Can You Get Rich By Trading Cryptocurrency? The Ultimate Guide to Profitable Crypto Trading
The goal of every cryptocurrency trader is to generate consistent profits. However, how each trader approaches their financial goals can differ widely from one to another.
While some traders enter the cryptocurrency market in hopes to make regular but modest gains, others look to buy and hold in the long-term.
Regardless of the strategy you opt for, if you are looking to start a successful trading career - you need to be willing to do your fair share of work. This involves educating yourself in order to fully comprehend how the cryptocurrency market works.
In doing so, you will be able to find lucrative opportunities that will give you the best chance possible of growing your capital.
The internet is jam-packed with crypto experts that claim to have made millions from buying and selling cryptocurrency pairs. But, this claim is rarely the reality.
With that being said, It is entirely possible to make a full-time living by trading cryptocurrency. In order to do this, however, you need to have a firm fraps of how the crypto industry works.
In this guide, we explore whether or not it is possible to get rich by trading cryptocurrency. We teach you everything you need to know to be successful in the crypto arena and what steps you need to take to ensure you are able to trade in a risk-averse manner.
Most importantly, you will learn why it is crucial to choose the right online cryptocurrency broker and how you can find one. At the end of our guide, you will have all the information you need to get started with your cryptocurrency trading endeavours today.
Step 1: Learn the Basics of Cryptocurrencies
In Layman’s Terms, cryptocurrencies are digital coins. However, what makes this asset class different is that crypto-assets are decentralized and based on blockchain technology.
Meaning - unlike fiat currencies such as the US dollar or the British pound, no central authority manages the respective cryptocurrency. As such, this digital asset is immune to manipulation or any other governmental interference.
In all likelihood, you might have already heard of the most popular cryptocurrencies - such as Bitcoin and Ethereum. With that said, there are over 8,000 different digital currencies available in the market today.
Crucially, a large percentage of traditional businesses are integrating cryptocurrencies into their platforms in some capacity - or using it as a medium to initiate other endeavours.
As cryptocurrencies are becoming more mainstream, the industry has also managed to gain more attention from larger-scale investors and seasoned traders.
What is Cryptocurrency Trading?
When you trade cryptocurrencies - you are speculating the future value of the respective digital coin. For example, if you are trading Litecoin, you are making an attempt to predict whether the price of the asset will rise or fall in the market.
Based on this speculation, you will place a buy order or a sell order. If your prediction is right, you will make a profit on your cryptocurrency trade.
Here is an example to clear the mist:
Let's say that you want to trade Ethereum against the US dollar.
On cryptocurrency trading platforms - you will find this denoted as ETH/USD.
The pair ETH/USD is quoted at $1,700.
You set up a buy order worth £5,000 on the pair.
After a few hours, ETH/USD has an exchange rate of £$,725.
This means a price increase of 1.47%.
On your £5,000 stake - you made a profit of £73.5.
As you can see - since your prediction came to fruition, you are able to make money on this trade.
With that said, you can also make money when the price of a cryptocurrency falls. In this case, you will be selling the cryptocurrency through a sell order, so that you can buy it back at a lower price - making a profit in the process.
This is known as short-selling, which we cover in more detail later on.
Needless to say, you are looking to make consistent profits when trading cryptocurrencies. As such - you will need to make more winning predictions than losing ones.
In order to do this, you need to understand what drives the price of the cryptocurrencies you are trading.
By and large, cryptocurrency tradingcanmake you rich if you are able to predict the market correctly and place smart trades accordingly.
But before we advance any further, let us explain how cryptocurrency pairs work.
Cryptocurrency Trading Pairs
Cryptocurrency trading pairs are digital assets that can be exchanged during a trade.
For instance, if you see the trading pair ETH/USD, then it means that you can exchange ETH (Ethereum) for USD (US dollars).
In the cryptocurrency scene, you can find trading pairs classified into two categories: fiat-to-crypto pairs and crypto-to-crypto pairs.
Let us dig deeper into each type to gain a better understanding.
Fiat-to-Crypto Trading Pairs
In a trading pair, there is a base currency and a quote currency. As you can guess, in a fiat-to-crypto pair - you will be exchanging a cryptocurrency for a fiat currency.
Put differently, when you see a fiat-to-crypto trading pair such as ETH/USD or ETH/EUR - it tells you the price of the digital coin quoted in terms of the fiat currency.
For example, if ETH/USD is priced at $1,500 - it means that one Ethereum is priced at $1,500.
Cryptocurrencies are most commonly traded against USD - as it is considered the global benchmark currency. That said, you will also be able to find trading pairs offered in other fiat currencies.
For example, aside from ETH/USD, you will also come across ETH/EUR (euro), ETH/JPY (Japanese yen), ETH/AUD (Australian dollar), and more.
However, when you choose a fiat-to-crypto pair, it is best to make sure that the respective market offers sufficient liquidity.
Consider this example of fiat-to-crypto trade:
Let's say you want to trade Cardano against USD.
You will see this trading pair denoted as ADA/USD on cryptocurrency platforms.
The currency price of ADA/USD is quoted at $1.15.
You predict that the pair is about to increase in value - so you place a buy order worth $100.
After a few days, the price of ADA/USD rises to $1.30.
This translates to an increase of 13.04%.
Wanting to cash out - you place up a sell order.
In this case, you closed the trade with a profit of $13.04 on your $100 stake.
A fiat-to-crypto pair is often preferred by beginners, as they allow you to tap into tight spreads and low commissions. Moreover, it is relatively easier to qualify your profits and losses when there is a fiat currency in the pair.
Alternatively, you can also trade cryptocurrencies against other digital currencies - which brings us to the next pair category.
Crypto-to-Crypto Trading Pairs
Cryptocurrency trading platforms also allow you to exchange one cryptocurrency for another. In this case, you will see trading pairs such as BTC/ETH or BTC/XLM.
For instance, if you come across the pair ETH/BTC quoted at 0.034, it means that for every Ethereum coin you trade, you will get 0.034 Bitcoin in return.
As a trader, your objective is to predict if this exchange rate of the trading pair will increase or decrease.
And as one can imagine, it might be difficult to get your head wrapped around these price calculations at first. Consequently, as we mentioned above, many traders choose to get started with fiat-to-crypto pairs when venturing into the cryptocurrency trading scene.
Step 2: Understand How Cryptocurrency Orders Work
Cryptocurrency trading is a fairly new concept. However, it draws many parallels to conventional trading methods - especially when it comes to trading orders.
These are used to indicate to your chosen broker what action you want to take.
For instance, if you expect that the price of BTC/USD is likely to go up - then you will place a buy order with your broker. This will convey that you are going long on the trading pair.
Similarly, you will also need to place the appropriate trading order when you are looking to exit the trade.
Here is a list of the most common orders used by traders of all levels.
Buy/Sell Orders
Buy and sell orders are at the core of any trade you place.
The concept is quite simple:
If you believe that the price of a cryptocurrency pair is going to increase - then you set up a buy order.
If you believe that the price of the cryptocurrency pair is about to drop - you will set up a sell order.
Every trade you place will be opened with one of these orders and closed with the other.
That is to say, if you open a position with a buy order, then to exit the market, you will use a sell order. The same works inversely as well.
Market/Limit Orders
In the largely volatile cryptocurrency market, it is crucial that you have control over how you enter the market. In trading, this is achieved by using a market or limit order.
When you place a market order, you are conveying to the broker that you want to carry out the trade at the next best available price. As such, your broker is supposed to carry out the order immediately.
However, considering that the exchange rate fluctuates with every second - there could be a small difference between the price you see on screen and the price at which the order is carried out. In trading terms, this is called slippage.
For example, you see that the pair LTC/USD is priced at $199.01, and you decide to place a market buy order. Once the order is executed, you might note that the price you got was $199.03.
On the other hand, if you want to secure a specific price - this is when you use a limit order. It allows you to mention to your broker the exact price at which you want the order to be executed.
For instance, let's say that the pair LTC/USD is priced at $199.05. You want to open the position only when the exchange pair hits $199.97. In this case, you will use a limit order.
Note that limit orders will be carried out only when the market matches your specified price. Until then, your order will remain pending, or you can choose to cancel it manually.
Stop-Loss/Take-Profit Orders
Now that we know how you can enter the market as you wish, you need to consider how you can exit the trade at the right time.
Stop-loss and take-profit orders enable you to specify at which prices you want to close your position.
Stop-loss orders are used to exit the crypto market to prevent any further losses.
Take-profit orders are the opposite, as they allow you to exit the crypto trade once you have achieved a specific profit target.
Although these order types are not compulsory, experienced professionals make it a point to utilize these orders in order to mitigate risk.
As such, whenever you enter a trade, it is best to have both stop-loss and take-profit orders set in place. This will ensure that no matter which direction the market moves, you have an exit strategy that will close your position automatically.
Example of a Cryptocurrency Trade with Multiple Orders
As we discussed, you can use four different types of orders with a single trade - including a buy/sell order, a market/limit order, a take-profit order, and a stop-loss order.
For a beginner, handling all these orders at once might seem daunting at first. As such, let us give you an example to illustrate how this works in the cryptocurrency trading market.
Let us say that you want to trade DASH/USD - currently quoted at $230.50.
Believing that the exchange rate is undervalued - you create a buy order.
However, you don't want to open your position until the price of DASH/USD rises to $230.55.
Therefore, you place a limit order at $230.55.
If the exchange pair hits your profit target of $231.65 - you want to cash out. Therefore, you create a take-profit order at $231.65.
You also want to limit your losses - so you create a stop-loss order at $230.00.
In a matter of minutes, the price of DASH/USD rises to $230.55 - meaning that your limit order will be activated at this price. From this point, the trade could go in two ways:
If you predicted correctly and the price of DASH/USD increases to $231.65 - your take-profit order will be executed. Your broker will exit the trade only when the profit target is reached.
If your prediction is wrong and the price of DASH/USD decreases to $230.00, your stop-loss order will be activated, and the trade will be closed automatically.
Additionally, for every trade, you will also have to calculate how much you are willing to risk in order to obtain your desired profit. In trading terms, this is called the risk-reward-ratio.
In this example, you are willing to take the risk of losing $0.55 (£230.55- $230.00) to achieve a reward of $1.65 ($231.65-$230.55) - for each unit traded.
In more simple terms, your risk-reward on this trade comes works out at 1:3 (since you are risking $0.55 to gain $1.65), which is a sensible ratio often utilized by experienced investors.
Would You Consider Trading Cryptocurrencies?
Step 3: Learn how to Calculate Profit and Loss When Trading Cryptocurrency
The aforementioned orders can help you take on the market without having to manually watch over every trade.
However, if you want to make consistent profits, you should also be armed with other resources.
One of the most important aspects is to be able to calculate how much you want to make from a crypto trade and what you can afford to risk. These figures are crucial when planning your trading strategies.
Here is a list of what you need to look for when trying to make money by trading cryptocurrency.
Stakes
In a nutshell, your stake is how much you are willing to put forth on the respective crypto trade.
Traders have different approaches to decide the amount of stake they should put up on each position. That said, generally, traders prefer not to risk more than 1% of their available trading capital.
To explain better - if you have £1,000 in your trading balance, you will not risk more than £10 on a single trade. Many newbie traders tend to look over this aspect when it comes to calculating their risks.
That said, it is almost practically impossible to make viable profits when you are trading cryptocurrencies with such small stakes. In other words, you will have to place tons of successful trades in order to make cryptocurrency trading worthwhile.
However, by applying the concepts of leverage and margin, you can exponentially increase your profits without having to stake large sums. We will discuss this in detail briefly.
Profit and Loss in Percentage Terms
For beginners, one of the most effective ways to calculate the profit and risk of a trade is in terms of percentages.
For instance, say that the LTC/GBP trading pair increases in value from £140.92 to £142.00 This translates to a percentage increase of 0.76%.
If you had staked £1,000 on LTC/GBP, this translates to a profit of £7.60.
The good news is that the best cryptocurrency brokers will display the rise and fall of cryptocurrency prices in percentage terms anyway.
Here is one more example:
You place a buy order on LTC/GBP at £190.
After a few hours, the pair is priced at £190.50.
This shows an increase in price by 0.26%.
If you staked £1,000 - this means a profit of £2.60.
As evident, it is relatively easier for you to qualify how much you are likely to profit and how much you are risking in terms of percentages.
Leverage and Margin
As we briefly mentioned earlier, leverage and margin is a popular way for cryptocurrency traders use to enhance their profits.
In short, leveraging allows you to stake more money than you have - by essentially borrowing the rest from your broker.
To give you an example, suppose that you have £100 in your trading account. By applying leverage of 1:10, you can amplify your stake to £1,000 - 10 times more than the amount you hold.
In other words, you can use leverage to magnify your stake on a trade by a predefined factor.
As evident, leverage can provide you with a number of benefits. The most obvious aspect is that you can boost your profits from successful trades. Having said that, it is also important to note that leverage can magnify your losses too.
Here we have an example to demonstrate the case of trading digital currencies with leverage.
Consider that you want to trade LTC/GBP.
The pair is currently priced at £250.
Thinking that the price is about to rise, you place a buy order at a stake of £1,000.
As you are confident about your speculation, you decide to apply leverage of 1:10.
A few hours later, the value of LTC/GBP increases to £255 - showing a profit percentage of 2%.
On your £1,000 stake - you thus made gains of £20.
However, since you applied leverage of 1:10 - your profit will be amplified to £200.
As you can gather from this example, a single highly leveraged trade can bring you considerable profits - given that it is successful. However, if your speculation is wrong, your profits will be replaced with magnified losses.
This could lead to 'liquidation' of your leveraged position - meaning you to lose your entire 'margin.'
Let us explore what these two terms mean.
Margin and Liquidation
When you choose to trade crypto with leverage, your online broker will require you to put forth a margin.
Look at it this way. Leveraging means you are taking money on credit from your broker. As such, you will need to offer a security deposit in case the trade goes against you - this amount is called margin.
In a trade, the amount you stake is what is considered as the margin.
For example, if you have £500 in your trading account, and you applied leverage of 1:10 - your position is now worth £5,000. Hence, the margin on this trade is considered the initial £500 you staked. In this trade, it comes to 10% of your position.
So what role does margin play in your crypto trade?
Simply put, if the cryptocurrency trade went against your speculation by 10%, your broker will be forced to automatically close your position - and your margin amount will be automatically consumed. In other words, your position would be liquidated.'
One way to tackle getting liquidated is to have a stop-loss order in place. For instance, in the above example, if you have a stop-loss of 5% - then you will not have to worry about the 10% liquidation point.
Leverage Limits
As evident by now, leveraging can be extremely risky - especially if you are not fully aware of the repercussions.
Consequently, some regulatory authorities have implemented a set of rules that determines the amount of leverage you can apply to cryptocurrency trading.
These guidelines are determined by a number of elements, such as:
Your country of residence.
The online broker you choose.
And whether you are a retail or a professional-client.
As cryptocurrencies still hold the reputation of being a relatively new asset class - there are strict regulations over applying leverage.
For instance, in the UK, it is possible to obtain leverage on all tradable assets - but not for cryptocurrencies.
Therefore, if you are trading with any regulated broker, you will not be able to access leverage legally in the country.
On the contrary, if you like outside of the UK, then you will be able to get your hands on leverage when trading cryptocurrencies. We are talking about leverage as high as 1:100 on this digital asset.
However, bear in mind that such large leverage limits will also invite higher chances of liquidation.
Step 4: Learn how to Research Cryptocurrency Prices
If you have come this far in our guide, you now have a firm grasp on what cryptocurrency trading is and how you can place the appropriate orders.
However, this is only one aspect of the trading process.
The challenge is to understand which cryptocurrencies are worth your attention. As you know by now, trading is all about placing the right orders at the right time.
However, you cannot base these decisions on hunches. You need to have data-driven insights so that you can make informed choices on your trading moves. For instance, do you think that Bitcoin will sustain its momentum, or will the price go down in the future?
As with anything else - you cannot arrive at an answer to such concerns unless you have sufficient knowledge of the cryptocurrency markets. Therefore, before you even think of making money by trading digital assets, you first need to know how to perform research.
In trading jargon, this analysis can be done in two ways: fundamental and technical research.
Fundamental Research
The concept of fundamental analysis applies to all tradable assets. No matter which trading strategy you choose, fundamental research can help you in figuring out whether a crypto exchange pair is undervalued or overvalued.
Traditionally, fundamental research focuses on the financial and economic aspects that influence the price of a digital asset.
In other words, it evaluates how a piece of news will impact the price of the currency.
For instance, the announcement of the ICO ban by China led to a decline in the price of Bitcoin.
On the other hand, Japan announcing that it considers cryptocurrencies a legal tender resulted in the spike of the value of Bitcoin.
These are only a couple of examples of how real-world news can alter the performance of a cryptocurrency in the trading market.
As such, it is crucial that you keep up with the news to know how real-world events can have a consequence on the world of digital assets.
In addition, for cryptocurrencies - you will also have to keep an eye out for technological developments. As this asset class is heavily reliant on blockchain systems, any innovation in the related fields can have implications for the popularity of cryptocurrencies.
Alongside keeping abreast with the news, you should also know how to interpret it. This is a skill you attain only through experience. However, you can expedite the process by educating yourself.
If you are willing to make a bit of effort on this front, here are some books that can offer you valuable insights:
The Intelligent Investor by Benjamin Graham.
Getting Started in Fundamental Analysis by Michael C.Thomsett.
Technical Analysis
For many traders, fundamental analysis is not the best way to achieve consistent gains. The argument is that the cryptocurrency market is more driven by speculation and narrative - therefore, you need more data to formulate your trading strategy.
This is where technical analysis can be of advantage. However, if you want to be well-versed in this method - there is a steep learning curve to conquer. That is because you need to be looking at multiple price charts and analyzing them to arrive at your trading conclusion.
The basic idea is for you to spot potential trends and figure out how you can capitalize on the future price movement of a cryptocurrency pair.
Moreover, technical analysis plays a significant role in short-term trading strategies - which are popular in the cryptocurrency scene. For instance, if you are engaging in day trading, you will need to almost exclusively focus on technical analysis to find trading possibilities.
In such cases, technical indicators and charts can help to give you a better overview of what the price action is looking like in the short term - even in the coming seconds or minutes.
Moreover, although fundamental analysis can be useful, it is unlikely that there will be price-shifting news every day. As such, if you want to place trades more frequently, you will have to master the tactics of technical analysis.
So that brings us to the question - how long will it take for a beginner trader to learn the ropes of technical analysis?
The straightforward answer is that it can take several months to know how to work with technical indicators. These are tools used to make sense of pricing charts and identify trading opportunities.
Today, there are dozens of trading indicators available in the market. Each technical indicator will help you point out specific trends or price movements.
It is not possible to give you an account of the different indicators and their purposes in this article. Hence, we suggest that you take a look at other guides on the Trading Education website.
We have an extensive section of newbie-friendly guides and explanations that will help you conquer the world of technical analysis.
Regardless, to give you a taste of the action - here we have listed some of the most popular technical indicators used by cryptocurrency traders.
Relative Strength Index (RSI)
This technical indicator is a common tool used to understand the speed and momentum of price movements.
To elaborate, the RSI computes the price changes of an asset and the speed at which the movements happen. The oscillations, shifting from the two extremes of price action - run between 0 to 100.
Any value over 70 indicates that the trading pair is overbought. And if it is below 30 - you can assume the opposite.
If the pair is overbought - it means that more traders are interested in buying the pair rather than selling it. In other words, the indicator is pointing out that a reversal in trend is likely to take place soon.
As such, you can infer that you should place a sell order soon - to capitalize on the declining prices of the respective coin.
If the RSI is below 30 - it points to a reverse trend. Meaning, there are more sellers than buyers. And thus, if there is a trend reversal - you could benefit by placing a buy order.
Moving Average Convergence Divergence (MACD)
The MACD is a popular trend-following indicator that gives you an idea of current market momentum. You can use this to identify in which direction a cryptocurrency trading pair will move in the future.
On the chart, the MACD indicator will appear as two lines that oscillate - however, without any boundaries. The tool then looks at the crossover of the two lines to spot moving averages.
Depending on the trading strategy, you can use a 50-day, 100-day, or even a 200-day moving period - which will tell you the averages corresponding to the timeline.
For example, if the MACD indicates that the 50-day moving average of EOS/USD is 3.5023 - this is the average exchange rate of the pair over the past 50 days.
Most traders use the MACD combined with the RSI to arrive at trading judgments. Both indicators assess the market sentiment - however, they evaluate different variables giving you a better outlook.
Bollinger Bands
In cryptocurrency markets, volatility plays a crucial role in influencing the price action of a trading pair. Bollinger Bands is one of the tools that can help tell how higher or lower the price of an asset is in relation to its previous price.
In other words, Bollinger Bands can be invaluable in understanding which pairs are the most volatile, and what entry and exit prices you need to target.
Moreover, Bollinger Bands are also used to calculate the potential risk when placing trades. This works with the concept that high volatility also translates to a higher risk-reward ratio.
Step 5: Determine Which Cryptocurrency Trading Strategy you Wish to Use
A trading strategy is a plan you adopt when placing your cryptocurrency orders. There is no single approach that will be effective for every scenario.
As such, traders will switch between multiple strategies that work best for the current market and their financial goals. That said, if you are an amateur, it is best to stick to one strategy.
It will help you clearly outline your objectives and stay on track without letting emotions influence your decisions. You can then focus on one method before you try your hand with another one.
In the following sections, we discuss some of the most commonly used cryptocurrency trading strategies.
Day Trading
As you can gather from the name - day trading is a strategy that involves you opening and closing trades within a single day.
If you didn't know, cryptocurrency markets do not have any specific opening or closing times. As such, day trading in this context refers a system where traders enter and exit the market within 24 hours.
In this strategy, each trade will last only for a few hours or minutes. In effect, day traders target smaller but frequent profits. However, there is only so much that a currency can move within a few minutes.
As such, day traders will be placing multiple orders throughout the day - hoping to achieve smaller gains in terms of profit percentages.
Moreover, day trading positions are often leveraged so that the smaller margins can be used to generate bigger gains.
Swing Trading
In swing trading, you are looking to profit from the price trends of the asset.
When day traders limit each of their positions to a few minutes or hours, swing traders have the flexibility to keep their trades open from days to weeks - but not more than two to three months.
The duration of swing trading positions will depend on the price trend you are targeting.
As long as the trend continues, you will keep the position open. For instance, if your analysis suggests that BTC/USD is likely to hold an upward trend for the next two weeks, your trade will remain open for the same duration. You will close the position when the trend is about to reverse.
Compared to day trading, swing trading is relatively easier to master. You are only to follow trends, which you can do by performing fundamental analysis.
Scalping Trading
Of the three strategies mentioned here, scalping is the most advanced. It takes place across the smallest of time frames - meaning you have to be swift in identifying trading opportunities and taking action right away.
Hence, it can take a considerable amount of time for beginners to master how to balance the risk-reward while scalping.
In simple terms, scalp traders open hundreds of positions a day, aiming to capitalize on the minute price shifts found in the market. Consequently, you will be opening and closing positions in a matter of minutes (if not seconds).
In the end, if you have placed more profitable trades than losing ones, you will finish the day in profit.
The most advantageous market conditions for scalpers happen when a cryptocurrency trading pair continues within a consolidation period. This means that the pair is trading within a close range for a prolonged period. The longer this duration, the better it is for scalping.
For instance:
Let us assume that DASH/USD is trading between $230.10 to $231.50 for two days.
Meaning, the exchange rate of the pair has never gone lower than $230.10 or higher than $231.50.
This represents a consolidation period for a scalper within a tight range of 0.60%.
For a scalper, this is a highly conducive time frame that allows them to place trades with low-risk and frequent profits.
Step 6: Consider Help From a Third-Party
At this point, you might be feeling overwhelmed by the extent of knowledge required as well as the amount of work you need to do to make money trading cryptocurrencies.
However, thanks to the internet - today, you have multiple resources at your disposal to make this process easier.
If you are only just starting your crypto trading journey, there are a few options that will help you along the way.
Cryptocurrency Signals
Trading signals are suggestions that you will receive in real-time. Meaning, your chosen crypto signal service provider will do the research, assess the market, and send you tips on what trades can be most lucrative at the time.
Depending on the platform, you will be able to get these signals through email, SMS, or apps such as Telegram.
In effect, there is no need to do any of the legwork. Instead, you will be notified of trading opportunities so that you only need to place the relevant orders.
So how do the providers create these signals? They use a pre-programmed algorithm and expert traders to devise strategies. The best trading signal services will offer you the following data:
Which cryptocurrency pair to trade?
Which trading order to place - buy order or sell order?
What is the entry price required to enter the market?
The price target for via a take-profit order.
The price at which you should place the stop-loss order.
Some services also offer you market news and analysis for the cryptocurrency pairs in question.
Although cryptocurrency trading signals can cut off the need for you to do your own homework - you should also be cautious about which service you choose.
This is primarily because many providers tend to make false promises on how much money you can make using the signals. However, in reality, this might not be the reality, and you could end up losing money.
Therefore, if you are resorting to the services of a signal provider, make sure that you verify the authenticity of their results by using a demo account first.
Cryptocurrency EAs
Cryptocurrency EAs are Expert Advisors that will handle trades on your behalf. You can download these EAs via a software file - which you can then install into a third-party trading platform such as MT4.
The best cryptocurrency EAs will execute orders based on the conditions that have been programmed into them. Once you have installed this tool into your trading platform, it will handle everything for you.
However, that doesn't mean that EAs will only make profitable trades. You will have to do your homework and read reviews to find out whether the software is consistent.
If you are able to find one that can help you make consistent gains, you will be able to trade passively without even lifting a finger.
In addition, there are a few other benefits that come with top-rated cryptocurrency EAs.
The EA can place trades 24/7.
It can trade any number of cryptocurrency pairs simultaneously.
It can follow any strategy you set it to use.
EAs take out the emotional factor in making trading decisions.
EAs are automated and will not tire out from continuous trading.
That said, you should also take steps to make sure that the EA does not clean out your trading balance. As such, you will have to set up stop-loss conditions so that every trade only risks what you can afford.
Moreover, similar to trading signals, you might want to start using cryptocurrency EAs on a demo account before you risk real money.
Copy Trading
Another popular method used by beginner traders is the feature of copy trading. Whether you can gain access to this tool will depend on your chosen broker.
If you want to try copy trading - eToro is a regulated trading platform that supports this functionality. In its most basic form, copy trading allows you to copy the strategies of another crypto trader that is more experienced in this field.
The platform will display parameters such as the historical trading performance and risk-reward ratio. You can then choose a crypto trader whose methods align the most with your financial goals.
→ Click here to view most copied traders
In practice, whatever cryptocurrency trading moves are taken by the trader will be reflected in your portfolio.
For instance, if they choose to place a buy order on EOS/USD, the same action will be replicated in your trading account. If they risk 2% of their trading funds, you will also stake 2% of your capital.
This method allows you to benefit from the experience of seasoned crypto traders without having to do any work.
Ready To Start Cryptocurrency Copy Trading?
Step 7: Choose a Cryptocurrency Broker to Trade With
Cryptocurrency trades are carried out almost entirely online. This makes it possible for you to tap into this lucrative trading industry right from the comfort of your home.
However, in order to place successful trades, you need to choose a regulated cryptocurrency broker. There are hundreds of platforms offering you their services, but as you can guess - every platform will have different features to offer.
As such, before you start thinking about trading cryptocurrencies - you first have to find a broker that can help you achieve your financial goals.
Licensing and Safety
When you are trading online, you are entrusting your hard-earned capital to your online broker. As such, it is crucial that the broker you choose follows strict regulations to guarantee the safety and security of your funds.
In the financial market, you can assess the credibility of an online broker by finding out if they hold any licenses from well-respected regulatory bodies.
An example of reputable brokerage authorities around the world includes the FCA in the UK, ASIC in Australia, CySEC in Cyprus, FSA in Japan, and CFFC in the US.
However, you will also find regulated platforms with licenses issued by less reputable agencies. Most likely, these are based on offshore locations such as the Cayman Islands, Panama, Seychelles, and others.
Trading Fees and Commissions
One of the most important factors to consider in your online broker is what fees they charge you for their services. Although at first glance, commission percentages might seem small, but these fees will easily eat away at your profits.
Take a look at the most common types of fees you will come across on online crypto trading platforms.
Commission
Trading commissions are charged for all orders you place with your crypto broker. That is, you will have to pay a commission once when you enter the trade and again when you close it. This can be stipulated as a flat fee or a percentage against your stake.
Fortunately, you will have no trouble finding online brokers that offer zero-commission on cryptocurrency trades - such as the likes of eToro.
Spreads
Spreads are calculated as the difference between the buy price and sell price of a cryptocurrency trading pair. Tighter spreads mean that you are trading at lower fees.
For instance, if your broker offers EOS/USD at a buy price of $3.84 and a sell price of $3.86 - your spread will amount to 2 pips.
As such, you should gain a profit of 2 pips to reach the break-even point on your trade. Anything beyond this will be accounted for as profit.
Overnight Financing
Depending on your trading strategy, you might decide on keeping a leverage crypto position open for more than one day.
If so, many brokers will charge you an overnight fee for every day you keep the trade open - often called overnight or swap fees.
Trading Tools and Features
Online brokers today offer many more features in addition to their basic services. These vary from access to demo accounts, copy trading features, market updates, chart drawing tools, technical indicators, and more.
Some brokers also come integrated with third-party platforms such as MT4 or have their own native trading interfaces.
Depending on whether you are a beginner trader or a seasoned professional, you can assess these functionalities based on your preferences.
Payments and Account Minimums
In order to process your crypto trades, you will need to constantly move capital in and out of the brokerage platform. Therefore, you should make sure that your chosen broker offers support for your preferred payment method.
The best brokers allow you to process transactions through debit/credit cards, e-wallets, and bank transfers. You should also verify what additional charges are applicable for each method.
In addition, most cryptocurrency brokers will ask you to meet a minimum deposit in order to start trading. The lower this account minimum, the easier it will be for you to avoid risking too much of your money.