What is Cryptocurrency Trading
Cryptocurrency trading is simply the act of buying and selling the new digital currencies, at different prices in time, so that a profit is made. This is very interesting because these digital currencies are in an overall up trend, and because there’s significant volatility. Overall, you cannot make a lot of money in classical markets because there’s no much volatility. Some traders can trade anything, even quiet markets, through the use of CFD leverage. But cryptocurrencies are volatile by themselves, there’s no need for much leverage anyway.
I do believe that most retail traders are underfinanced, so they can only commit maybe $500 to $1,000 to their trading. If they use leverage such as 100:1, it may work, but in most strategies it brings too much risk, and traders cannot handle much drawdown. Trading with a small account is the number one reason why many traders lose money in the forex market. So I believe the best way to profit from cryptocurrencies is to trade them at very low leverage, or even at zero leverage. Most CFD brokers offer wide range of choice, so you can choose to open a CFD account with zero leverage.
Many traders trade cryptocurrencies directly through the online exchanges, but due to security concerns, that these exchanges may be hacked, they limit their deposits to only $500. Moreover, online exchanges today cannot cope with trading volume and customer support, because more clients sign up every day, than their infrastructure can handle. That’s why trading cryptocurrencies through CFDs is a better, much better choice. Trading is much faster, liquidity is better, and customer support is perfect as well. You may think that CFDs are all about leverage, but that is not so! Leverage is the smallest benefit, the real big benefits of CFDs are price linearity (they trade just like the real market), and liquidity (there’s always someone to take the other side of your trade). And this makes CFD trading so much faster and better. And of course, CFD brokers are immune to hacking, and funds are insured anyway, up to $20,000 per client account. Even if a CFD broker is bankrupt or possibly hacked, you can legally get your $20,000 back. Whereas with online cryptocurrency exchanges, you cannot even recover $10 if the worst ever happens. Cool cryptocurrency trading is about three things:
- Volatility trading
- Knowing the long term price trend
- Knowing the market adaption trend
List of Some Good Cryptocurrency CFD Trading Brokers:
eToro is a CFD broker that has been around for more than a decade now, it is regulated, very popular, very easy to use and very innovative. That is because it offers an easy to use platform and beginners love it. It offers advanced social trading where you can find profitable traders to follow, and the cryptocurrencies offered are all the popular ones.
AvaTrade is more than 10 years old now, it is regulated in Ireland, it offers Bitcoin, Ethereum Dash and Ripple, and the list is growing fast. Moreover, this broker offers the MetaTrader4 platform, for traders who choose to use it, and it is available in web based form, no download needed. This makes it ideal for traders willing to experiment with custom indicators and expert advisors. And because it’s web based it can be accessed from any device, while away from your desk.
This broker offers both CFDs and binary options. It’s a proven and reliable broker, regulated too. It’s a very good choice for cryptocurrency traders willing to test new strategies where CFD trades on Bitcoin can actually be hedged with binary options, during volatile market hours. All in all it’s a broker that can make you money in the least expected ways, ways that most traders cannot imagine.
UFX is now almost 10 years old, and regulated as well. This broker is more demanding as it requires higher deposits and higher minimum trades. But it is very good for Bitcoin trading at zero leverage, and it offers very good market sentiment analysis tools. At the moment the list of cryptocurrencies is small with this broker, but you can surely do Bitcoin trading very safely, while they introduce more and more cryptocurrencies. The MetaTrader4 platform is offered too.
Bitcoin trading is very exciting today, because it’s the highest priced and most volatile cryptocurrency of them all. And not only that, but it is also predictable in terms of trend and short term overbought/oversold levels. Today, Bitcoin goes up and down by 10% in price, in a matter of one or two days. That means that a $10,000 investment can make $1,000 in a single week, quite effortlessly, no matter how clueless the investor is. Even beginners can make these kinds of returns. But remember, you can only invest safely $10,000 through a good CFD broker, and through a zero leverage account. Moreover, you do know that price will always end up going up. We are still in the early phase!
Bitcoin is a really cool asset, but remember the following:
- Bitcoin may become second to other cryptocurrencies some day
- Bitcoin market adaption may slow down
- Reduced market adaption and reduced liquidity will make it much more volatile at some point
Ethereum is the second most popular cryptocurrency, and it may one day surpass Bitcoin in price (very likely actually). Ethereum is a whole technology which is very promising, and this technology is quite unique and innovative, thereby bringing supportive value to the Ethereum coin price itself. In my opinion it is wise to invest and trade both Bitcoin and Ethereum, but since Ethereum is at lower price today, you should trade it at a larger size, than Bitcoin. Or if you invest, you should invest 10-20 times the amount you would invest in Bitcoin.
The best way to profit, is to actually trade through a zero leverage CFD account. Every trade is actually an investment, no matter how long it is for. And because it’s zero leverage there will be no swap charges. Ethereum is a very promising asset, because it holds great intrinsic value and because at some point it will start to diverge from Bitcoin. So traders will be able to hedge long Bitcoin trades through long Ethereum trades. This is not happening today, but it is bound to happen.
A Deeper Look into Volatility
Cryptocurrencies are all about market adaption, trends and volatility. But you can come up with your own strategies, where the objective is to analyze volatility, and trade market price more effectively. In some cases the trades planed will be much easier to execute, because volatility studies will help you reduce risk.
Volatility is about measuring price movement from point A to point B, then taking into account the period of time of that interval. You know that volatility will have a trend of its own, going from high to low, and from low to high, over and over again, there’s no 3rd possibility. By taking this into account you can make your own indicators in MetaTrader4, and test them out to see how your trading strategy can benefit from this. We don’t know yet how Bitcoin’s volatility will actually work, some markets have positive correlation to their volatility index, while some others have negative or more complicated relationships. But volatility does produce buy and sell signals in all these markets, so watch out for volatility!
Bitcoin vs Ethereum Trading
MetaTrader4 can handle working with more than one markets at the same time, you can actually analyze both Bitcoin and Ethereum in one indicator, or even trade them both through one expert advisor. That is why I believe MetaTrader4 is so powerful. If you find MetaTrader4 confusing or too hard to use, you can always start with eToro’s easier platform and its social trading tools. And when you decide, you can extend your strategies to one more CFD broker offering the MetaTrader4 platform. But the idea is to do your own market analysis in MetaTrader4. It is unlikely that someone will ever sell you a flawless automated expert advisor for MT4, that will make you tons of money. You will have to do your own research into this.
I do insist on Bitcoin and Ethereum, because these two cryptocurrencies are more than enough to make you a lot of money. Just pay attention to the trends, and the underlying market adaption. Classical chart pattern analysis will not work on these cryptocurrencies, because they are way undervalued, and there’s no really such thing as a bearish chart pattern. These two markets simply correct lower a little bit, every time they hit a new record high, then they go straight back up. But even when Bitcoin and Ethereum reach $30,000 or $100,000 or whatever their final levels will be, they will still offer great trading opportunities.