Trading

Cryptocurrency Trading: What You Need to Know

Published, 22 November, 2019

One of the most common questions people new to crypto ask is: “How do I buy Bitcoin?” In this piece, we’ll answer this question and dive into the specifics of how cryptocurrency trading works. If you already own crypto and are looking to learn a little more about a specific aspect of trading, you can skip to the section that best suits your needs. In the case that you’re just starting out on your crypto journey, then this should serve as a good entry point to understanding the fundamentals of what trading is. If your goal is to earn more crypto, you might want to take a look at our BlockFi Interest Account (BIA). This is a simple way to earn crypto interest with an institutionally backed company in the U.S.

What Does Crypto Trading Mean and How Does It Work?

If you’ve ever purchased crypto before, you’ve traded cryptocurrency. It’s that simple – trading means exchanging one asset for another. In this specific case, you just happened to be trading traditional fiat currency for crypto. So crypto trading can be defined as: an exchange of assets where one or both sides of the exchange are cryptoassets.

If you’ve never purchased crypto before, the process might seem complicated. In actuality, trading crypto is quite straightforward. Here’s a simple overview of how you can complete your first cryptocurrency trade:

Find an exchange that offers the cryptocurrency you’d like to purchase. As a general rule, the lesser known a currency is, the harder it will be to find an exchange that offers it.
Make sure the exchange accepts your method of payment. Most major crypto exchanges will let you connect your bank account or debit card to purchase crypto. Credit cards used to be accepted by exchanges, but most major credit card companies no longer allow crypto purchases. In the case that you’d like to purchase crypto with cash, there’s no shortage of Bitcoin ATMs around the world.

In the two steps above, the process of trading fiat currency for crypto happens by using the crypto exchange as an on-ramp into the cryptocurrency of your choosing. If you ever decide you’d like to have fiat currency again, you can use a crypto exchange to trade your crypto back into fiat. Then, you can transfer the fiat currency into your bank account or cash it out at a crypto ATM.

In addition to trading fiat money into crypto, you can also trade cryptocurrencies for other cryptocurrencies. In fact, more advanced trading involves regularly, or “actively,” trading between cryptocurrencies. Ultimately, the way in which you decide to trade will depend on the reason why you’re trading crypto.

Why Do People Trade Cryptocurrencies?

Some of the most common reasons people trade crypto are noted below:

A way to invest in a new asset type
A way to diversify an investment portfolio
A safe haven from a hyperinflating currency
A career (i.e. day trader)

What Cryptocurrencies Do People Trade?

There are two main cryptocurrency categories: Bitcoin and altcoins. Altcoins refers to all cryptocurrencies that aren’t Bitcoin.

Some of the most popular cryptocurrencies that are traded on exchanges are Bitcoin, Ether, Litecoin, and stablecoins. In total, there are over 4,000 different cryptocurrencies. That’s more than the number of stocks on the New York Stock Exchange. This is one of the main reasons traders love crypto: it provides thousands of options.How Do You Select the Best Cryptocurrency Exchange?

How Do You Select the Best Cryptocurrency Exchange?

When selecting an exchange that you’ll be trading on, there are several factors to take into consideration. The top three things to keep in mind are:

Safety
- Who created the exchange?
- Where did they receive funding?
- Where are they located?
- How do they profit?
- What safety measures do they take to secure your funds and identity?
  - Do they offer Two-factor authentication (2FA)?
  - Do they offer Allowlisting?
  - Have they ever been hacked?
Regulations
- Does the exchange operate in compliance with your local, state, and federal laws?
Exchange Fees
- What are the exchange fees associated with trading?
  - Exchange fees vary from exchange-to-exchange and it’s important to keep in mind the cost difference.

How Often Do People Trade Cryptocurrency?

There are two types of traders: active and passive.

Active traders regularly look for market opportunities to make a profit and trade between cryptocurrencies on a regular basis. Amongst active traders, there are day traders (which we will dive into more later) and traders who are looking at slightly longer timeframes. With that said, there is no exact amount of time between trades that defines an active trader. The best way to define the timeframe of active trading is to understand what it means to be a passive trader.

Passive traders are looking to make a profit in the medium to longer term. Typically they are looking to hold their positions for more than a year and aren’t concerned with short term fluctuations, but rather believe in the longer term potential of a trade.

What is The Best Type of Trading?

There is no best type of cryptocurrency trading. The best type of trading depends on what your trading goals are. Passive trading is a way to manage investments long term, and active trading is a way to take advantage of shorter term money making opportunities. Typically, active trading is seen as riskier and more technically difficult than passive trading. Within the world of active trading, the most well known form of trading is day trading.

How to Day Trade Crypto

Day trading can be defined as multiple trades that occur within the same day. The basic principle of day trading, or trading in general, is to buy low and sell high. There are two main types of day traders: speculators and technical analysts.

Speculators rely on out of market events and developments that may influence the price of crypto. Examples of sources speculators make trades based on include crypto news, hacks, launch events, etc. One of the biggest crypto news events that has ever affected the price of Bitcoin was China announcing their support of Blockchain – the price of Bitcoin increased by roughly 30% in a single day. This is a prime example of a crypto news event that a day trader (speculator) would be looking to capitalize on.

Technical analysts (TAs) rely on the crypto financial charts. They analyze price trends over time and formulate projections that they can trade against. The trading strategies used by technical analysts within crypto are often the same ones used in traditional financial markets.

Perhaps, the most basic way technical analysts trade crypto is by looking at futures. For example, they might use daily Bakkt Futures as a price indication of where Bitcoin’s price will be at the end of the day. You can view the futures chart here.

Outside of these strategies, there are a lot of individuals and resources that provide daily cryptocurrency trading tips and day trading cryptocurrency strategy. Professional crypto traders post informative content on Twitter, and many offer newsletters. Following traders can be a great way to get more insight into their mode of operation. That said, when doing financial research, always take precautions and never invest anything you are not okay with losing.

Next Steps

If you’ve made it to this point, you should have an understanding of what trading means, what to consider when starting, and how to take action. The next steps are:

Decide what cryptocurrencies you’d like to trade.
Decide where you’d like to trade these cryptocurrencies.
Decide what trading strategy you will be using.

Once you have the answers to these three questions, you are ready to start trading. As billionaire Alex Spanos says, “The best way to learn is by doing.”

Earn More Crypto

As we discussed earlier, the purpose of trading is monetary gain. If you want to maximize your crypto earnings in between your trades, BlockFi might be a good option. In between your trades (or even if you decide you don’t want to actively trade), you can store your cryptocurrency in a BlockFi Interest Account (BIA) for the opportunity to earn interest on your crypto. Learn more and set up your BlockFi Interest Account today to start earning more crypto.

If you have any questions about how our BlockFi Interest Account (BIA) can help you earn more crypto, contact us at +1 (646) 779-9688 or visit our contact us page.

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Last updated on August 8th, 2022

As of February 14, 2022, the BlockFi Interest Account (BIA) is no longer available to new clients who are US persons or persons located in the US and existing US clients with BIA accounts are unable to transfer new assets to their BIAs. Learn More.

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