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How to trade crypto
Learn how to trade crypto in Canada with our step-by-step beginner's guide.
Wondering how to trade crypto in Canada? Whether you’re a total beginner or experienced investor, here’s how to buy crypto. Note that trading crypto is notoriously unpredictable and isn’t suitable for everyone. Prices can fluctuate wildly in a short period; profits and losses can be made quickly.
Key takeaways
- To buy and sell cryptocurrency, you need to open a crypto trading account and exchange fiat currency like CAD for any crypto you’re interested in owning.
- Crypto is considered a highly volatile and risky investment. Like stocks, you can profit or lose depending on whether your holdings go up or down.
- Crypto trading strategies depend on your investment style and whether you have short- or long-term goals. Study the market to understand price movements and find opportunities.
This is not an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade or use any services.
How to trade crypto in Canada
If you’re a beginner looking to start trading crypto, you’ll need a clearly defined strategy and a crypto trading account.
- Research the risks.Before you start trading crypto, do your own research, and decide whether trading is right for your risk tolerance and investment goals. Learn about different cryptocurrencies, how they work and their potential use cases.
- Choose an exchange.There are many exchanges available, so research the most reputable and secure ones to ensure the safety of your funds. Consider the fees, trading pairs and liquidity of the exchange to choose a platform that best suits your needs.
- Choose a trading pair.A trading pair is a combination of two currencies you can trade against each other. For example, BTC/CAD is a trading pair where Bitcoin is the base currency and the Canadian dollar is the quote currency. Choose a pair based on your research and trading strategy.
- Choose a trading strategy.You can use several strategies, such as day trading, swing trading and trend trading. Each strategy has advantages and disadvantages, so choose one that aligns with your goals and trading style.
- Stick to your plan.Once you have a trading plan, stick to it. Trading can be high-stress, so take the emotion out of it and stick to your plan. Don’t let fear or greed guide your decisions, and always set stop-loss orders to limit your losses.
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What is crypto trading?
Crypto trading refers to buying and selling cryptocurrencies through an exchange or trading platform. Similar to traditional stock trading, crypto traders aim to profit from price fluctuations in the market by buying low and selling high.
Trading typically involves using technical analysis tools and market research to identify potential opportunities and make informed decisions. Traders can choose from various styles, including day, swing and position trading, as well as strategies such as range trading or mean reversion.
Why do people trade crypto?
Cryptocurrency trading has become increasingly popular in recent years due to its unique characteristics like decentralized networks and the potential for high volatility. Here are some of the most common reasons people trade crypto:
- Potential profits. Bitcoin and other cryptocurrencies have a reputation for being highly volatile, which means there is the potential for large gains or losses in a short amount of time.
- Decentralization. Unlike traditional financial systems, which are centralized and controlled by governments or financial institutions, cryptocurrencies are decentralized and operate on peer-to-peer networks. This appeals to people who value the idea of a decentralised financial system that is not controlled by any single entity.
- Anonymity. Many blockchains offer a degree of anonymity that traditional financial systems cannot match. This is attractive to people who value privacy and want to keep their financial transactions confidential.
- Diversification. Cryptocurrency is a relatively new asset class and investing in it can help with portfolio diversification. By diversifying investments, traders have the potential to hedge against other asset classes.
- Access to new investment opportunities. Crypto has opened up investment opportunities previously unavailable to investors. This includes the ability to invest in blockchain technology, DeFi, NFTs and other new crypto-related ventures.
Crypto trading vs stock trading
Crypto trading involves buying and selling digital assets through a cryptocurrency exchange or trading platform, while 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.
A major difference between them is that stocks represent fractional ownership of a publicly listed company. In Canada, this comes with certain consumer protections and shareholder rights. Conversely, the use cases for cryptocurrencies are incredibly diverse and ownership doesn’t necessarily entitle you to anything other than the asset itself.
Crypto and stock trading both rely on identifying trading opportunities and managing risk, but crypto trading is generally considered higher risk due to these markets’ inherent volatility and comparatively low liquidity.
How does crypto trading work?
Crypto trading involves buying and selling digital currencies like Bitcoin, Ethereum and other altcoins. Traders aim to capitalize on market price fluctuations by speculating on the future value of these assets.
They can either go long, venturing that the price will increase, or go short, anticipating a decrease. Crypto trading operates 24/7 and offers opportunities for short-term and long-term investments.
There is no one-size-fits-all approach to trading, as each person has a unique market perspective and strategies often differ depending on market conditions, risk tolerance and investment goals.
Example crypto trade
Let’s say you have done your research and identified Ethereum (ETH) as a potential buy opportunity. You believe it has strong fundamentals, including an upcoming development advancement and potential for long-term growth. You’ve also evaluated the technicals and identified a bullish chart pattern and positive indicators.
You decide to enter a long position on ETH by buying 10 coins at a price of $4,000 per coin, using a total of $40,000 of your trading capital. You set a stop-loss order at $3,700 to limit your potential losses.
Later, the price of ETH rises to $4,500 per coin. Following your trading plan, you close your position and take profits. You sell your 10 coins for a total of $45,000, making a profit of $5,000 (12.5%) on your initial investment.
In this example, you used fundamental and technical analysis to identify a potential buying opportunity and managed your risk by setting a stop-loss order. You also had a profit target in mind and closed your position when the price reached your target.
It’s important to remember that not all trades will be profitable. Implementing a solid trading plan and risk management strategy is crucial to success.
How to choose the best crypto to trade
Choosing the best crypto to trade depends on several factors, including your trading strategy, risk tolerance and market conditions. Here are some key factors to consider:
- Research the market. Do your research and stay informed about the latest market trends and news. Look for cryptos with clear technical patterns or strong fundamentals—depending on whether your strategy is long-term position or intraday trading.
- Consider liquidity. Liquidity is crucial in trading, as it affects the ease of buying and selling. Choose cryptocurrencies with deep liquidity, as they tend to have lower bid-ask spreads and offer lower slippage.
- Look for volatility. Volatility is essential as it provides profit opportunities. If you’re looking for short-term trades, it may be worth finding crypto that is showing a high level of volatility and wide price swings.
- Evaluate the competition. Evaluate the competition of the coin or token you want to trade. Consider factors such as the number of competitors, the technology used and the market share.
- Use technical analysis (TA). Analyze the technicals, such as price charts and indicators, to identify patterns and trends. Correctly using TA can help determine your trades’ best entry and exit points.
Remember, there is no one-size-fits-all approach to choosing the best crypto to trade. It’s essential to have a plan and risk management strategy that aligns with your goals and trading style.
Related: How to buy Bitcoin in Canada
Crypto trading strategies
Crypto investors are typically divided into two groups—long-term and short-term traders. While every trader has a unique approach to the market, basic guidelines for these groups are as follows:
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.
This might be your style if you think crypto will rise in value in the long run and don’t want the stress of actively trading.
Short-term trading
Short-term trading is about taking advantage of short-term cryptocurrency price swings.
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.
Day trading
Day trading crypto involves buying and selling within a single trading session—usually within a few minutes to a few hours. Day traders, otherwise known as scalpers, use technical analysis, order flow and other tools to identify short-term opportunities and make quick trades based on market conditions. Charts used by scalpers are typically 1 minute to hourly.
Although day traders’ profit targets are generally much smaller than swing traders, the aim is to take advantage of small price fluctuations many times throughout a trading session. This advanced style of trading is often associated with using leverage and derivatives.
Swing trading
Swing trading is a strategy that involves longing or shorting Bitcoin and other cryptocurrencies over a medium-term period, typically several days to weeks, to profit from price movements.
Swing traders aim to take advantage of more significant price movements than day traders while minimizing the risks associated with long-term investments. Swing traders use technical analysis and charting tools to identify trading opportunities, usually monitoring charts from the 1 hour to daily.
Position trading
Position trading involves buying and holding cryptocurrencies for a long-term period, typically several months to years, with the aim of profiting from long-term trends and growth in the crypto market.
Position traders use fundamental analysis and market research to identify promising cryptocurrencies and hold through market fluctuations. This strategy requires a strong conviction in the long-term potential of the assets being held and a willingness to weather short-term volatility.
Position traders monitor a range of high timeframe charts, as well as news events and market fundamentals.
Derivatives trading
Crypto derivatives allow traders to speculate on the price movements of an underlying asset without holding the asset itself. For example, an Ethereum derivative contract will represent the price of ETH but will not be able to be withdrawn or transferred on the Ethereum blockchain.
Derivatives include crypto futures, margin and options and often involve leverage. This trading style is more complex and risky than traditional spot trading and requires a good understanding of the underlying assets and market dynamics.
Expert insight
"An unfortunate combination of leverage, impatience, and emotional trading is a common trend in the crypto market. Fortunes have been won and lost with leverage, and new traders should strive to avoid using leverage and maintain a cautious approach."
How to read the crypto markets
Diving into the world of crypto trading requires a solid understanding of the various analytical tools at your disposal. Key tools for reading the crypto markets include technical, fundamental and on-chain analysis. These approaches can help you make well-informed trading decisions, optimize your strategies and navigate the volatile digital asset landscape.
Technical analysis
Technical analysis is a trading technique used to forecast future price movements based on past market data. Technical analysts use patterns, trends and indicators to identify potential trading opportunities and manage positions.
Fundamental analysis
Fundamental analysis involves analyzing the underlying factors that affect the value of a cryptocurrency, such as technology, adoption and regulatory developments. Following the fundamentals can help you make more informed decisions about buying or selling based on its intrinsic value and potential long-term growth prospects.
On-chain analysis
On-chain analysis is a method of analyzing a blockchain to gain insights into its network activity, such as transaction volume, miner and staker activity and wallet balances. Due to the transparent nature of blockchains, on-chain data can provide valuable information, such as the cryptos held by a whale or institutional investors.
Is it safe? Crypto trading risks
Cryptocurrency trading incurs many of the risks of trading on any other market as well as some unique challenges.
- High volatility. Cryptocurrencies are known for being volatile and can experience significant price fluctuations within a short period. This means traders may experience significant gains or losses in a short timeframe.
- Market risks. The crypto market is largely unregulated and can be influenced by a wide range of factors, including economic, political and social events, making it difficult to predict.
- Cybersecurity risks. Cyber attacks, hacks and phishing scams are common in the crypto world and can lead to the loss of funds.
- Lack of liquidity. Some markets may lack liquidity, which makes it difficult to buy and sell quickly without suffering slippage losses.
- Human error. Traders aren’t immune from making trading or analysis mistakes that can lead to loss of capital.
- Being over-exposed. Don’t go in for 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.
- Not knowing when to fold. Whether you’re up or down, knowing when to close a position and either take profits or cut your losses is important.
- Tax implications. Be aware of the tax liabilities associated with trading cryptocurrencies, as profits may be subject to capital gains tax or other applicable taxes. Consider tracking your trades with dedicated crypto tax software and consult a professional to ensure compliance and proper reporting.
Where to trade crypto in Canada
1 - 6 of 10
Finder Score for crypto exchanges
To make comparing even easier we came up with the Finder Score. Supported coins, account fees and features across 28 cryptocurrency trading platforms are all weighted and scaled to produce a score out of 10. The higher the score the better the exchange - simple.
Dive deeper: Best crypto exchanges in Canada
Crypto is drawing attention from Canadian investors
According to results from the 2023 Finder: Consumer Sentiment Survey Q1 (CSTQ1), approximately one in five Canadians either invested in or traded cryptocurrency.
However, investor confidence seemed to ebb and flow. On average, just over one in five investors (21%) considered the first quarter in 2023 (between January and March) to be a “good time to invest in cryptocurrency.” Crypto trader confidence dropped slightly between April and June, with an average of 18% of investors thinking it was a “good time to invest in cryptocurrency,” according to Finder: Consumer Sentiment Survey Q2 (CSTQ2).
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.
Bottom line
Trading Bitcoin and other cryptos can be a lucrative venture. However, cryptocurrency markets are highly volatile and the risk often outweighs the reward. Even the most experienced traders aren’t immune to losing streaks.
Before trading cryptos, ensure you’re familiar with the market and have a solid trading plan and risk management strategy implemented. Choose an exchange or trading platform that suits your strategy, and practice trading on small size or a demo account to get a feel for the platform and its features.
Never rush into trades. Monitor the charts and wait for an opportunity that aligns with your strategy before executing. The crypto market never sleeps, so there’s no need to feel like you’re missing out if you don’t have an open position.
How to trade crypto in Canada: FAQs
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.
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