- Is crypto trading a profitable business venture?
- What are the upsides and downsides of crypto trading?
- Is crypto trading suitable for everyone?
Crypto has become the most profitable form of investment over the last ten years regarding return on investment. While many institutional investors downgrade cryptocurrency as an investment with no intrinsic value, the market grows over time. According to data collected by Pew Research, about 16 percent of Americans have tried their hands at trading or investing in crypto.
The worldwide acceptance of crypto is massive, attracting more than 100 million users to date. As a result, this market has become a $1.8 trillion industry today. Crypto can penetrate geographical boundaries and has become a global phenomenon. However, investors should not set their eyes solely on the potential return. Smart investors try to see the bigger picture. Crypto trading is rewarding, but the risk is substantially high.
What is crypto trading?
Crypto trading aims to take advantage of price fluctuations to generate profit by capturing a few pips of movement. It is the process of buying and selling crypto assets. It follows the same concept as trading the stock market or foreign exchange market. The difference is that you can only buy crypto assets at first. Short selling is not yet possible.
Using fundamental or technical analysis, you can estimate if a market is ready to make another upward movement and time your entries accordingly. Unlike investing, crypto trading has a shorter time duration. Depending on your strategy, you can close your trades within the day or let them simmer for a week or more. To mitigate the volatility risk, traders often apply a stop loss strategy. Below is an image showing Ethereum and other coins to trade.
How to trade crypto?
Before you can begin trading crypto, you must put in place certain things.
Below are some of the steps you must take to start trading crypto:
- Select a crypto exchange or trading platform where you can conduct trading operations. Before opening a trading account, thoroughly check an exchange or platform for legitimacy or credibility. To avoid falling victim to crypto scams, work only with an exchange or platform with a proven track record.
- Add money to your account. Then you can convert your local money into a stablecoin such as USDT. From there, you can buy any crypto-asset of your choice. This process often requires connecting a bank account to an exchange or platform.
- Select crypto assets to buy. It would help if you made trading decisions based on your tested trading strategy. Typically, you will need to keep a list of favorite crypto symbols and trade them exclusively once an opportunity comes up. Once you have spotted a trade signal, decide how much money or coins you would like to risk in the trade.
You can use various approaches in trading crypto. The two popular approaches are technical and fundamental analyses. Of the two methods, technical analysis is the go-to strategy for beginners. This is because this approach is easier to learn for newbies than the other approach.
Speaking of technical analysis, the domain teems with various strategies. Among them are indicator trading and price action trading. Whatever method you decide to use, write it down, follow it diligently, and give it some time to prove itself. To prevent unnecessary losses, make sure you test your strategy on a demo account. The above image shows an example of indicator trading.
Pros and cons of crypto trading
Although crypto trading offers an opportunity to make hefty money quickly, diving into it right away is not a good idea. You must understand the battlefield before you engage. Here are some of the pros and cons of crypto trading you must be aware of.
| Pros | Cons |
| Simplified trading approach Since you can only take buy positions, your analysis is way simpler and faster than forex trading. You need to wait for the price to become oversold or hit a discount zone, and then you take action. | Uncontrolled volatility Market volatility is good as it encourages trading. However, too much volatility is dangerous, especially for beginners. You could lose your entire investment capital if you take a significantly large position and do not use stop-loss protection. |
| Short-term trading approaches are applicable Because crypto prices move up and down quickly and substantially, you have the opportunity to find long trading opportunities even if the bias is predominantly bearish. All you need is a few pips of movement, and you are out of the market. | Less secure assets Hacking incidents in major crypto exchanges like Binance happen from time to time. Investors lose millions of dollars in every incident with little or no chance of recovery. Therefore, professional investors caution new investors about keeping coins within exchanges. |
| The whole market moves in unison As you gain more experience in trading the crypto market, you will realize that the market dances to the same tune. Altcoins seem to follow the leader Bitcoin in its motion. You may not trade many crypto coins then. Just a handful of them will do. Most of the time, they move in harmony. The image below shows some of the major cryptos available for trading. | Proliferation of scams As more and more people are drawn toward crypto trading, an equal number of scammers are also entering the space. News organization Financial Times has estimated the total amount of money lost in crypto scams to $7.8 billion, about $3.2 billion in 2021. |
Final thoughts
Crypto trading is an exciting venture full of promises. However, the road to success is littered with humps. Many souls have tried traveling this road, but very few get to the end with the ultimate reward. Despite the sad and painful reality, people come to the crypto market full of enthusiasm time and time again. They often leave the market in low spirits.
This is the reality in crypto trading you must be aware of. Therefore, before you engage, make sure you set yourself up for success. Learn as much about the market and figure out a solution to the highly complicated market equation. Understand what variables play into the equation and develop a formula that will lead to long-term profitability.