There are thousands of cryptocurrencies in existence, so it can be overwhelming to know where to begin if you want to take advantage of their volatility and get involved in trading. But crypto trading shouldn’t be considered an easy way to get rich quickly – you need to know your stuff so we’re here to give you a quick overview of the basics to consider before you start.
DYOR - Do your own research
The number 1 rule of all crypto trading is to do your research. Each cryptocurrency has its features and use cases (some don’t even technically have a real use case!), so you should always consider why you believe the price of that crypto will rise in the future. Have a read of their whitepaper and understand the project and the Founders goals, or have a read of what other investors have to say about the token before you invest!
Only invest what you can afford to lose
Ultimately, all crypto trading is a risk since there are no guarantees in life. And although the volatile nature of crypto means that you could win big, it can also lose people a lot of money too. So don’t invest all your life savings, particularly if you’re new.
Diversify your portfolio
Following on from our last point, it’s important to consider that if your trade does fail, this doesn’t destroy your entire portfolio. That’s why you should purchase and trade multiple different assets rather than putting all your eggs in 1 basket with 1 token. Taking it a step further, why not try the barbell strategy – where you invest 80% of your assets in low-risk investments or 20% in higher risk. This method is thought to allow your gains and losses to balance out whilst ensuring that you profit overall.
Understand the order book
By understanding an order book, you’ll understand how crypto trades are structured. In any trade, there is a winner and a loser, and you’ll want to buy low and sell high.
When there are more buy orders for an asset than sell orders, the price generally increases since there’s more demand for the crypto. In contrast, when more people sell than buy, the price decreases. On many exchange interfaces such as Wirex’s, you can see whether there are more sales or purchases overall in the market by a red or green colour on the graph. This can help you gauge whether it might be the right time to buy or sell.
Undertake technical and fundamental analysis
Technical and fundamental analysis are the two main trading analysis methods used to help understand crypto behaviour. Fundamental analysis looks at the current economic and financial factors that might influence the price of the token, such as news events like the government announcing a hike in inflation rates. Alternatively, technical analysis looks at the entire price history of the token.
HODL through the dips
HODL is a key term on the growing list of crypto-related slang. It originated in 2013 when a tipsy forum member made a thread entitled I AM HODLING (a misspelling of holding) to declare his decision to hold Bitcoin no matter what. Since then, HODL has stuck around and is now used as an acronym for Hold On for Dear Life - centred on the belief that cryptocurrencies are the future and shouldn't be sold during market dips. There are hundreds of stories out there of people who bought Bitcoin early on and sold it when the price reached a few dollars, not imagining it could get anywhere near the price it is today – proof that if you HODL, you might earn even more than anticipated!
Consider market cap, not just price
It’s important to think about the market cap compared to the price since the price of one share isn't a very good indicator of a company's overall value, size or profitability. A market cap in crypto is the number of available coins circulating (which may increase over time if the tokens are still being mined), multiplied by the current price, usually in dollars. Therefore, a company could have a low price per share because there are a lot available and still have a high market cap, or a high price per share and a low market cap.
The market cap indicates how much traditional currency is invested in each, meaning that we rank cryptocurrencies by market cap, not by price per coin.
Learn different trading strategies
There are many different trading methods out there beyond just buying and selling crypto when you see fit. This includes day trading, margin trading and swing trading, to name a few, and it’s important to understand what works for you and the benefits of each before you use it as your strategy. Our Head of Trading will be discussing the different trading strategies in the next few, so keep your eyes peeled on our blog!
Trading on Wirex
Why not employ all these tips for trading on Wirex? We offer an exchange with 150+ traditional and cryptocurrencies that you can instantly buy, hold, exchange or sell in line with your trading strategy. Alternatively, you can predict the future price of crypto by loaning a portion of your assets with our trading product, Wirex Multiply, with the potential for high returns and high risk.