What is Cryptocurrency and Its Trading Strategy
Simply put, cryptocurrencies (also comprehended as digital currencies, cryptos, virtual assets, or digital assets) are digital forms of currencies. They can be a potential option to pay for goods and services just like traditional currencies. Like how the traditional forms of currencies can be traded against one another on the forex, cryptocurrencies can also be traded against specific pairs on specialized platforms called cryptocurrency exchanges.
The distinction is that unlike traditional currencies such as the U.S. dollar, cryptocurrencies are often not controlled by a single authority. Investing in crypto is also secured utilising complex cryptography correlated with a new form of online public ledger called a blockchain. It is allocated to anyone and everyone curious in having a copy.
Cryptocurrency Markets
When it comes to the available cryptocurrency markets, just like the traditional financial instrument markets, there are two classes: the spot and the derivatives markets.
Crypto spot market
As the name suggests, in a crypto spot market, assets are either bought or sold on the mark, meaning that delivery occurs “on the spot.” If you do Bitcoin trading, the coins are provided immediately, and the charge is also settled immediately. However, you can research the best cryptocurrency to invest in before opening a position.
The spot market is made up of two categories of crypto trade
Makers – these are the initiators of a trade. As a maker, you list a potential trade on an exchange. For instance, if you want to sell your Ethereum coins, you will open a trade at a particular price point, inviting a potential buyer to fulfil your order.
Takers – on the other side of the equation will be the trader that fulfils the order, and these are referred to as takers. As the name suggests, these traders “take” already existing orders and fulfils them.
Makers bring liquidity to the marketplace. There are makers and takers on either side of the purchase coin. There are makers for both buy and sell orders, and consequently, there are takers for both buy and sell orders. An order book is the ledger on which available orders yet to be fulfilled are recorded.
For instance, if you are a buying taker, you could skim through the order book and opt to complete (take) an order that already exists or place an order. The platform will automatically fit your purchase order with an already existing sell order.
Suggested read: What is Ethereum and How does it Work?
Cryptocurrency trading strategy
To be successful in Cryptocurrency trading, you will need an effective trading strategy. What is it? A trading strategy is simply a strategy that you will follow when conducting your trades. It will comprise the kind of assets to invest in, the frequency of your trades, and your investments’ size.
In this section, we will discuss some of the most common crypto trading strategies. Although keep in mind that you can always form your personal strategy that works for you or you can look for a good forex crypto trading company. These strategies could be established on these broad strategies or something completely new.
Day trading and Scalping
A crypto day trading strategy allows the trader to take full advantage of cryptocurrency assets’ price volatility. As mentioned earlier, virtual assets are currently extremely volatile, which works to the advantage of a day trader.
The day trading strategy is a game of numbers strategy. A day trader will make multiple trades within a day, buying low and selling high within little gains that compound to large sums by the end of the day.
Scalping
Scalping (a trading strategy in which traders profit off diminutive price changes) is a part of day trading but generally involves brief trading periods.
When either day trading or scalping, many trades will result in both wins and losses. The idea is to make sure that the win/loss ratio is in your favour. Score more wins to consider your strategy a success.
Takeaway
Trading cryptocurrencies needs a good trading platform that can execute your orders rapidly. Crypto traders are often prone to a maximum risk of loss as well as they earn huge profits in comparison to Forex, Oil or Indices.