27 Dec, 2023

Cryptocurrency Basics: Different Ways to Trade Cryptos

Cryptocurrency basics: how to trade cryptocurrencies and which strategies to use
Cryptocurrency basics: how to trade cryptocurrencies and which strategies to use

Cryptocurrencies are very popular nowadays due to many factors. They provide owners with the opportunity to conduct peer-to-peer transactions with low commissions, offer a high level of privacy, and give them more freedom. However, what makes them even more attractive is the opportunity to trade cryptos and try to make money on their price difference. If you are taking your first steps in crypto trading, then read this guide. To start trading at Binolla, you can create an account now.

Cryptocurrency Trading: What Is This About?

Crypto trading is very similar to any other type of trading. The idea is to buy a cheaper cryptocurrency and sell it when the price goes up. The difference between the two prices (one that you buy at and another that you sell at) is what you put into your pocket when you close the trade.

There are several ways to trade cryptocurrencies:

  • Exchanges. Those are specialized platforms where you can buy and sell tokens directly from other users with market depth. Unlike both previous types of crypto trading, here you become the owner of the coin you buy;
  • Digital options. Fixed-time contracts allow you to trade crypto as an underlying asset. The idea here is to buy a Higher contract when you think that the price of a particular crypto, like Bitcoin, is going to rise, while when buying a Lower contract, you expect that the price of a crypto is going to plunge as compared to the contract’s strike price by the moment of expiration;
  • CFD cryptocurrency trading. This is another type of derivative that allows you to buy and sell contracts for cryptos.

Cryptocurrency Trading: How it Works

Now that you know the most popular ways to trade cryptocurrencies, let’s take a look at some examples.

Trading Cryptocurrencies on Exchanges

When it comes to exchanges, the difference lies in the approach to trading. Unlike CFDs and digital options brokers, exchanges use a so-called “order book,” where all traders’ orders from this exchange are accumulated. When you decide to buy a cryptocurrency pair, your order is added to the order book. Once it meets the requirements of other trader’s orders, the order is executed. 

Keep in mind that your order may be pending for a while until a matching one appears. For liquid assets like Bitcoin or Ethereum, such matches take a few seconds in the majority of cases, while when it comes to some assets with low liquidity, you may wait for longer to sell your asset.

Imagine that you expect BTC/USD to go down from 30,000 and that you are trading on one of the cryptocurrency exchanges. Then you need to place a sell order. If Bitcoin plunges, you will make money on the price difference. 

Exchanges like Binance offer two types of trading. You can use the order book or conduct direct p2p transactions on the platform’s premises. By the way, you can use this method to purchase Binance tokens or any other cryptos to top up your Binolla balance via Binance Pay. 

If you want to earn money on the price difference, you don’t need to go on exchanges. Choosing a broker is enough in this case. We are going to describe CFD and digital options cryptocurrency trading further in this article.

Cryptocurrency exchanges are better for investments when you use the buy’n’hold strategy, while brokers are more suitable for cryptocurrency speculators who don’t need to hold an asset and want to simply make money on the difference between the initial price and that of the asset when you sell it or at the expiration time if you are trading digital options.

Trading Cryptocurrencies via Digital Options

Assume that BTC is currently trading at 30,000. You think that this cryptocurrency is going to grow over the next five seconds. You buy a Higher contract to profit from this situation. If BTC hits even 30,001 by the end of the contract’s lifetime, you will receive up to 95% of your investment amount.

Trading Cryptocurrencies via CFD

Another example comes from the world of CFDs. Imagine that ETH fluctuates at 1,500 at a particular moment, and you think that it is going to plunge in the near future. To make money in this situation, you need to sell ETH/USD. If you were right, you would earn the difference between the ETH price at which you sold it and the price of the asset at which you closed the trade (keep in mind that this difference will be augmented by the leverage).

Benefits of Trading Cryptocurrencies with Digital Options and CFDs

The main advantages of trading cryptocurrencies using CFDs and digital options
The main advantages of trading cryptocurrencies using CFDs and digital options

Digital options are considered contracts for beginners as they are based on the concept of limitations and risks. You don’t need to calculate the eventual profit, as, in the case of the right forecast, you will earn a fixed payout. When it comes to the Binolla platform, payouts are high.

CFDs are more complex contracts where you need to calculate risks and eventual profits on your own. However, they are also suitable for cryptocurrency traders and meet all the goals and requirements of professional market participants. 

Both digital options and CFDs do not transfer ownership to the buyer of such contracts. And here is one of the main advantages of trading cryptos this way. You don’t need to think about the liquidity of a particular token. It can be bought or sold until it is presented by the brokerage company. 

When you place an order on an exchange, you need to wait until it is filled by the counterparty. This may take time and lead to situations where the execution price differs from the one at which you placed the order. With digital options or CFDs, you don’t need to wait for any other party to fill your order. It will be executed almost instantly. 

Moreover, Binolla adds only those coins that are trusted by billions of traders and investors from all over. Therefore, you can skip several parts of coin analysis that most investors and exchange traders are required to do in order to succeed. Bitcoin, Ethereum, Litecoin, XRP, and Bitcoin Cash are widely known and very popular among cryptocurrency market participants. 

The idea behind this type of trading is to predict the direction of the price and earn money on the price difference. This is why most traders choose brokers instead of going to exchanges and trading cryptos there.

Factors that Move Cryptocurrencies Prices

Like any other financial market asset, Bitcoin and other cryptocurrencies are driven by fundamentals. Similar to many other assets, you can read macroeconomic data, but cryptos are driven by many other factors that we are going to consider below:

  • Market capitalization. This factor has a close connection to liquidity. The higher the capitalization, the better. When it comes to Bitcoin, Litecoin, and other tokens that you can find at Binolla, all of them boast high capitalization and can be found on the peaks of various ratings;
  • Crypto news. Whatever happens in the world of blockchain and cryptocurrencies may have an impact on the coins’ prices. When a new country adopts cryptocurrency, its price goes up, as this means that more users will be involved in trading and investment. Bans from countries or intergovernmental organizations, on the opposite, may lead to a crypto price plunge;
  • Project news. Another factor that can have a significant influence on the price of cryptocurrency is news from the project. A new partnership or a new development can lead to an uptrend, which may last from a couple of seconds to a couple of weeks;
  • Project basics. Whatever type of contract you use to trade cryptocurrencies, you should make sure that a particular coin is worth your attention. The best tokens to trade are those that are based on real projects that aim at making real changes in various sectors. Good examples of such tokens are Bitcoin, which is a revolutionary payment method, Ethereum, which introduced the first blockchain-based smart contracts, XRP, which is a product of Ripple Labs, an organization that cooperates with a bank network to create fast and secure interbank transactions;
  • Team. The people behind the project are another key criterion to look at. If the team includes famous blockchain adepts or evangelists, you can trust the project and buy tokens, or even make long-term investments;
  • Tokenomics. This is important mostly for crypto investors who are looking for projects to add to their portfolios. Tokenomics defines the number of coins in circulation, the distribution of the cryptocurrency among the team and investors, etc.

How to Trade Cryptos with Binolla: A Step-by-Step Guide

Now that you know about cryptocurrency trading and its benefits, you may want to open your first trade. To do it with Binolla, you need to complete the following steps:

  1. Go to the Binolla website and log in to your account.
  2. Choose 5s Scapling and pick an underlying asset (Bitcoin, Ethereum, Litecoin, XRP, and Bitcoin Cash are available).
  3. Conduct technical analysis to decide whether to buy a Higher or a Lower contract. Now you can look at the charts, apply various technical analysis tools, and forecast price fluctuations.
  4. Choose the amount of investment. Keep in mind that the best money management rule is to put at risk no more than 1-5% of your total trading balance.
  5. Click Lower or Higher to start trading.

Now you need to wait for 5 seconds to see whether you were right or wrong. 

Cryptocurrency Trading Strategies

This is one of the easiest strategies so far, but you have to learn Japanese candlestick patterns in order to use it. The example above shows two signals when you can buy Lower contracts or simply sell Bitcoin against the US dollar. 

Another great strategy that you can use when trading cryptocurrencies is selling during the descending trendline or buying while the uptrend is developing. In our example, we have a trendline, and the price is touching it and going further downward. The idea here is to sell when the reversal after a correction is confirmed, which means that the candle stays below the trendline. You can sell cryptocurrency or buy a Lower contract in this case.

Using momentum indicators can also be very useful when trading cryptocurrencies, as those indicators allow you to find price reversals and be in the right place at the right moment. The example above shows the situation when RSI leaves the oversold area and moves upwards along with the price. You can buy a Higher contract or buy Bitcoin in this case.

Why Trading Cryptocurrencies

Crypto coins are relatively new to traders, but many professionals have already benefited from their advantages. Here are the main pros of picking cryptocurrencies as underlying assets:

  • Higher volatility. Coins based on blockchain are highly volatile assets that can make dozens and even hundreds of pips within a single trading day. This allows you to find a lot of trading opportunities and, therefore, place more orders;
  • Market hours. While stocks are available during a particular session only, cryptocurrencies can be traded 24/7. This market never stops and you can buy digital options on them even on Sundays. Moreover, you don’t need to think about when a particular token can be more volatile as those coins have no connection with particular countries and central banks;
  • Leverage. When trading CFDs on cryptocurrencies, traders can use leverage and invest even more money in each particular trade. You don’t need to add to your balance to have a larger market exposure;
  • Technical analysis. If you are a skilled technical analysis trader, you can apply most strategies that you are using when trading stocks or FX currency pairs. Hammer patterns, moving averages, RSI reversals, and others are available to crypto traders;
  • Portfolio diversification. With cryptocurrencies, a whole new class of assets appeared. This means that from now on, you can add cryptos to your trading portfolio.

Cryptocurrency Trading Tips

Before the last stop, find some useful cryptocurrency trading recommendations below:

  • Always do your own research. Go through the latest industry news and reveal market trends. Use charts to watch for signals of confluence. Create your own strategy and stick to it when trading cryptos;
  • Try your skills on a demo account. Binolla provides you with unlimited demo opportunities. Therefore, you can trade cryptocurrencies without putting your money at risk. Use this opportunity to hone your strategy or familiarize yourself with this type of asset and its market behavior;
  • Pick a cryptocurrency to trade. Learn more about the project behind a particular token and its perspectives. When trading crypto digital options with Binolla, you can skip this step as we add only trustworthy and reliable coins;
  • Don’t put all your investments in a single trade. We have already mentioned the main money management rule of 1-5%. If you want to make money over time, you need to think about how much you can invest in each particular trade.

Conclusion

Cryptocurrency trading allows you to have a whole new type of assets at hand. You can choose from the most popular coins and add them to your trading portfolio. Crypto trading has a lot of benefits, including the opportunity to earn on the price difference of those highly volatile assets. 

FAQ

Discover the best way to trade cryptocurrencies and whether crypto trading is good for beginners
Discover the best way to trade cryptocurrencies and whether crypto trading is good for beginners

What Is the Best Way to Trade Cryptocurrencies?

To answer this question, you need to understand your goals first. If you want the ownership to be transferred to you, can can choose exchanges, while if your main goal is to profit from the price difference, you can choose digital options or CFDs.

Is Crypto Trading Good for Beginners?

Cryptocurrencies are known for their huge volatility. Therefore, if you are using leverage, you should adjust your risk management strategy. However, if you are trading cryptos with digital options, your risks are limited to the amount of your single investment, which makes digital options a very attractive derivative to trade digital coins.

Is Cryptotrading Profitable?

It depends on your skills and the strategy that you use. Keep in mind that to trade profitably, you should have a good strategy and do your own research.

Can I Trade Cryptos 24/7?

Yes, you can. Cryptocurrency trading is available around the clock seven days a week without any interruptions. 

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