update 19 August 2021

Beginner’s Guide to Fundamentals of Cryptocurrency Trading

Mainly, a trader buys and sells goods intending to make profits. That is, buy for less but sell for more. What and how don’t matter, but when you choose to buy and sell goods, will determine whether you are trading or merely investing in that product or service.

Let’s dig into the details. To fully understand the basics involved in trading, you should know the difference between investing and trading. Financial experts define trading as buying commodities, shares, and sometimes even currencies to sell them later to gain short or medium yields.

Meanwhile, investing is a gradual process aimed at increasing net worth by buying and holding investible financial instruments such as bonds, stocks, and mutual funds. Investments take years (sometimes decades) to be profitable since they are tied with factors like interests of the dividend payments and coupon payments at a specified period.

Time creates change, which correlates with growth. Hence, commodities, shares, and currencies grow in value after a certain period (time). Therefore, a trader studies the market value of such entities and focuses on the ones that will appreciate quickly in the market. If you purchase an entity whose value takes a long time to increase, you will invest in that commodity rather than trading.

You can earn fast money in trading by merely taking advantage of the rising and falling market prices. This business is highly volatile, with very high risks. Still, if you are careful, you can be another billionaire on the planet like George Soros (Net worth: US$ 24.2 billion), who made all his earnings through trading.

How to Start Trading

You already off to a good start if you are reading this article. Most people hear stories that trading is a cash-cow with lots of monetary benefits. Hence, they recklessly jump right into it and end up losing a large sum of money. It is important to know all the basics of trading if you want to be successful, and that is precisely what you are going to get from this piece.

Here, you will get to know the following fundamentals;

  1. The key factors of trading
  2. The financial entities you can trade.
  3. The concept of buying long and selling short
  4. The trading platforms

The Key Factors of Trading

As aforementioned, trading has many risks, and in a way, you can lose all your money in a matter of hours. Thus, there is a need to know the main factors you should consider. As a trader, your goal is to gain profits in the shortest time possible. This is where you should understand the cycles of trading and knowing the right time of the day to trade.

The market cycles include:

  1. The Accumulation Phase
  2. The Mark-Up Phase
  3. The Distribution Phase
  4. The Mark-Down Phase

A cycle can last anywhere between a few hours or days to a few weeks, depending on your preferred financial instruments. Also, don’t forget about the Presidential Cycle. Before the election, after the election and the president’s term in office, the election period affects almost all financial instruments in the market. For instance, interests usually decrease during the election year. So, you should know how to schedule your trades to profit during such periods.

The Financial Entities You Can Trade

Financial Instruments are assets you can trade in the financial market. It is an entity you can buy or sell in the trading process. Examples include;

  • Currency pairs (the foreign exchange, also the FX market)
  • Commodities
  • Stock indices
  • The stock of companies (also known as individual equities)

When trading with financial instruments, you don’t really take ownership of the assets. What you actually do is predict the price of the futures contracts for currency pairs and Contracts for Differences (CFDs) in the case of stock indices, shares, and commodities. Contract price varies across all financial instruments, whereby any slight change of the asset’s cost will result in a similar relative change of its contract. Financial experts recommend trading of futures contracts and CFDs because they can be traded quickly and are cost-effective.

The Concept of Buying Long and Selling Short

Buying Long

Buying long is a term commonly used in the trading business to refer to buying a financial instrument. When hear traders are buying long (also going long), they want that instrument’s value to rise. For example, buying a share at $7 then sell it for $10, you will have made $3 from that share – that’s buying long.

Selling Short

Selling short is a technique where traders can benefit when the market value of an instrument falls. If you don’t own an asset you speculate would fall in value, you borrow it from someone who does. After obtaining the shares, you can sell it with the current market value. Suppose you were right, and after some time, the price of the given share drops in value, you can buy back (the price would be lower than the time you borrowed the share) and return it to the owner.

For instance, if the current market price is $2000, then the value drops to $1200 in, let’s say, three weeks. You can make $800 at that period. But you have to be sure the market value would drop to get profit. Worse, it would be if the market value rises. Thus you will be forced to repurchase the shares at a higher price since you have to return to the owner before the specified time.

Important Note: You don’t have to look for someone who owns a particular to borrow a share. Brokers make everything ready for you. All you have to do is press Sell or Buy!

The Trading Platform

The revolutions on the internet have simplified trading in so many ways as compared to the old times. Nowadays, you can access brokers online can trade in various trading platforms they provide you for each financial instrument. If there is an internet connection, you can access these platforms on any device – whether it’s PC, smartphones, or even tablets.

Like any website, trading platforms differ in functionality depending on the ease of operating its interface. You must consider a site with a wide range of features, and it is easy to navigate. It’s a bonus if you can communicate with the broker on-one-one sessions to direct you to the best deals. Please don’t make a deal unless you are sure it’s promising.

Conclusion

Trading is straightforward but has so many variables to consider before you can accumulate profits. Since it’s a repetitive process, you can get the hang of it fast, and you will be making money like it’s a walk in the park. More, brokers can help you access profitable shares to trades.

Btc
Bitcoin
$47.488
price
1.24397%
price change
BUY NOW

Still, you have to be careful of frauds who will sweet talk you to a deal that’s infertile. Once you learn all the basics of trading in this article, you will be able to spot a fraud broker a mile away before they reach you. Please don’t forget to learn about charts and trading patterns in-depth to understand all trading fundamentals fully.

More posts

How Many ETH Will Burn After the London Fork?

Since its launch in July 2015, Ethereum has grown exponentially to be the second leading cryptocurrency in market value after Bitcoin. The platform’s growth has primarily been attributed to its smart contract feature, which powers the deployment of a wide range of applications, including oracles, decentralized finance (DeFi), decentralized exchanges (DApps), marketplaces, crypto-collectibles (NFTs), and developer tools.  Despite its growth, Ethereum faces numerous challenges that hinder its usability. The scalability challenge is one of the biggest ones that Ethereum faces. The current state…

The Impact of Adoption of Cryptocurrencies on E-commerce Business

E-commerce is the short form of electronic commerce. It is the buying and selling of merchandise over the internet networks. It also involves the transfer of funds and the keeping of records to certify the transactions made. E-commerce is of three types; business-to-consumer (B2C), business-to-business (B2B), and business-to-government (B2G). The main reason for using cryptocurrencies in e-commerce is to get rid of third parties that control the transactions. This relationship can make online shopping much easier and safer since blockchain technology that backs up cryptocurrencies is…

What it Means to Make Bitcoin a Legal Tender

June 9, 2021, marks the first move that would make history in Bitcoin's timeline. El Salvador passed a bill where 62 of 84 congressional voters would make Bitcoin a legal tender. Fast forward to September 7, and El Salvador became the first country to make Bitcoin a legal tender. In this article, we shall look into what it means for Bitcoin to be a legal tender in detail; What is Legal Tender? "This note is legal tender for all debts, public and…

The Correlation Between Blockchain Activity and Transaction Fees

Miners and validators are essential cogs in any crypto project. They're the ones who process transactions on a blockchain (BC) activity. For their efforts, crypto projects compensate them for their efforts from transaction fees. A transaction is only valid when it has undergone validation. The process ends in the validators adding it to the BC. Mining consumes a lot of computing power. As such, it's an energy-intensive exercise. The motivation for the miners is the block reward that consists of…

Understanding Shrimpy’s New DEX Trading Feature

DEX trading is one of crypto's newest but also most complex investment options as of late. Decentralized exchanges are trustless peer-to-peer (P2P) trading environments relying on smart contracts that help facilitate crypto exchanges. The clear benefits of DEX trading are security, anonymity, and greater user control. Although decentralized exchanges, and DeFi as a whole, have gained immense popularity over the past two years, the segment is still considered new by many in the community. A large chunk of crypto investors still does not feel…

Why Do Exchanges Freeze User’s Crypto Funds?

cryPicture this: you've finally mustered the courage to take the plunge into crypto. Everything is going right for you. You're mastering the hacks to optimize your investment and are looking forward to a fulfilling experience within the space. Then it happens. You log in to your account and find that you can't access it anymore, let alone transact in it. In a panic, you try customer support to no avail. Next, you can't help asking how you got here. Is it…

Determining the Initial Value of Cryptocurrencies

It is quite obvious that the total market cap of cryptocurrencies has enjoyed impressive growth since their inception. It was able to hit the magic $2trn figure, standing at $2.064trn as at the time of writing. That is close to 2.5 times the value of crypto at the start of this year, 2021, as per coinmarketcap data. While all these huge figures are truly impressive, things haven't been like that. The increased market capitalization has been more of a result…

Factors Driving the Price of a Crypto Project to Skyrocket

Cryptocurrencies continue to showcase outstanding crypto performance since the launch of Bitcoin in 2009. Global investors are looking forward to establishing financial stability with digital assets. Due to the growing interest, crypto prices are making a drastic shift to the top.  Still, in some scenarios, the market trend keeps decreasing for specific periods. A coin's bearish momentum creates fear and panic for users who believe in the future of the asset.  The opposite is a bullish market that records skyrocketing prices of…

Vivid Indicators of a Bull Run in the Crypto Market (Bull Market)

In the cryptocurrency space, a bull market is one whereby the prices are expected to rise significantly or are rising. Due to the volatile nature of crypto, the term “bull market” is reserved for more extended periods characterized by the rise of a large portion of the prices. To be categorized as a rise, the price must be up 20% after two declines of 20% each. There is optimism, expectations of solid results, and investor confidence in a bull market,…

Historical Hardfork Events Every Crypto Enthusiasts Should Know About

Blockchains have been gaining attention since the history of crypto. The highly advanced systems help decentralize and streamline financial systems globally. As the blockchain systems grow, investors start noticing issues and propose an upgrade. However, for any upgrade to occur, blockchain requires the consensus of all participants. If there is no consensus, two factions with opposite ideas may form. The developers may choose to go ahead with the upgrade but maintain the status quo in the original chain. At that point,…