Crypto trading is one of the many ways to make money from cryptocurrencies. People trade a global average of $120 billion in crypto every day. Luckily, anyone can become a crypto trader. This article will help you understand the basics of crypto trading and how to become a crypto trader.
If you’d like to explore other money-making methods, check our guide on ways to make money from crypto. We also give you a free guide with 50 ways to make money from crypto when you complete our free crypto beginners course here. Let’s get into it!
What is a Cryptocurrency?
To become a successful crypto trader, you have to understand what cryptocurrencies are and why they were created.
Bitcoin is the name of the first cryptocurrency and it was created by an anonymous person or group of people named Satoshi Nakamoto in 2008. Currently, there are over 7,000 types of cryptocurrencies.
What are Cryptocurrencies Used For?
Unlike traditional cash, cryptocurrencies aren’t normally controlled by a central organization or government. Cryptocurrencies have a lot of uses, but people mainly use them to:
- Save and protect their income from inflation, government seizure, etc.
- Send and receive money from anywhere in the world.
- Make more money through crypto trading
But enough about crypto 101, let’s talk about crypto trading and how you can make money as a crypto trader.
Who is a Crypto Trader?
A crypto trader is a person that makes money from buying a cryptocurrency and reselling it at a higher price.
Imagine a crypto trader as a business person: they buy goods from a place at price X and sell the goods to another person at a higher price Y. The difference between X and Y is their profit.
But there are risks to look out for. Cryptocurrencies are highly volatile- this means their value is not stable. A crypto trader may lose money if the value of the crypto they bought keeps reducing.
How to Become a Crypto Trader
To become a successful crypto trader, here are 4 things you must do:
1. Do Your Research Properly
A popular term in the crypto community is Do Your Own Research (DYOR). This is because it’s easy to get lost in the buzz surrounding a trending coin. There are also a lot of scams in the crypto space that look legit until you do your research.
You should always try to understand why a coin was created. All Cryptocurrencies are created for a reason. For example, Ethereum was created to allow people to build different types of applications on the blockchain.
The fastest way to understand why a coin was created is by reading its white paper. A white paper is a document that shows why a cryptocurrency was created, its founders, and the technology used to power the cryptocurrency.
Researching the history of a cryptocurrency, its use case, and its creators will prevent you from falling for such scams. It will also help you decide if the coin is worth investing in.
Remember, a coin without a clear use case is a red flag.
2. Choose a Good Crypto Trading Strategy
An important part of becoming a crypto trader is understanding when to sell and when to hold a coin.
A solid crypto trading strategy will protect you from losing money. It’s important to pick a trading strategy that aligns with your goals and allows you to be flexible.
As yourself these questions before you create your trading strategy:
- What is my risk appetite?
- What % of my time and resources do I want to invest?
- Do I want to gain my profit immediately or am I okay with waiting?
Note: When you complete our free crypto academy course, you get a proper beginner’s guide to 10 crypto trading strategies.
3. Pick a Cryptocurrency to Trade
When you know which strategy works for you, you can choose a coin that fits with that strategy. For example, people who want to buy a crypto and hold it for a long time tend to buy a coin like Bitcoin. While people who want to buy and sell the same day will choose a coin with an unstable price.
When choosing, keep in mind that there are thousands of cryptocurrencies, but they can be split into 3 main types:
- Bitcoin: This is the most popular type of cryptocurrency. It has the highest market share worldwide. Bitcoin is mainly used to send money and value from one place to another and it’s available on most exchanges.
- Altcoins: These are cryptocurrencies that are not Bitcoin. Although they share some similarities with Bitcoin, they are not the same. Most altcoins were created to serve other functions apart from storing money. Examples of popular altcoins on Quidax are Ethereum (ETH), Litecoin (LTC), Dogecoin (DOGE), etc.
- Stablecoins: These are altcoins that are tied to a stable currency. This means their value is tied to a country’s currency and they are not as volatile as Bitcoin and other altcoins. Examples of popular Stablecoins are Tether (USDT), USD Coin (USDC), Dai (DAI), etc.
4. Choose a Reliable Cryptocurrency Exchange
After carrying out your research, the next step is to choose an exchange to buy and sell cryptocurrencies.
A cryptocurrency exchange is a place where you can buy and sell different types of Cryptocurrencies. It’s similar to an online marketplace. You can buy and sell coins from an exchange either by depositing cash or by swapping one coin for another coin
Here are 4 things to keep in mind when choosing an exchange:
- Accessibility: Most exchanges are limited and only operate in certain countries. You should make sure you choose an exchange that works in your country.
- Security: You must choose an exchange that’s secure and protected from hackers.
- Trade Fees: Most exchanges collect a fee depending on the type of transaction carried out. Make sure you choose one with reasonable fees.
- Variety: It’s important to choose an exchange that has credible and legit coins that have been profitable for other people. For example, the Quidax exchange has Bitcoin, Ethereum, Litecoin, BNB, Chainlink, Dogecoin, Shiba inu, etc.
5. Automate Your Trading with an Order Book
An order book is a part of a crypto exchange that allows people to buy crypto from people who want to sell and vice versa.
Order books allow traders to place an order for a cryptocurrency based on the price they want. All you have to do is:
- Choose the coin you want to trade.
- Specify the amount you are willing to buy or sell the coin.
- Wait to be matched to a buyer or seller that meets your conditions.
It’s important to know how to read an order book as a Crypto trader. Although the layout of an order book depends on the exchange, there are 2 sides in an order book: The buy-side and the sell-side.
- The Buy Side: This is also known as the bid section. It shows the price traders are willing to buy a coin. The prices are shown in Green.
- The Sell Side: This is also known as the ask section. It shows the price traders are willing to sell a coin for. The prices are shown in Red.
Both sections show the price and quantity (or volume) of the coins that are traded.
Types of Orders on an Order Book
There are also two main types of orders you can place on an order book:
- Market orders
- Limit orders
You place a market order when you’re more interested in the quantity of a cryptocurrency you want to buy than in the price of the crypto. For example, if you want to buy 2 Bitcoin right now at whatever the current price of Bitcoin is, you can place a market order.
You place a limit order when you want to buy a cryptocurrency at a specific price even if it’s higher or lower than the current price of the cryptocurrency.
Bonus: How to Use an Order Book
Let’s use the Quidax exchange order book to make a trade. The first thing you have to do is create a Quidax account. After you have done so, simply navigate to the order book and select the LIMIT tab.
Next, choose the coin pair you would like to trade and if you want to buy or sell.
Enter the number of coins you want to buy/sell and the price you are willing to buy/sell them. Then tap buy or sell to submit your order.
And that’s it! You will automatically be matched with a buyer or seller that’s willing to meet your terms.
Types of Crypto Trading
All crypto trades can be broken down into two main categories: Long term trading and short term trading.
This is when traders buy cryptocurrencies but don’t sell immediately. They believe the value of the coin would be worth more in the future, so they store the coin until then.
It’s not strange to see long term traders hold a coin for months or years, even when other people are selling theirs. Long term trading is perfect for people that don’t like to take chances when investing their money.
This is when traders buy Cryptocurrencies and sell almost immediately. They constantly monitor the prices of coins to get the best deals.
This form of trading is more hands-on and slightly advanced than long term trading. It’s perfect for people that are not afraid to take risks when investing their money.
Common Crypto Trading Strategies
There are different types of long-term and short-term crypto trading strategies, but we are going to explain the 4 common types used by Crypto traders around the world. They are:
Arbitrage is a form of trade where you buy a coin from one Exchange and sell it for a higher price on another Exchange.
Let’s say you notice the price of Bitcoin on Quidax is lower than the price of Bitcoin on Binance. So you buy from Quidax, sell the same Bitcoin on Binance for a higher price, and pocket the profit.
There are 3 types of arbitrage trading
- Exchange arbitrage
- Funding rate arbitrage
- Triangular Arbitrage
Arbitrage is considered a low-risk form of trading because you don’t need to predict the market. All you need to do is spot the difference in price between the 2 exchanges.
But this doesn’t mean there aren’t risks involved. Crypto prices are always fluctuating and the price on the 2nd exchange may change before you complete the trade. This might lead to you having zero or negative profits from the trade.
2. Day Trading
Day trading, also known as intraday trading, is an active form of trading. Crypto traders buy cryptocurrencies and sell them off on the same day. It’s called day trading because traders never hold on to the coin for more than 24 hours.
Crypto traders take advantage of the price fluctuations of Cryptocurrencies. They also analyze the price history of the coin, the market, and other factors to predict when the value of different cryptocurrencies are likely to rise and drop.
3. Scalp Trading
Scalp trading is a form of Day trading that happens in minutes. Crypto traders take advantage of the small price changes that occur in an exchange.
These changes usually happen when:
- There is a difference between the lowest asking price (sell order) and the highest buying price (buy order)
- There is a difference in the number of available cryptocurrencies that can be moved in an exchange
Scalp trading is very fast-paced and high risk. Only skilled and experienced Crypto traders use it as a strategy.
4. Buying and Hodling
Buying and Hodling is a long-term trading strategy. HODL is a crypto term that means “Holding On For Dear life”.
Traders buy cryptocurrencies and hold on to them for a long time. They aren’t influenced by short-term changes in the price of the coin.
Now that you understand Crypto trading and how Crypto traders make their money, it’s time to understand how an order book works.
Crypto trading may be confusing at first, but with time and effort, you will understand it. Remember to do your research and select reliable market exchanges to trade on.
Here at Quidax, our focus is on making trade as easy as possible, from our instant coin swap to our order book that you can easily explore. We also offer a free crypto academy course to get you started. This way, you can have a basic knowledge of crypto and hit the ground running when you sign up on Quidax.