anything other than the asset itself.
Bottom line
Trading cryptocurrency can be a money maker for some, but it’s also very risky. Research different trading styles before you buy to find a strategy that matches your investment goals and risk tolerance.
Crypto is volatile. Even advanced traders can lose all their capital through a few bad trades. Don’t begin trading until you understand how the market works and have thoroughly researched different types of cryptocurrency. When in doubt, consult a financial adviser.
There's no single best way to trade cryptocurrency. It depends on your long- or short-term investment goals. Focus on sticking to a trading strategy like following market patterns, setting limits on losses/profits or diversifying your assets.
Start off by setting a goal and developing a strategy. This will help with working out the next steps, like choosing a trading platform that meets your requirements and figuring out which cryptocurrencies to trade.
Crypto trading can be profitable. Some experienced investors make a living just by trading digital currencies. But it's also very risky and not suitable for everyone. Crypto is very volatile. It's easy to lose, especially if you trade with leverage. Never invest more than you can afford to lose.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Sources
The results of the Finder: Consumer Sentiment Survey Q1 (CSTQ1) were collected through an online Pollfish survey conducted between December 2022 and January 2023. In the survey, 1,846 Canadians from across the country were asked about their current banking services and their intentions and motivations for new banking products. The estimated margin of error for the survey is +/- 3%, 19 out of 20 times.
The results of the Finder: Consumer Sentiment Survey Q2 (CSTQ2) were collected through an online Pollfish survey conducted between April 27 to 29, 2023. In the survey, 1,011 Canadians from across the country were asked about their current banking services and their intentions and motivations for new banking products. The estimated margin of error for the survey is +/- 3.08%, 19 out of 20 times.
Andrew Munro was the global cryptocurrency editor at Finder, covering all aspects of cryptocurrency and the blockchain. Andrew has a Bachelor of Arts from the University of New South Wales.
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