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The value of cryptocurrencies is increasing. In 2017 bitcoin (BTC) grew from around £600/BTC to over £8,000/BTC. With such growth comes an increase in market trading, which in turn helps the currency keep growing.
It can be a good choice for cryptocurrency beginners because you don’t need your own cryptocurrency wallet, and you can get a feel for the market movements without needing to buy it outright.
Disclaimer: Highly volatile investment product. Your capital is at risk. 66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Copy the trades of leading cryptocurrency investors on this unique social investment platform.
The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. Your capital is at risk.
Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.
All of the following platforms are available in the UK and offer cryptocurrency trading.
Some of the main differences you’ll find include:
Market trading of any asset is risky and cryptocurrencies are very volatile. There is no guarantee of a return of investment. As always you should never trade with capital that you aren’t prepared to risk losing.
Market trading might sound like something reserved for the financial elite, but the growth of cryptocurrency is accompanied by the growth of online currency exchanges and trading platforms where anyone can take part in market speculation. You just need to know how it works.
Foreign exchange (forex) market trading is the buying and selling of currencies between traders. In its simplest form, you’re betting on the changing price difference between two different currencies.
You open an account and deposit funds into it. These funds are then used to place buy and sell orders against another currency. You make profits from selling, or closing orders at a higher price than you bought.
Read a beginner’s guide to forex trading here.
To start trading, you deposit funds into your account. When you bet correctly the funds in your account increase. When you bet incorrectly, the funds in your account decrease.
With leverage, you can magnify your profits and losses.
For example, say you placed a US$1,000 trade on bitcoin increasing in price, without leverage. If its price increased by 10%, compared to the US dollar, during the trade period your profits would be US$100, minus any trading fees.
But if you traded with 10:1 leverage, your profits would be 10 times that, minus the trading fees.
As you can see, the sharp price movements of cryptocurrencies, combined with leverage, can quickly produce substantial returns.
However it goes both ways. If the price starts dropping, leverage might chew through your deposited funds quickly.
Trading cryptocurrencies works exactly the same, but instead of selling and buying fiat currencies, such as euros or US dollars, traders buy and sell cryptocurrencies, such as bitcoin, Ethereum or Litecoin.
For example, you might bet on the changing price difference between the US dollar and bitcoin. Or you might bet on the changing values between two different cryptocurrencies, such as by trading a BTC:ETH pair.
If you think bitcoin will increase in value you might “go long” on it. This means betting that it will increase in value relative to the US dollar.
If you think bitcoin will decrease in value you might “short” it instead. This means betting that it will decrease in value relative to the US dollar.
You’re not actually buying the cryptocurrency. Instead, you’re just placing an order on the market.
Just like forex market trading, cryptocurrency trading works by exchanging one currency into another and back. You will usually exchange a fiat currency into a cryptocurrency and then, at a later date, back into a fiat currency, although there are traders and exchanges that allow cryptocurrency-to-cryptocurrency trading.
For example, let’s take a look at the BTC to USD chart for 2017:
Bitcoin to USD price chart, November 2016 – November 2017Yahoo Finance
We can see here, that as 2017 progressed, the value of bitcoin in comparison with the dollar, grew from just under US$1,000/BTC on 1 January 2017 to over US$10,800/BTC in the last week of November 2017.
There are two types of trading available to traders interested in market trading cryptocurrencies:
Long-term traders buy and hold cryptocurrencies over a long period. They may hold a cryptocurrency for weeks, months or even years. Studying price trends over a long period allows long-term traders to make informed decisions and avoid suffering from short-term dips in value.
If you believe the value of a cryptocurrency will grow steadily over a long period and don’t want the stress that comes from short-term value dips, then this method might be your best choice.
Short-term trading eschews the stability of long-term trading for the possibility of taking advantage of short-term price swings and involves buying and selling cryptocurrencies over the span of a day or a few hours.
If you’d rather take advantage of the characteristic volatility of cryptocurrencies by getting in and out of a trade quickly, then this method might be for you.
Trading cryptocurrencies, while similar to trading fiat currencies on forex, comes with its own set of advantages.
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If you’re not careful when it comes to cryptocurrency trading, you could find yourself gambling more than you’re trading, and eventually you might lose all your money. Trading is not a game, and just as there is real money to be made, there is real money to be lost. Doing your research and keeping the following concepts in mind when trading could help you avoid the pitfalls of cryptocurrency trading.
The number one thing you’ll need to keep in mind when it comes to cryptocurrency trading is that the price is extremely volatile. Where certain trade techniques used in forex might take months to come to fruition, in cryptocurrency trading, it could only take hours or days. While this is beneficial when it comes to making a profit, it could also be your downfall if the price moves the other way.
In September 2017, Litecoin’s value fell more than 50% in two weeks. The recovery to its previous value took more than two months. Cryptocurrencies not only take large steps in value both up and down, but they also do so in very short spans of time.
Compare this movement to the chart of euros to US dollars for the same time period.
In August 2017, US$1 was worth EUR€0.8457. In November 2017, US$1 is worth EUR€0.8375. That’s a difference of only EUR€0.0082 per US$1.
Many market-trading books and guides cover certain chart-reading techniques and patterns used to predict the market by professionals. While the market does sometimes follow patterns, this is never a guaranteed outcome, and unless you limit your exposure, you could end up losing a lot of money over a pattern that does not exist.
Limiting your exposure comes down to two specific concepts:
Leverage is money that a broker loans you. It’s wise to stay away from leverage until you’ve learned everything you can learn about making trades with your own money. While leverage can help you make greater profits with short cryptocurrency movements, it can also amplify your losses when the trade takes a wrong turn.
Always remember, leverage amplifies your winnings and your losses equally. As a beginner, the risks presented when using leverage are typically not worth the possibility of amplified profits.
You decide to trade US$2,000 to BTC. Additionally, you leverage another US$10,000 from your broker. Now you can buy 1.6 BTC at US$7,500/BTC. Later you sell at US$8,500/BTC, return the US$10,000 and you are left with US$3,600, a profit of US$1,600 on your initial US$2,000.
Unfortunately, this works the other way around. If the price of bitcoin had fallen to US$6,500/BTC instead, you would have lost US$1,600.
Always remember, leverage amplifies your winnings and your losses equally. As a beginner, the risks presented when using leverage are just not worth the possibility of amplified profits.
What market trading really comes down to is knowing when to close a trade. This is the crux of the operation. Getting into a trade is easy, knowing when to get out is hard, and that is where you should focus most of your learning. This again involves two different aspects:
Some trading platforms will suit your needs much better than others. It’s worth comparing them in detail and trying demos where available to find the one you like.
The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. Your capital is at risk.
Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.
After that:
Cryptocurrency brokers usually offer their own trading platform, and each broker’s system will be slightly different from one another. You will need to put in the time to learn how the platform works, where each feature is and how to utilise it.
When you first access a broker’s trading platform, you might feel overwhelmed. This is normal. Spend some time with it and continue doing your research. You will get comfortable with it in no time.
The old adage of “buy low, sell high” holds for cryptocurrencies just as it holds for any other sort of investment or trading. Cryptocurrency markets move up and down, and large movements up are often followed by sudden dips.
The best way to learn how to trade is to actually trade. There is no secret. Once you’ve learned all the theory, you’ll need to get your feet wet. Buy some cryptocurrency, set your limits and get started.
Just remember that it’s gambling. Go in expecting to lose your money and you’ll never be disappointed.
Cryptocurrencies are volatile by nature. They are not as stable as currencies that have had centuries to develop. Bitcoin is the oldest coin on the market, and it has only been around since 2009. Nevertheless, there are a number of things that can affect cryptocurrencies:
Trading cryptocurrencies works almost exactly the same as trading fiat currencies, and it will benefit you greatly to learn the theory behind trading currencies. While profits are never guaranteed when trading, you can take steps to protect yourself from heavy losses and to improve your understanding of how markets move.
There’s more to know than can be crammed into this guide, but the only real way to learn is by doing. This generally means picking a platform, setting aside some money that you don’t mind losing, and getting to learning.
Good luck!
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