In this 2nd lesson publication to guide you on the path of success as a cryptocurrency trader, We will be giving you practical advice related to the choice of the trading platform and the correct use of it.
As you know, to invest in assets such as cryptocurrencies, you need to choose a broker or exchange, where they offer you products derived from the asset, or coins directly from the spot market.
There are 3 popular ways of trading, known as:
- Scalping: It is in which the trader makes entries and exits to the market in short periods of time, ranging from minutes to a few hours.
- Day trading: The trader performs operations that enter and leave on the same day.
- Swing trading: This style is where the operator opens operations and closes them in periods of time greater than one day.
Each of these investment styles adapts to the trader’s personality. And although many people adapt to a specific style, others can simply diversify their activities among the 3 groups.
Trading and leverage
Trading is a form of active investment, where the person benefits from fragments of a specific trend or momentum.
So, your capital may not be enough to make a profit from small fluctuations.
For example, imagine that you buy USD 100 in Bitcoin directly in the spot market, and the price of this increased by 5% in one day; So, if you dedicate yourself to day trading, you had to enter the market with USD 100 to get a profit of USD 5.
It doesn’t make much sense, right? But this is not a problem, because the cryptocurrency trading platforms that exist today, offer you leverage. And what is this ?, a credit tool where you can increase your purchasing capacity hundreds of times.
In this way, a percentage change of 5% could give you 10,20.50 times more profits risking the same USD 100.
But not everything is pink, because although this tool is a great advantage, it could be potentially dangerous for your capital.
There are trading platforms for cryptocurrencies with a great reputation such as Binance futures or Plus500, where you can open positions up to 125 times larger than your initial capital.
For example, with a capital of 1,250 USD you can buy the equivalent of USD 125,000 of a Bitcoin derivative.
So, think you took up all your available margin, the USD 125,000 to buy units of the crypto derivative, and the price went up 10%, so you earned USD 1,250.
But what if the price went against you and lost 10%? In fact, you lost all your capital! And the broker probably closed the position after your account reached bankruptcy.
And that is the problem. Leverage should be used very cautiously, and the margin available using this tool should never be used in its entirety.
As a cryptocurrency trader you must understand that not all operations are going to be winners, so you must be willing to lose, and more importantly, learn from them.
As a general point of view, Professional investors indicate that you should not risk more than 1-3% of the total capital per operation.
These two points we will be seeing in following lessons dedicated to the so important trader psychology, trading plan and risk management; For now let’s continue with the choice of trading platform.
As you could discover on your own, buying Bitcoin units in the spot market, it will be of little use for cryptocurrency trading, unless you own a large capital.
So, instead of using exchanges to buy real cryptocurrencies, you need brokers that offer leverage for interesting benefits, no matter how small the price fluctuation.
To choose a broker for a cryptocurrency trader you must also take into account other important aspects, such as your trading style, commissions, deposit methods, legality and reputation of the broker, derivative products offered.
Each of these points should be evaluated on your own, as each situation is different from one person to another.
However, to help you in the process, you can choose to review the list of reliable and good services exchanges by visiting this publication.
Demo account for cryptocurrency trader
This is one of the main tools to get the confidence that will lead you to success as a trader.
Never risk real money if you don’t have a little confidence in yourself. Test your strategy, see results, be disciplined with a demo account as if it were real, and make a quick transition to work with your money, because it will not be beneficial if you take too much time trying on demo.
Demo accounts are excellent tools to perform all kinds of tests, as long as it is taken seriously.
However, you must advance to a real account as soon as possible, no matter that you risk very little money, because you will not work psychology if you do not take this important step.
Use your demo account with discipline. Write down all the mistakes you make, eliminate them and make a fully structured plan, that leads you to make timely decisions not influenced by emotions.
We will expand this last topic in the next lesson, so keep an eye on our publications.
I hope this topic has been to your liking and usefulness. Let us know your opinion in the comments, we will be happy to answer you!
Creative editor and trader of cryptocurrencies, fiat currencies and commodities.