Kraken Cryptocurrency Exchange
- Buy, sell and trade 185+ cryptos
- Low fees for active traders
- Advanced trading interface
Kraken Cryptocurrency Exchange
There are lots of ways to make a profit (or lose money) by trading cryptocurrency.
This guide explains where to begin, including choosing a trading style, how to devise a trading plan, what to look for in a crypto trading platform and risks to consider.
There are five steps to getting started:
Cryptocurrency is a notoriously volatile asset and active trading can result in substantial losses. Before getting started, it’s essential you understand how any crypto you’d like to buy works. Reading guides, exploring the blockchain and observing moves made by experienced traders are good ways to see if crypto trading suits your investment goals.
Remember to never trade more than you can afford to lose and consider chatting to a professional financial adviser before you get started.
Traders are typically divided up into two groups:
The investment strategies for both are very different.
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.
If you believe the value of a cryptocurrency will grow in the long run and don’t want the stress of actively trading, then this might be your style. A good first step is learning how to safely buy and hold cryptocurrency.
Short-term trading, or intraday 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. Another advantage of short-term crypto trading is that it lets you profit from cryptocurrency prices rising, as well as dropping, based on your strategic crypto trades.
The next step is choosing a trading method. This is important because they are all quite different and require different techniques. In some cases, the same cryptocurrency exchange will offer several different types of trading.
For instance, there are three main methods of making short-term cryptocurrency trades.
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.
You don’t have to own any cryptocurrency to trade crypto derivatives. You can “bet” on the markets instead.
Derivatives trading offers much more flexibility than simply buying and selling cryptocurrencies, but it’s also more complex and only suited to experienced traders. There are several types of derivatives, such as futures, options and perpetual swaps, all of which have their own nuances and 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. Derivatives can also be a very fast way of losing money.
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.
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.
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 Canada. 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 two things to pay attention to here:
In this case, Binance offers three basic order types: market, stop-limit and OCO.
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.
When choosing a cryptocurrency trading platform, consider factors such as what kind of order types it allows, whether it offers derivatives or leverage and how easily it integrates with cryptocurrency trading bots. High-volume traders will also want to consider fees and how they may impact profit margins.
According to results from the Finder: Consumer Sentiment Tracker 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 Tracker 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.
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:
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.
Historically, Bitcoin (BTC) is one of the highest-performing assets in the crypto trading world, making it one of the most profitable trades for crypto traders. While BTC has been valued at only a few cent, it’s also reached a record valuation high of $68,000 USD in November 2021.
The following are the two basic components of a trading plan:
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.
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.
While top-earning crypto traders can earn $180,000 USD or more, per year, it takes time and experience to master the skill of cryptocurrency trading. According to recruiter surveys, the average annual earnings for a crypto trader is just under $95,000 USD.
Cryptocurrency trading incurs many of the risks of trading on any other market as well as some unique challenges.
Trading cryptocurrency can be a good way for experienced investors to make a profit. There are lots of different trading styles to choose from, so do your research to decide which one meets your personal investment goals first.
It’s important to remember that trading crypto can be extremely risky. Crypto is a notoriously volatile asset, and even the most advanced traders can end up losing all of their capital on a few bad trades. Don’t begin trading until you are confident in your understanding of the markets, have thoroughly researched the best cryptos to buy and are up to date with the latest crypto news. When in doubt, it’s a good idea to consult a financial adviser.
The results of the Finder: Consumer Sentiment Tracker 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 Tracker 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.
Finder: Consumer Sentiment Tracker Q1 (CSTQ1),
When other traders are dumping their bags, it may be the time to deploy that cache of fiat you’ve been saving up. This article explores the strategies pro traders use to buy the dip.
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