Highly successful traders have made cumulative gains over several years marked by perseverance, careful research, unemotional decisions, realistic approaches and invested time and patience.
- Cryptocurrency trading is highly speculative in nature
- Cryptocurrency traders are responsible for their funds
- Extensive research and monitoring are part of a successful trading strategy
- Cryptocurrency prices are highly volatile and therefore subject to sharp fluctuations
In this lesson, you are going to learn about everything you need to know before you start cryptocurrency trading.
How to trade crypto
As you have learned in lesson 1 of the Bitpanda Academy’s Intermediate section, cryptocurrency brokers and cryptocurrency exchanges are your best options if you want to start trading cryptocurrencies.
Bitpanda is the leading trading platform for digital assets including a cryptocurrency broker - Bitpanda - as well as a cryptocurrency exchange - Bitpanda Pro.
Direct platforms would be a third option but we won’t delve into them. These are online marketplaces for peer-to-peer trading between buyers and sellers without fixed market prices that obviously carry inherent risks and are not recommended.
Responsible cryptocurrency trading
The internet offers an almost infinite number of websites on how to start crypto trading, however, we, as always, advise you to do your own research on an ongoing basis, like any advanced or seasoned trader will tell you.
Mount Everest, not Mount Gox
In lesson 11 of the Bitpanda Academy beginners’ section, you learned about the hack of Mt. Gox. The hack of Mt. Gox is the largest hack since the emergence of Bitcoin and led to the exchange filing for bankruptcy in 2014. We are mentioning this incident here because the same fundamental principle applies to both trading cryptocurrencies on an exchange and to cryptocurrency speculation: proceed with caution in the crypto space.
First and foremost, the foundation of all crypto investments is ensuring that you are handling your funds - both fiat currencies and cryptocurrencies - in a safe manner as outlined in this article of the Bitpanda Academy.
Proceed with caution
We have all heard of the friend of a friend who is a Bitcoin millionaire, owns five Lambos and got rich from speculating within two weeks. In real life, highly successful traders have made cumulative gains over several years marked by perseverance, careful research, unemotional decisions, realistic approaches and invested time and patience. They have learned from their mistakes while increasing their funds in a steady and responsible way, more similar to a hike up Mount Everest than becoming a millionaire overnight.
Choosing an exchange
Once you are comfortable with your knowledge of cryptocurrencies and blockchain technology, you can begin to investigate which reputable cryptocurrency exchange is the most suitable for your needs.
First-time users choosing a cryptocurrency exchange should research whether the exchange of their choice offers state-of-the-art safety, current user reviews, API technology and information on the team operating the platform as well as traditional financial indicators, including past and present performance. Also, there are a number of other factors you may want to take into consideration when choosing the exchange that is most suitable for you.
Ongoing market research
Doing your research of what is happening in the international cryptocurrency markets is an ongoing project that takes regular effort and time. Make sure you keep on top of the latest technological developments for the cryptocurrencies you want to trade, as well as of current trends, upcoming forks and regulatory issues and developments by reading cryptocurrency-specific publications, following social media and attending industry events.
Losing all your funds
Before you start trading, make sure that you are prepared to lose all the money you have allocated for trading. Yes, you are reading that right. This is not to be fatalistic but you have to be aware of the risks associated with cryptocurrencies as a store of value and cryptocurrency trading before you begin. Never invest more than you can afford to lose.
Extreme volatility and intrinsic value
All cryptocurrencies - some more than others - are subject to market fluctuations, meaning sharp, sudden and often unpredictable drops and rises in price. The extreme volatility of cryptocurrencies, in addition to the fact that they are traded internationally without boundaries or intermediaries 24 hours a day, 7 days a week, means that an investor has to be prepared and take the time to monitor assets closely. As the value attributed to cryptocurrencies is perceived, a cryptocurrency has value as long as the market attributes value to it, if this is no longer the case, the price of the coin will decline, or sometimes even crash.
Exchange hacks and regulations
Despite continuous improvements and innovations in terms of exchange safety, exchanges are still vulnerable to hacks and scams. Cryptocurrency trading is not regulated by central entities such as governments or banks. Therefore you, as a cryptocurrency trader and investor, you are yourself responsible for monitoring and executing your trades and safely handling your funds entirely on your own, including cases of negligence and fraud.
Safe access and transfer of cryptocurrencies
Make sure that you understand everything about private keys, public keys and wallet addresses. One of the strong points of blockchain technology is its outstanding safety, however, the fact that all transactions are also irreversible means that once you have transferred your coins to an address, this transaction is final and cannot be undone. Your cryptocurrencies will also be lost if you lose the private keys to your wallets. So make sure you double-check and triple-check every transaction you make in the blockchain to avoid mistakes - it is better to be safe than sorry.
Investing within your means
Investing in cryptocurrencies and cryptocurrency trading are both highly speculative in nature. Cryptocurrency investing is high-risk investing. Do your research and have a plan before you start investing. It goes without saying that you should never invest any amount of funds that could affect your personal financial situation to the extent that your life is negatively impacted. Batching your funds into different projects, monitoring your trades closely and making necessary adjustments to trades in due time are fundamental to successful trading.
Losses from mistakes
Despite research and paying close attention to market trends and developments, losses incurred from unsuccessful trades, volatility and emotional decisions are bound to happen to almost all cryptocurrency traders. You may need to exit some trades prematurely after making a rational decision and sometimes, count your losses, learn from crypto trading mistakes and understand why they happened.
In conclusion, if you are ready to invest your time in addition to funds, if you allot time to research and closely monitor the markets and execution of a sound trading strategy, cryptocurrency trading may turn into an innovative, gratifying venture for you.