Cryptocurrency trading is one of the top 5 ways to make money in the crypto world. In this article, we would like to present some basic definitions related to trading which can introduce you to making money this way, available on CoinCasso Exchange (with a very low fee: 0.25%).
It is simply the exchange of cryptocurrencies. It works similar to Forex trading – you can buy or sell a cryptocurrency for another cryptocurrency or FIAT currency like EUR or USD. On CoinCasso exchange, there are available following trading pairs: BTC / EUR, BCH / BTC, DASH / BTC, ETC / BTC, ETH / BTC, LTC / BTC, BCH / EUR, DASH / EUR, ETC / EUR, ETH / EUR, LTC / EUR. In its most basic form, trading is based on buying for a lower price and selling for a higher price.
It is a process of buying and selling an asset (for example cryptocurrencies) in a short period of time. You speculate on the value of a cryptocurrency with a hope that its price will increase (after you bought it) or decrease (after you sold it). In simple words – buy low, sell high! The short-term nature of day trading means that it is the opposite of hodling (check out our article Cryptocurrency for Dummies to understand the definition).
A so-called leverage trading (or margin trading) involves borrowing funds and investing more than your actual capital. For example, a 4:1 leverage means that you place trades 4 times bigger than your starting amount of money – the loan is usually taken from a broker (in case of cryptocurrencies, from a cryptocurrency exchange). The higher the leverage, the bigger possible profit, but also the greater chance that you will lose money. For example, you have 1 BTC and a price of BTC at the time you trade is equal to 3000 USD. You predict that the price will go up and you trade with 10:1 leverage. The price indeed goes up to 4000 USD (33% increase), therefore, from the total 10 BTC capital reaches 13,3 BTC. Your profit is calculated as: 13,3 BTC – 9 BTC (the amount borrowed from cryptocurrency exchange), so it is 4,3 BTC minus fees. It sounds so easy, doesn’t it? The thing is that if the price goes down by a certain amount set by cryptocurrency exchange, you lose your entire 1 BTC! This price is called a liquid price. The higher the leverage, the higher the liquid price is.
Money and risk management is the way you manage your investment money. According to the basic strategy of trading, in a single trade, you should never invest more than 5% of your capital. It is better to focus on small, safe profits rather than risky “one-time” scores. One of the strategies in risk and money management is setting stop losses and limit orders (check the definitions below).
An order is an instruction to buy or sell on a trading venue (in case of cryptocurrencies, on a cryptocurrency exchange). The simplest examples: “Buy 2BTC Price $3700”, “Sell 0,5 ETH Price $150”. Below you can read definitions about different types of orders:
As we have already mentioned, one of the basic strategies in your money management should be setting stop losses – to decrease the chance of going broke. Stop order is also called a “stop-loss order”. How does it work? For example, you bought Bitcoins for a price of $3400. You would like to sell for $3700, but you want to reduce risk and you set your stop loss to $3300. It means that you will sell cryptocurrency for $3300 if it reaches this market price – that way, you reduce possible losses (for example if the price would drop down to $2800 and you won’t set a stop loss, you could lose more than you could afford). Stop order is also a part of risk management strategy.
In this type of order, you can buy or sell a cryptocurrency only at a specific price, lower/higher than the one on the market. For example, if you the current price of BTC is equal to 4000 USD, and you set buy limit order to 3800$, a system will buy automatically for you BTC only if it will reach the price you have set (or a lower one). Analogically, if you set sell limit order 4200$, your BTC will be sold only when the price will reach 4200$ (or a higher price). Obviously, you can’t set buy limit order higher than the current market price and sell limit order lower than the current market price – it just doesn’t make any sense.
The stop-limit order is a hidden type of order. Therefore, other people can’t see it and it can’t influence their decisions. Once the market price reaches a stop limit order price, it is executed. There two prices you set in this type of order. Let’s take a look at an example. You want to buy BTC for 3500$ but you set stop limit order for $3450. Then, once the market price reaches $3450, your order is visible and executed – you have just bought BTC for $3500.
Instant order is another type of order. It is realized immediately under the current price on the market. Therefore, it is easy to use. We recommend instant orders for users who want to make a transaction immediately.
Day trading has the potential to generate both large profits and large losses. A conservative trading strategy is highly recommended for everyone, especially for beginners. Remember that cryptocurrency trading requires a high technical knowledge and you need a lot of preparation before trying your hand in it. If you will decide to pull the trigger though, we wish you good luck!
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