Cryptocurrencies future are one of the most controversial things to hit computing and finance in the past decade. Within that time, crypto skeptics have been prophesying a massive crypto crash, which has yet to happen. While there have been some dips in the market, there are a lot of serious and casual crypto traders who are making huge profits each day.
The best way to understand cryptocurrency trading is to try it out for yourself, preferably with a secure coin like Monero and an appropriate XMR wallet. By trading small amounts of a private cryptocurrency, you can get a feel for how the cryptocurrency market works and you get the confidence you need to trade larger amounts of Monero or other popular coins.
If you’re completely new to the idea of crypto trading, don’t worry. We’ll take you through the basics of crypto trading and explain how you may potentially profit from it.
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How Do I Trade Crypto?
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Cryptocurrency trading is most often facilitated either through contract for difference (CFD) trading or buying and selling the coins directly through an exchange.
CFDs are a type of derivative that allows traders to speculate on cryptocurrencies and other assets. These are most often available through brokers, who may also trade other assets. Traders can choose to go long (buy) if they believe a coin will appreciate in value. If they think the coin’s value will decrease, you can go short (sell) on the CFD.
As CFDs are derivatives, traders only need to put up a deposit that is at a given fraction of the value of the asset. Earnings and losses are calculated according to how cash is put into the position, which amplifies potential earnings and losses.
Purchasing cryptocurrencies in an exchange means you get direct ownership of purchased coins. Purchasing via an exchange usually entails the following:
- Creating an exchange account
- Purchasing coins with conventional currency or other assets
- Opening a position for the asset you want to sell
- Storing the coins in a compatible digital wallet
Exchanges all work in different ways. Some have deposit limits, subscription fees, and unique technical limits that may not apply to others.
Regardless of whether you choose CFDs, exchanges, crypto wallet or some other platform, you will need to learn how to interpret market data. There may also be some differences in how each cryptocurrency market behaves, which means thoughtful analysis is necessary to maximize gains and mitigate potential losses.
How Do I Get Profits from Crypto?
Cryptocurrencies can create profits for HODLers (holders, or traders who hold off on selling their crypto assets immediately, in crypto slang) in a variety of ways:
- Buy and “HODL”. This is a straightforward strategy that involves purchasing coins and waiting until their value peaks. Once the value of the purchased coins peaks, HODLers can then sell at a profit. Successfully profiting from a buy and HODL strategy requires patience, psychological fortitude, and a good feel for the market behavior associated with a given coin. Some crypto traders also try to diversify their crypto HODLings to spread out the risk of price shifts.
- Affiliate Programs. Some crypto platforms have affiliate marketing programs that pay exchange users coins or conventional currency for referring new users. Generally speaking, the way affiliate programs work is that the crypto exchange will give an affiliate a special link that leads to the platform’s sign-up page. The affiliate can then share the link on social media, forums, chat groups, or other suitable places online. Commissions are then given to the affiliate each time someone makes a purchase or signs up through the link.
- Mining. Cryptography puzzles are an essential component of blockchain technologies such as cryptocurrency. These puzzles keep cryptocurrency networks decentralized and help them avoid using potentially compromised 3rd parties for authentication. Some cryptocurrency networks offer coins to participants who contribute computing power towards solving these puzzles. Participants who do this methodically are said to be “mining” for coins.
- Staking. Some cryptocurrencies permit staking. Staking allows HODLers to earn more coins simply by HODLing, similar to interest from a savings account or a time deposit. When an amount is staked, the cryptocurrency network will typically use the coins as part of a consensus-based verification system. Staking often requires a “lockup” period, where the funds could not be moved for a given time.
- Day trading. Cryptocurrencies can also be traded in much the same ways as stocks and securities. Day trading cryptocurrencies involves buying and selling coins within a day, with the goal of profiting from the day’s price fluctuations. While risky, day trading offers well-prepared traders a way to quickly earn large profits in a short amount of time.
Should You Try Crypto Trading?
Cryptocurrency markets are among the most volatile out there. The risks are real and you should only trade coins if you have seriously considered the implications.
That said, the best way to learn how crypto markets work is to participate in them. Acquiring a digital wallet and purchasing a small amount of cryptocurrency can help you get to grips with the analytics and other technical aspects of crypto trading. This way, you can protect your privacy, limit your risk exposure, and make better-informed decisions on your financial future.