Trying to trade cryptocurrencies without a trading strategy in place is likely to lead to failure and a loss of capital. In this article, we’ll explain what a crypto strategy is, basic types of trading strategies, and how they can help you optimize your trading for maximum profits.

A crypto trading strategy is a set of guidelines used to buy and sell cryptocurrencies depending on a trader's goals, personal characteristics, and timing. As you can see, the definition of a strategy in crypto trading doesn’t really differ from the definition of a trading strategy in general. In fact, all markets, be they stocks or crypto, work in a similar way. They even may have all the same trends, fluctuations, flats, and reversals. Still, there are some conceptual differences in the crypto market, such as the usage of blockchain technology and its severe volatility factor.

Every trader, no matter their outlook and timeframe would benefit from a trading strategy. Without a strategy, trading is no more than gambling or blindly copying the trading strategy of others. At the same time, having a strategy itself doesn’t guarantee anything. There will always be trading risks with any strategy a trader employs. Still, a trading strategy will help traders more easily endure the periods of drawdowns as well as lock in their profits in a timely manner. 

There are three basic categories of crypto trading strategies (or strategies in general):

In short-term trading, the trading time frame ranges from a few minutes to several days. Short-term traders can make dozens of trades per day, so they expose themselves to more profits or losses along the way.

Among short-term strategies, two of the most common are scalping and day trading. Let’s have a closer look at each of them.

Scalping is a strategy in which traders enter and exit the market multiple times, generating a small profit of a few pips (percentage in point, the smallest price move) on each trade. Most scalpers trade within a time frame of several seconds to 15 minutes, making this the most fast-paced strategy.

Since the time spans of scalps can be just a few seconds, it’s almost impossible to effectively follow this strategy manually.

Because of the rapid nature of scalping, scalpers usually trade just one or two currency pairs with which they are deeply familiar. They need to know in detail how these currencies behave and what the best time for trading is, including when the market is most volatile, and when it’s quiet.

Another challenge of scalping is that traders can’t wait for the perfect timing to enter the market or cherry-pick their trading setup. Scalpers need to be able to adjust their trades to the current market situation and do so quickly. This includes trading breakouts, making counter-trend trades, making trend continuation trades, and so on.

Being a high-frequency trading strategy, scalping also requires using purpose-built software. In crypto, there are a few platforms for scalpers. One of the most popular is CScalp. Also, scalpers are among the traders who benefit most from algo trading.

Although scalping is applicable to the crypto market, many traders believe it’s not the best crypto trading strategy. In fact, it’s one of the most difficult approaches to trading, especially for beginners.

Day trading is also referred to as intraday trading. Historically, this method of trading came from the stock market, which has limited working hours. Unlike stock markets, crypto markets work non-stop, so day trading in crypto simply points at a short trading span, which is usually up to 24 hours. Day traders trade within a single day without holding positions to the next day.

Day traders usually spend 8 hours per day or more behind their monitors.

What you should know about day trading is that it’s an active strategy that requires a lot of time investment. It wouldn’t be an exaggeration to say that it’s suitable only for full-time traders: making several trades per day without leaving open positions overnight takes up hours of time each day.

Another thing that makes day trading especially challenging is its ongoing decision-making process. It puts a lot of emotional and cognitive pressure on traders who need to maintain a high level of concentration. Of course, there are people who thrive in such conditions, but still, day traders must maintain a level-head and not get emotional about their trades.

Also, don’t forget about exchange fees. Since many trades are placed in a single day, fees can significantly reduce profitability. If you want to become a day trader, you need to find an exchange with the lowest fees possible (e.g., Binance or FTX).

Medium and long-term trading refers to trading that takes place over a couple of days or weeks. With these strategies, traders can patiently watch and wait until they see the right moment to act on a given trade. In fact, this is more advisable for beginners and occasional traders because there are not as many time constraints as in short-term strategies. The longer time frame allows you to consider trends calmly and make more confident decisions.

Swing trading is an active trading strategy, although its time frame is wider than that of a day trader. In swing trading, traders usually hold their positions for anywhere from a couple of days to a month. The goal is to capture short-to-medium-term profits as trends change in a market. This trend change is also called a leg or a swing.

A swing trader would be interested in capturing those low-to-high points, or the high-to-low points if they want to short the position.

While still being an active trading strategy, swing trading is less stressful than day trading. Many traders find it comforting that they don’t have to make decisions every minute or jump at every little move in the market. Swings unfold over days and weeks, so it leaves some time to make analyses and plan a trade.

Swing trading could also be a more attractive strategy for you, because it allows you to sit through periods of drawdown. If you’re trading over a couple of weeks’ time frame, chances are there will be days when the chart is drifting lower and a reversal pattern is unclear. With the swing trading strategy, you’ll be able to ride it out, while a day trader might be out of their trade after waiting just 15 minutes.

Trend trading is a strategy where traders take action after a trend has started to unfold. For example, they buy when they see the unfolding upward trend and sell after a pattern indicates the trend is over.

In the image above, typical entry and exit points of a trend trader are noted on the chart. Even though the trader would miss a bit of profit at the bottom and top of the trend, they still earn a hefty sum on a successful trade. The key idea of trend trading is to take advantage of a trend once it has already started. That way, the results are more predictable. Take a look at the screenshot below.

By following the classic idea of buying low and selling high, it’d be better to buy the asset when it’s at its bottom. However, it’s easy to be smart when looking back at the chart. When you’re actually at the moment and the trend is going lower, you don’t know what will happen and how low the price will fall. There is a chance this is the beginning of the end for the downward trend, or, the price could continue to fall. Trend trading allows you to wait for the trend to become more clear, making it a safer option for traders even though they likely won’t be maximizing their profits.

In the second case, it’s less of a guessing game.

It’s much easier to predict that the market is going to keep going up than to predict the top and bottom of a move. Does this mean that trend trading is always a winning strategy? No. It often happens that a trend doesn’t occur in the way you had anticipated. Promising trends sometimes reverse just after you enter a trading position, but more often than not, they persist. As long as the trader is accurately predicting trends more often than not, their win ratio will be good enough to profit from this trading strategy.

A win ratio is the ratio of all your winning trades to your total number of trades.

If the trend isn’t going as you expected, it’s time to apply the “cut your losses” rule. That means it’s better to get out while there’s still only a small loss as opposed to holding on as your losses grow. Still, in the case of trend trading, a few good trades per year can cover some small losses. To some degree, trend trading resembles poker: you need to patiently wait for a really good hand while remaining disciplined and folding the weak ones.

HODL, a misspelled variation of “hold,” means keeping crypto asset positions for a long time, whatever the situation in the market. This strategy is more of an investment rather than trading. It’s mostly related to holding a blue-chip crypto (i.e. Bitcoin or Ether) that is proven and will continue to grow over time.

Another variation of HODLing, specific to the crypto market, is to try to find a high-quality currency at the very beginning of its growth and buy it at a very low price. Since it’s super affordable at that time, you can buy a higher quantity of that cryptocurrency and then hold it for weeks, months, or even longer. For example, those who believed in DeFi coins a couple of years ago and have held through their growth have turned huge profits along the way. 

Whatever option you take, HODLing requires great patience and nerves of steel.

In this article, we’ve covered the five most common trading strategies for the crypto market:

Scalping, the most active strategy, with a 15-minute time frame. It requires lightning-fast thinking as well as special software.

Day trading, or making multiple trades within one day. This takes a lot of time investment, so this strategy is really only for full-time traders.

Swing trading, a medium-term strategy with a timeframe from a couple of days to weeks. If you like active trading but can’t spend every day behind a monitor, this strategy is probably for you.

Trend trading, a cautious strategy where you try to avoid unnecessary risks by making deals only when there’s an obvious trend.

HODLing, a passive strategy where you keep your carefully selected assets as long as possible.

Now, you’ll be able to choose the trading strategy that aligns with your financial goals and your personality, which is of utmost importance.

In this article, you’ll find an overview of the strategies you can apply for efficient cryptocurrency trading.

Overview of the Five Most Popular Crypto Trading Strategies

Popular Crypto Trading Strategies: Which One Is for You?

How do all those trading sharks make millions? Most of them would say that it’s all about using the right trading strategy. Find out what a trading strategy is, check out the most popular trading styles, and get some pro tips in this article.

To put it simply, a trading strategy is a technique that allows traders to determine the right moment for buying or selling a particular currency or asset. It’s a fixed plan for making orders to achieve a certain return. Trading strategies are based on technical analysis and significant local or global news. 

Trading strategies consist of the following components:

Risk tolerance. This defines how much money a trader is willing to lose on a given investment. Risk tolerance is often dependent on the type of investment. Day traders usually opt for a lower level because they don’t have time to correct their strategy if something goes wrong. When it comes to long-term investments, traders can take action to save money when the market is volatile.

Type of stocks. Depending on the assets selected, a trader should find the best combination of financial instruments and create a well-balanced portfolio.

Technical analysis. It’s impossible to enjoy a steady profit by making decisions based on intuition and news only. Technical analysis uses indicators to help track market movements and/or trends to discover buy or sell signals.

The majority of traders quit without figuring out an optimal strategy.

See these statistics? Although those 40% of newcomers know what trading is, they quit in the first month even before trying a strategy. Why so? The reason is simple: they are driven by emotions, not logic. 

The factors behind a successful trading strategy are often underestimated. Meanwhile, having a plan and sticking to it involves:

Taking into account multiple factors and having a wider picture of the market;

Utilizing unbiased metrics, and not being driven by emotions;

Having strict time frames and staying disciplined;

Using a stop-loss: a price level at which a trader closes the position to avoid further losses;

Let’s look at some different types of trading strategies. They work over various timeframes, and some of them can be applied to particular markets only. Having a look at the pros and cons will help you figure out a suitable trading style.

This means making deals near the close of markets when it becomes clear where the price is going to settle. Such an approach requires knowing the price action compared to the previous day’s fluctuations. End-of-day traders are guided by indicators and predictions of how the price will move based on its previous action. This strategy is less time-consuming because the user only needs to study charts and opening and closing times.

Here, traders are guided mostly by short- and medium-term market trends. They buy if the asset price is about to grow, and sell if it’s about to fall. They take advantage of market fluctuations, because cryptocurrencies (and securities) are often overbought or oversold. For successful swing trading, a person should understand what a trading chart is and how technical indicators work. Market analysis will help them interpret the duration and magnitude of each market swing.

Fibonacci lines indicate where support and resistance are likely to happen. Each level is associated with a percentage of how much the price retraced from the prior move. The indicator can be drawn between any two important price points (a high and a low). How is it measured? For example, if a coin reaches the $10 price and then drops by $3.67, the Fibonacci level will be 36.7%.

This approach allows users to capitalize on market movements by predicting a trend correction. Traders open positions before the trend resumes; in other words, they exploit its deviations. How exactly? They see events and publicly available information that causes the price to distort and call for a market correction.

Fibonacci Retracement levels help to define market trends.

This style requires a full-time commitment and a lot of attention. Day traders earn on price fluctuations in between the opening and closing hours. They keep deals open during the day and don't leave them overnight, which reduces risks. It’s imperative to follow a well-structured plan and quickly react to market fluctuations.

This involves trading based on market expectations, i.e. before and after a news release. This style requires proactive reactions and a skilled mindset, because announcements spread like wildfire over digital media. A person employing this strategy should be able to get and process news immediately and make quick judgments. This style is perfect for volatile markets, especially cryptocurrencies.

Investors keep saying “The trend is your friend,” which is so true! But trend traders are well aware of more than “bullish” and “bearish”: they see deeper and can predict market movements more correctly.

They keep tabs on news concerning the global and local economy, the companies behind assets, and influencers’ publications.

They set timeframes to watch the trend and instantly react to changes.

This approach implies opening very short-term positions and operating with minor price fluctuations. Scalpers manage many positions to accumulate profits. This strategy requires setting a clear exit threshold, a lot of attention and special software. Scalping is recommended for experienced traders who can manage their emotions and are capable of multitasking.

This is the opposite case: traders look for massive price targets. That’s why their positions can stay open for months or even years. This approach works well for stocks and cryptocurrencies: as a rule, patience pays off. However, it’s important to set exit limits and check prices from time to time. 

What is the difference between position trading vs. trend following? The latter might use trends for mid-term deals or even short-term trading. Position trading is rather about long-term investments. Plus, it involves more than finding trends: such an approach is based on the combination of technical analysis, fundamental analysis, macroeconomic factors, general market trends, and historical price patterns.

Any of the tactics described above can work well under particular market conditions. There is no one-size-fits-all option: pick a strategy based on your level of discipline, amount of investments, type of asset handled, risk tolerance, and even personal traits. As a rule, seasoned traders try many different strategies until they figure out what works best for them.

“There is no single market secret to discover, no single correct way to trade the markets. Those seeking the one true answer to the markets haven’t even gotten as far as asking the right question, let alone getting the right answer.” ~ Jack Schwager (author of Market Wizards)

If you’re a beginner and don’t want to search for a suitable trading approach at the cost of your capital, consider using a demo trading terminal with a virtual wallet.

When it comes to trading, some risks are not worth taking. Your success depends on avoiding these common pitfalls:

Stopping trading when you keep losing. A few unsuccessful deals are not a reason to give up. Even the best traders lose money on some of their trades. And at the beginning, your win rate might be low, but determination and practice make perfect. 

Not using a stop-loss. The best way to manage risks is to cut your losses before they grow too large. Without a particular limit, losses get exponentially higher. For each deal, there should be a stop-loss: that saves money and time. Instead of waiting for a market trend reversal, you can start a new trade.

Trading with more than you can afford to lose. Play only with money you can live without. Otherwise, all your trading actions will be dictated by emotions, which is dangerous for trading. Here, patience is the key. 

Avoiding diversification. “Don’t put all your eggs in one basket” is the golden rule of trading. Don’t make multiple correlated trades: you risk losing everything.

Making trading decisions solely based on others’ strategies. Following famous traders’ advice might be a tempting idea, but a good trader needs critical thinking. It’s crucial to find your own trading strategy, and set stop-losses and entry/exit points.

How do you trade like a pro and actually earn money? Explore popular trading strategies that work well in different market conditions.

Popular Trading Strategies: An Overview, Pros & Cons

A Sneak Peek at Popular Trading Strategies: Things You Need to Know From the Start

To the uninitiated, crypto trading can seem extremely difficult. However, this doesn’t have to be the case. In fact, trading cryptocurrency can be a profitable endeavor, once you master some popular strategies and learn to read trading signals. Here are some crypto trading essentials you need to know for maximizing earnings while mitigating risk.

How to create your own crypto investment strategy?

Before you explore the market and figure out your individual approach, here’s a little spoiler: the perfect trading strategy does not exist. Every trader is different, and therefore, it’s up to the individual trader to decide what’s best for them. Choosing a cryptocurrency trading strategy should take into account several factors, including:

Timeframes preferred (day or long-term trading)

Without further ado, let’s check out the most widely used trading strategies.

If you’re making your first steps in crypto trading, the Dow Theory on stock price movement will help you understand the market. It was developed by William Peter Hamilton, Robert Rhea and E. George Schaefer, who analyzed 255 editorials in The Wall Street Journal written by Charles H. Dow, journalist and co-founder of Dow Jones and Company.

Being a form of technical analysis, the theory boils down to five simple facts:

When an asset price is defined, the market considers every single detail. Therefore, its current price directly depends on the asset’s present state, its history, and its future. 

Any available information should be considered when making an investment. The best investors always explore the history of the assets they buy. This includes background information, price history, regulations, legislative issues, and so on. This information is to be used in an attempt to predict the impact they will have on the future price of the asset. 

Price is not a random metric: it follows short and long-term trends. Over time, the price can be changed by new or changing conditions and information. 

Market analysts keep their focus on asset cost. However, there are many other factors triggering price movements. Smart traders get a broader perspective of market conditions and react accordingly. 

History tends to repeat itself, so if you can take into account historical price movements of an asset based on investor sentiment, you can use that information to predict market movements in the future.

Technical analysis is another way to predict the movement of a currency pair. Technical analysis in crypto trading is essentially the same as in traditional stock trading: using charts and reading technical indicators to predict future price movements.

Technical analysis mostly relies on certain patterns within a market. Through these historical patterns, traders can predict future movements of an asset:

The Japanese candlestick chart is a great example of a technical analysis tool. Let’s take a closer look at it:

The candlestick, also known as the Japanese candlestick, is one of the most important tools in a trader’s arsenal. Candlesticks are a style of financial charting that helps display the price movement of any asset. Candlesticks display green and red lines across a timeframe to show price movements. Each candle shows the changes of the price over a certain period (traders can customize time frames).

The candles—or body of the candlestick—show the opening and closing prices, while their wicks display the lowest and highest price fluctuations during a given time period. The top of a green candle is its closing price and the bottom is the opening price, and vice versa for the red candle.

This tool allows you to see market turns and patterns. It covers different time frames, but works best for short-term and mid-term positions (from one minute to one day). 

Trading charts are used to analyze assets over particular periods known as time frames. They can be short (1 minute, 15 minutes, 1 hour) or long (day, month, year). Time is another piece of the trading puzzle to use in your attempt to predict the movement of a market because it allows you to develop a suitable strategy and react to market changes quickly. 

As you can see in the screenshot below, time frames allow you to define an asset’s most likely price at a particular moment in the future.

Algo trading is automated because all positions are opened and closed by trading bots. It is based on computer code and chart analysis, as well as intricate mathematical models and formulas. Special software processes data to calculate the most optimal trading positions, including enter and exit trades. It takes into account several parameters, such as price changes, volatility level, and so on.

An algo trading bot is software that automatically performs trades for a user. Many traders go for this option because bots can perform high-speed automated transactions. There’s no need to waste time constantly monitoring the market.

Some bots come with a free trial period or a demo version. If you haven’t tried this option yet, consider running a test: this way, you will see whether the bot is efficient and worth your investment.

Here are the most popular crypto trading bots compared:

When in search of a trading bot, keep in mind three important aspects. Make sure that the senior leaders of the bot provider have a good track record. Discover the algorithms: are they open and available to anyone (if so, knowledgeable traders can determine whether it’s a worthy bot). Lastly, does the company provide any support and education? This is especially important for those who are using algo trading for the first time. 

Another way to stay ahead of the market is to use trading signals. These signals are generated by special platforms or channels that act as data providers. Signals are the product of market analysis, whether it be manual or automatic. Check out this trade signal marketplace guide if you want to delve deeper into the topic. 

As a rule, well-established platforms partner with professional traders and allow users to subscribe to their channels. The price of a subscription depends on the number of signals sent and the traders’ ratings. The more accurate the predictions they give, the higher the cost of their analysis. 

Once you have confidence in your market predictions, it’s important to be able to take quick trading action. By learning the ins and outs of a trading terminal, you can be prepared to place a trade when you see an opportunity present itself. Don’t let a trading terminal become a bottleneck on your way to successful trades: learn it in advance. 

All trading terminals look and function in pretty much the same way. You can always start by using a terminal’s documentation or manual which should give you detailed information about its user interface and functionality. Alternatively, some terminals allow you to request a free demo version to test out the platform and make a few trades. This is particularly important when you master a new technique, whether it’s crypto futures trading or scalping.

In this article, you’ll learn how to boost profits and reduce risks when crypto trading.

Staying Ahead of Crypto Market: A Winning Strategy

Staying Ahead of Crypto Market: A Strategy to Trade Like a Pro

Chances are, you've already heard something about сryptocurrency. So, if you're now thinking of trying to earn some money on it but don't know where to start, you've come to the right place. In this introductory guide, we’ll tell you how crypto trading works and how you can hop on board.

The idea of crypto trading is pretty similar to classic stock trading. A trader makes money on short-term trades on the stock market; a crypto trader does the same but on crypto exchanges. The goal is to bank on the crypto that will go up in price and earn on the difference. In other words, buy low and sell high.

After being an investment underdog for almost a decade, today, cryptocurrencies have a bit more recognition and liquidity. However, there are still a lot of controversies, spiced up by dramatic crackdowns that can happen after a single tweet. This is an example of volatility.

Volatility is a measure of how returns on a particular asset are scattered over time.

Usually, the more volatile the asset, the riskier the investment, and crypto is super volatile. However, for trading (as opposed to long-term investments in stock, ETF, and bonds) volatility is a good thing. The essence of trading is making money on market fluctuations, because they’re what give traders a chance to make money.

A trader’s task is to quickly analyze all the available data and decide if a position is worth entering or not. Let's say Ethereum (ticker ETH) is at $1,908.91, and two hours later it’s at $1,931.25. In this example, the trader must choose between buying ETH at $1,931.25 in hope of further growth, and selling it to cash in before it falls.

In this example, it would have been good to buy ETH, because later that day the price went above $2,000. But it’s easy to be smart retrospectively (hindsight is a wonderful thing!).

How to choose cryptocurrencies for trading

3commas has counted over 5,000 different cryptocurrencies on the market, and some of them cost a lot more than others. Here are the prices of some of the major cryptos at the time of writing:

The value of each cryptocurrency can also be measured and compared with others by their market capitalization.

Market capitalization, or market cap for short, is the total value of all the coins mined, in U.S. dollars. You can get it by multiplying the total number of coins in circulation by the price of a coin.

There are lots of places you can check out market capitalization charts. They usually show a price for a coin with fluctuations, current circulating supply, and market cap. If you check out the chart below, you’ll see that despite numerous price crashes, Bitcoin beats all the other coins, including Ethereum, Dogecoin, Cardano, and Ripple:

The top five cryptocurrencies by market cap are Bitcoin, Ethereum, Tether, Cardano, and Dogecoin.

Which currency should you go for? Since we’re talking about trading in this article, meaning it’s all about short-term deals, the answer is whichever currencies you’ll be able to sell. To begin with, you may want to look at the top 20 coins to play it safe, and then start exploring something new.

Where to trade cryptocurrency: Crypto exchanges

Cryptocurrencies are usually purchased on exchanges. By analogy with stock exchanges, where you can trade in traditional currencies, there are exchanges that specialize in trading cryptocurrencies.

A cryptocurrency exchange is a marketplace that allows you to buy and sell coins and exchange them one for another, or for other assets like fiat money.

Getting started with an exchange is simple: you need to create an account, get verified, and then you can start buying and selling the coins of your choice.

There are over 300 exchanges as of today, but according to CoinMarketCap the top five are:

The numbers as of May 2021. Source: CoinMarketCap

Crypto exchanges are usually evaluated by their security, traffic, number of coins traded, trading volumes, and average liquidity. It’s also good to know what kind of fiat currencies they support to cash out and what the fees are.

Let’s have a closer look at Binance as an example. As of May 2021, it’s ranked #1 in terms of the trading volume. It charges from 0.02% to 0.10% as purchase and trading fees, from 3% to 4.5% for debit card purchases, free Single Euro Payments Area (SEPA) transfers, or $15 per U.S. wire transfer.

The choice of an exchange can also depend on the trading strategy you choose. Some offer more features for day traders, others have special savings accounts for hodlers (a term that came from a misspelling of “hold”), or those who prefer to buy crypto and hold their positions regardless of price. But, in fact, you can trade on several exchanges at a time; it’s not prohibited.

Where to keep your cryptocurrency: Digital wallets

When you sign up with an exchange to start trading, you need to transfer money into your account. There are two options to do that: you can deposit fiat currencies (such as dollars or euros) directly from your bank card, or you can first create a digital wallet, transfer your money there, and then use it as a major place for keeping your funds.

A crypto wallet is a program that allows you to send, spend, and receive cryptocurrency. Just like bank cards, crypto wallets don’t actually store your coins, but give you access to them using a private key: a unique combination of letters and numbers.

Wallets usually have a fixed rate that applies whether you're buying or selling. Getting started is easy: all you have to do is link your bank card to your wallet, and you're all set.

Why have and pay for a wallet when you can top up your account directly? One of the obvious reasons is paying fees. For example, Binance charges 3.5% per transaction or $10 USD, whichever is higher; Coinbase charges 3.99%. For example, if you transferred $1,000 from your debit card, you’d pay $35-$39.90 on top of that. But there’s an even more important reason why you should consider having a wallet: security.

There’s a catchphrase among crypto investors: “Not your keys, not your coin.” Although exchanges, in general, are quite secure platforms where crypto trading regularly takes place, they are not 100% error-proof, and sometimes there are issues with server failures (overload). The latest example is the crash of the Robinhood platform after Doge’s surge caused by a tweet from Elon Musk.

In addition, exchanges run the risk of being hacked or, who knows, being shut down by the government. So the rule of thumb is to have smaller sums in your exchange account for the sake of trading, while keeping the major funds elsewhere, for example in a cold wallet.

There are two types of wallets: hot and cold. The difference between them is the level of security provided.

Hot wallets are online platforms, desktop or mobile apps that are connected to the internet. This means they’re potentially hackable, but still, they’re very convenient for trading: you can buy and sell fast and on the go. If you have small amounts of crypto at the moment, you might be willing to take the risk for the sake of convenience.

Cold wallets are physical devices that somewhat resemble external Flash drives. They aren’t connected to the internet, so they can hardly be hacked remotely.

Cold wallets are considered the safest storage for crypto assets.

Regardless of the type of wallet, it’s crucial to make sure your keys are safe. If you lose your keys, you will lose all the coins related to those keys.

Getting started as a crypto trader: Basic flow

Let’s imagine you decide to start trading on a crypto exchange. Here’s what a basic trading flow will look like:

Step 1: Choosing a crypto exchange platform.

Step 2: Creating a deposit and topping it up.

Step 3: Selecting the currencies you’re interested in.

Step 4: Placing an order so the platform can find a seller or buyer. When the platform completes the order, it charges a fee for its services.

Step 5: Withdrawing funds to your wallet or bank card.

Does that crypto trading flow look simple? Well, it is! The main challenge is to choose the right asset at the right time. Also, check out our guide on how to trade cryptocurrency to learn more about each step.

Everything you need to know about trading cryptocurrencies: these basics are enough to jump-start your trading journey, or at least look smart in a conversation.

What Is Crypto Trading? A Beginner’s Guide

What Is Crypto Trading? All You Need to Know in Plain English

If you’re a crypto investor or trader, you may have realized that the crypto market is fast-paced, dynamic, and ever-changing. A few short years ago, there was a lot of anticipation around the ICO market. More recently, this excitement has shifted to DeFi (Decentralized Finance) and NFTs (Non-Fungible Tokens).

Now, though, there is something else making waves in the crypto trading world: crypto futures. What are they, are there any pitfalls to buying futures, and what is crypto trading?

So, what is futures trading? Futures contracts are typically called simply “futures” in trading circles. They are investment contracts that allow investors to purchase an asset at a future point in time. The first futures contracts were for crops in agriculture, where a buyer would agree to buy crops that the farmer hadn’t grown yet at a future date. 

Today, the farming and oil industries still rely heavily on futures. Stocks and crypto futures are a little different because there is a large element of speculation and risk involved when working out a futures contract.

How do futures work? — Stock and crypto futures

We’ve just discussed how the basic futures contract works. A buyer agrees to buy an asset at a future point in time for a prearranged value with a seller. This is exactly how it works with both stocks and crypto, except, of course, both the buyer and seller are making bets against one another.

A seller in the stock or crypto context of a futures contract is known as the short or short position holder. They will be hoping that the price they are selling for on the futures contract is higher than the actual value of the asset. A seller may sell one stock on a futures contract for $5, and they’ll be hoping that they’re selling the stock at a profit at that point (i.e., will be valued at less than $5 at the time of sale). A buyer is known as the long or long position holder, and they will be hoping that the value of the stock at the time of sale is higher than the $5 they have agreed to buy at.

Crypto futures are a type of contract that allows traders to bet on the future price of a certain cryptocurrency. Parties can negotiate the conditions of buying/selling assets on a specific date and at a predetermined price.

When it comes to crypto, futures contracts are essentially between buyers and sellers that are betting against each other on the crypto market. As you might imagine, it is risky, especially in a market that is as volatile as the crypto market. For this reason, many futures contracts in the crypto or stock world have margins involved, to help both buyers and sellers mitigate a bit of that risk.

Margins are essentially a deposit to fund the futures contracts you’re involved with. A margin is the minimum amount of money you need in your account to ensure that the futures contract continues and the position is kept open. In this respect, it’s a little bit like an insurance policy or a goodwill payment to show that you intend to keep your end of the futures contract.

Margins can range from 2% to 20% of the value of the contract, but according to the CME Group, in crypto and stocks they typically range from 3% to 12%. If an account no longer meets the margin requirements (i.e., has insufficient funds left in the account), then a margin call will be made. A margin call is to tell a party involved in a futures contract that they must add more money to cover their position or the contract will close.

Margin calls occur when the market moves in the opposite direction of the account holder’s bet. For example, if an account holder expects the price of Bitcoin to increase but the price drops, it will trigger a margin call if that drop is substantial enough to require more investment into the position. This means that in order to keep that position open, more money will need to be allocated, or the position will close, and any losses accrued will be taken from the account holder’s balance.

There are currently two main types of crypto futures, and they (cryptocurrency futures in general) work in an even more nuanced way than traditional stock futures contracts. 

Some cryptocurrency futures are perpetual, unlike the fixed futures contracts described above. The key difference is that a perpetual futures contract can go on indefinitely and has no predetermined end date. This means that a crypto futures trader can keep the position open indefinitely, providing that the account has enough funds to cover the margin.

This is clearly an advantage when markets are moving in the direction of the particular trader, but it does come with a lot of risk because of the volatile nature of cryptocurrency. In the event of a crash, a futures contract can be a terrible place for buyers who have bet on the market increasing in value. 

A good example of this is the recent May 2021 crash, which saw Bitcoin value dive after Chinese authorities cracked down further on Bitcoin. This was partway through a bull market with a lot of investment being made for the bull market to continue, but of course, the crash caused positions to be completely unsustainable with volatility so high that even margin calls couldn’t save open positions fast enough.

The other type does have an expiration date, and normally, brokers that offer them specify that the contract closes on the last day of the month. This isn’t always the case, and some brokers have other time frames. It is important to understand what type of futures contract you’re involved in when it comes to crypto trading, as well as when the expiration date of the contract is.

Any reputable broker will provide this information in a transparent way. Now that you know this, it’s time to discuss how to start crypto futures trading.

What do Bitcoin futures mean for the Bitcoin price?

The Bitcoin price has many contributory factors: from mining to trading and adoption. Lately, though, Bitcoin futures have played a large part in the overall price of Bitcoin. This is one of the easiest parts of the Bitcoin futures market to explain.

Using a futures trading example, if most of the market is betting against the price of Bitcoin rising over the coming months, then the general thing that happens is that the price drops. The reason is that the sentiment of the market changes according to where people are betting on the futures market. If most futures traders are bullish, the market tends to reflect that and be bullish; likewise, if the sentiment of futures traders is bearish, then the market can become bearish too.

Bullish traders or investors believe that the price of the asset will go up. Bearish traders or investors believe that the price of the asset will go down.

This means that big institutional traders that use Bitcoin futures can manipulate the market to some degree. How much this manipulation actually occurs is debatable, and, as mentioned before, there are a lot of different things that go into how much Bitcoin trades at. For example, even seemingly trivial tweets from an influencer can cause markets to move, so it’s difficult to quantify just how much futures trading affects the Bitcoin price.

The general idea is that it does impact the price on some level.

Now that you know how futures contracts work, it’s really important to gauge whether or not they’re the right type of investment for you. There are three things that you should have before entering into the futures market:

A working knowledge of futures contracts with specific knowledge of how crypto futures work.

An ability to conduct in-depth market/coin/token research so that you can make a reasoned and educated assumption of where any crypto is going to be in the future.

A clear understanding of the risk involved.

Currently, Bitcoin futures trading accounts for 75% of all trades, which might seem surprising, but it reflects that Bitcoin futures trading is easily accessible, and quite often, those entering the crypto market prefer to use futures instead of buying the actual currency on a crypto exchange.

Some regulators around the world prevent crypto futures trading because of the risk involved. In the UK, for example, crypto futures trading is banned by the UK regulator for retail customers. This is because a full review of retail investment using future contracts was conducted, and it found that over 70% of all retail futures traders lost all of their money.

Because of the volatility of the cryptocurrency market, you may find yourself tearing your hair out and wondering what the futures are doing.

To mitigate this risk, you MUST follow the three requirements mentioned above and make sure you are trading in a way that doesn’t leave you exposed to losing all of your investment. This is where the concept of hedging comes into play.

Again, being a retail futures investor is very risky. Hedging is a way of mitigating and limiting your risk exposure when you trade in futures contracts. When it comes to Bitcoin or crypto futures, hedging normally means a number of things:

Investing in rival cryptocurrencies to offset any unforeseen loss. For example, holding contracts for EOS and ETH at the same time.

Diversifying your portfolio to encompass a range of cryptocurrencies that have different functions.

Buying put options to prevent large losses. A put option is a contract type that grants its holder the right (but not a commitment) to sell some share of assets at a strike price (set price) within a particular time frame.

All of these options equate to less profit margin, and hedging is often seen as insurance of sorts. For example, if you need to buy other currencies to offset against your preferred currency, this will cost you more money, which eats into your profit margins.

Additionally, put options are very popular methods of hedging in futures contracts, but they cost a premium to buy, and again, eat into profit margins. Anyone who is looking to trade in futures should hedge their investment, so you should always budget for additional costs in your anticipated profit margins.

Without hedging, the crypto futures market can be a terrifying place, and even with hedging, it still has the ability to be a scary place. You will need to know exactly what you’re doing before you get into it.

There are a few pros and cons of crypto futures trading, and some people will find the positives outweigh the negatives, whereas others will be a bit more risk-averse and choose to avoid crypto futures.

Bitcoin is a cryptocurrency that will likely be around for a long while. It has changed and grown dramatically since its inception and is one of the most traded assets in the world. Despite this, you still can’t use Bitcoin to buy things in a traditional currency sense, at least for now,  for a number of reasons, mostly due to transaction speed.

However, if you decide to start trading Bitcoin futures, make sure you choose a reliable platform that can provide you with top-notch service, privacy, and reasonable fees. The most popular options are:

Have you ever wondered what crypto futures trading is? This complete guide will give you all the info you need to know!

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