On May the 22nd, 2010, a Florida programmer named Laszlo Hanyecz famously traded 10,000 Bitcoin for some pizza in a historic move for cryptocurrencies. It's safe to say the trading of Bitcoin (& other cryptocurrencies) has come a long way since then!

Since that first transaction, cryptocurrencies have evolved from being new currencies to formidable stores of value and digital assets. As a result, a new market has risen to tap into the demand to store, trade, and commercialize these crypto and other blockchain-based assets in diverse ways. This is the same way traditional financial markets emerged to facilitate trades of bonds, stocks, commodities, and more. 

While there are now apps, domains, NFTs and so much more built on the blockchain these days, this article will focus on cryptocurrency trading.

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What is cryptocurrency trading?

Cryptocurrency trading refers to speculating on the price of cryptocurrencies to take advantage of the market's volatility. This can be done by simply buying and selling some crypto via an exchange or betting on a price change via a contract for difference (CFD) trading account. CFD trading lets you speculate on price movements without possessing the underlying crypto itself.

A cryptocurrency trade usually involves a buyer and a seller - for instance, an individual trader and market maker. It’s a zero-sum game, meaning someone has to lose for the other to gain - and vice versa.

An example of a typical trade is going long on an asset, which refers to betting on the value of a certain cryptocurrency to rise. On the other hand, going short refers to speculating on the price of an asset to reduce.

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Crypto trading vs crypto investing

Crypto traders and investors have one thing in common - they play in the crypto markets in search of sustained profits. How they achieve this is the key difference.

Traders tend to enter and exit positions for a short period of time - as little as a short period of time. This is to allow them to take advantage of market volatility, as established above. This kind of activity usually prioritises short-term, lower returns.

Investors, on the other hand, tend to enter and hold their positions for much longer periods of time - from days to even decades. This enables them to take advantage of long-term trends and compound interest, which is likely to generate much larger returns.

Depending on your goals, one or a combination of these approaches might be suitable for you. Whichever it is, what you’re about to learn below is certain to serve you well. 

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Types of crypto trades

On a fundamental level, these are the kinds of trades offered by most crypto trading platforms:

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Spot trades

A spot trade is basically a trade that's made "on the spot", usually for cash. These trades are processed immediately according to the market value of the assets being exchanged.

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Margin trades

Margin trades are made using borrowed funds from a third party, usually an exchange (in the case of crypto trading). Margin traders can execute trades at the same position size as spot traders but with less capital on the cryptocurrency exchange.

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Derivative trades

Crypto derivatives are basically contracts that involve a buyer and a seller who agree to sell an underlying asset at a predetermined time and price - just like traditional derivatives. As a result, the value of a derivative depends on the value of the underlying asset. There are 3 kinds of derivatives that are regularly traded:

• Futures: These involve a simple contract between two parties to sell an asset in the future at a predetermined price. 
• Options: are similar to futures, except that the buyer who entered the contract can choose to opt out of buying the asset when the contract is to be settled.
• Perpetual Contracts: These contracts do not have an expiry date, unlike futures and options. A position can be kept for as long as possible, provided the traders pay holding fees, called the funding rate.

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Crypto Trading Strategies you should know

Think of your crypto trading strategy as your fixed plan that's designed to help you achieve a consistently positive ROI. With that in mind, here are some strategies that are common for beginners and experienced traders alike:

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Day trading

As the name implies, this strategy involves entering and exiting positions on the same day. As such, day traders try to take advantage of price movements that happen within the span of a day. It’s usually executed using technical analysis, and is more suitable for advanced traders.

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Scalping

Scalping also tries to profit from price movements, but within rapid time intervals - as little as a minute sometimes. Scalpers aim to accumulate small profits that add up over some time. They tend to use leverage and tight stop-losses to mitigate risk.

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Position trading

Position traders are essentially the same as investors - people who tend to hold trading positions for a long time. This strategy usually ignores short-term price movement and focuses more on long-term trends, with fundamental analysis being key. Position trading is popular amongst beginner investors.

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Swing trading

Swing trades are usually longer than scalping trades,  but shorter than day trades. This gives traders more decision-making time, and more rationality. Swing trading is also popular with beginners.

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Arbitrage trading

Arbitrage simply implies buying crypto from one market place and selling them in another to profit from price differences. This strategy hinges on taking advantage of the low price of assets listed on two or more crypto exchanges.

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How to analyse crypto markets

As you might’ve picked up from the section above, there are two broad kinds of analysis traders use to assess trades; fundamental analysis, and technical analysis.

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Fundamental analysis

Fundamental analysis (FA) assesses cryptocurrencies through the lens of economic, financial, and intangible factors. It's done to know if an asset is fundamentally sound, and not just hype. A few things considered during this analysis are:

• Technical specifications, which include blockchain platform, security of the network, token supply, distribution plan, and more.

• Community strength

• Track record of founders

• Liquidity and whale activity

• Marketing and branding efforts

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Technical analysis

Unlike fundamental analysis, technical analysis assesses an asset primarily through its historical market data. Datasets such as price and trading volume are used to predict price movement. A few approaches used by technical analysts are:

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• Following whales: Whales are individuals or groups who trade with large amounts of funds, and they exist in every financial market - crypto is no exception. Assessing and trying to predict the activity of whales is usually a popular way to go, as they’re rightly assumed to know what they’re doing.
• Identifying market cycles: Market cycles broadly fall into four main parts - accumulation, markup, distribution and decline. These cycles tend to appear with days, months, years, or even decades. Traders try to adapt their activities to take advantage of one of these phases.
• Identifying Psychological Cycles: It’s easy to forget that the market is run by humans who have emotions. Leaving your emotions at the door and trying to pinpoint the exact part of the usual psychological cycle being experienced is key for successful technical analysis. Here’s a good example of a psychological cycle:

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Source: Bocconi Students Investment Club

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Before you begin trading, beware of this

Now that you know this much about trading crypto, we know you’d love to make some money immediately. However, it is notoriously easier to lose money while trading than getting a profit. With that in mind, here are some precautions/recommendations for you if you’re a beginner:

1. Learn to analyze the market and/or assets before making a single trade.

2. Choose one trading strategy or a combination of strategies (if you're that confident), and stick with it.

3. A combo of fundamental and technical analysis is ideal. When deficient in one or both, it's best to consult a professional.

4. Avoid FOMO. No matter how it appears, you're not missing out on the hottest new coin. Chances are you're a part of a psychological cycle - one that you can choose to participate in with your funds actively or not.
5. Trade only with funds you’re comfortable with losing. Seriously 😏

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"Trading is not for the dabblers, the dreamers, or the desperate. It requires, above all, one steadfast trait of dedication. So if you are going to trade, trade like you mean it" - Rod Casilli