Keeping Books And Records
If you acquire or dispose of cryptocurrency, you have to keep records of your cryptocurrency transactions. This also applies to businesses that accept cryptocurrency as payment for goods and services.
Cryptocurrency exchanges have different standards for the kinds of records they keep and how long they keep them. If you use cryptocurrency exchanges, we suggest that you export information from these exchanges periodically to avoid losing the information necessary to report your transactions. You are responsible for keeping all required records and supporting documents for at least six years from the end of the last tax year they relate to.
You should maintain the following records on your cryptocurrency transactions:
- the date of the transactions
- the receipts of purchase or transfer of cryptocurrency
- the value of the cryptocurrency in Canadian dollars at the time of the transaction
- the digital wallet records and cryptocurrency addresses
- a description of the transaction and the other party
- the exchange records
- the software costs related to managing your tax affairs.
If you are a miner, also keep the following records:
- receipts for the purchase of cryptocurrency mining hardware
- receipts to support your expenses and other records associated with the mining operation
- the mining pool details and records
For more information, please review our link on keeping records.
What Did We Learn From This Crypto Day Trading Guide
Crypto day trading is a very popular strategy in the market and is used by a lot of traders every day.
The main idea behind the day trading strategy in crypto trading is to take advantage of the price movements in the market during the day.
There are many advantages and disadvantages associated with day trading. While high volatility can help traders generate higher incomes, it can also be very risky.
There are several types of day trading strategies available in the market, this includes arbitrage, swing trading, etc.
Is It Business Income Or Capital Gain
The income you get from disposing of cryptocurrency may be considered business income or a capital gain. In order to report it correctly, you must first establish what kind of income it is.
The following are common signs that you may be carrying on a business:
- you carry on activity for commercial reasons and in a commercially viable way
- you undertake activities in a businesslike manner, which might include preparing a business plan and acquiring capital assets or inventory
- you promote a product or service
- you show that you intend to make a profit, even if you are unlikely to do so in the short term
Business activities normally involve some regularity or a repetitive process over time. Each situation has to be looked at separately.
In some cases, a single transaction can be considered a business, for example when it is an adventure or concern in the nature of trade. Whether you are carrying on a business or not must be determined on a case by case basis. For more information, please review our archived content on an adventure or concern in the nature of trade.
Some examples of cryptocurrency businesses are:
- cryptocurrency mining
- cryptocurrency trading
- cryptocurrency exchanges, including ATMs
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How Much Money Do You Need To Day Trade Crypto
The answer to this question varies largely. However, when you are day trading cryptocurrencies, you might be required to have a higher initial deposit. The number of profits you generate will be very different when you start trading with $10, or $1000.
To make higher profits while day trading crypto, you will be required to start trading using a higher initial deposit.
I Covered My Bills Now What
As with any career, you must work to set money aside for things besides your bills. Do you plan to go on a vacation soon? Do you have any special events, like birthdays or weddings, in the near future?
What about retirement? For some of you, its a long way down the road. For others, its sooner than youre prepared for. Either way now is the best time to invest. Why?
Two words: compound profit.
If you start saving today, you have a larger investment capital tomorrow. If you trade every day, that amount continues to grow exponentially.
For example, lets say you start your trading career with your $1,000 investment. If you trade using indicators and patterns that yield you 1% profit each day, youll earn $37,783 in one year.
That may not seem like much, but check out what happens by the end of the second year. If you continue making 1% profit each day and reinvesting that money, youll have $1,427,587 by year two.
Yes, in the real world, you need to account for other variables. You probably wont work 365 days a year. Youre also going to have to pay your state and federal taxes.
Remember to think through all your costs before you begin trading full-time. Compounding interest can work against you as easily as compounding profit can work for you. Make sure you dial in all the numbers before you take the plunge.
Forexcom Best Crypto Day Trading App
Although Forex.com is best known for its currency trading department of more than 80+ pairs – this popular broker is also home to cryptocurrencies. As crypto markets at Forex.com are traded as CFDs, you can go long or short and even apply leverage.
You can trade the likes of Bitcoin, Ethereum, LTC, and Bitcoin Cash against the US dollar. You can also trade Bitcoin against the euro, pound sterling, and Australian dollar. When it comes to fees at Forex.com, this depends on your chosen account type.
There is a commission-free account with reasonable spreads – which is best for casual traders. If you’re a professional trader, then the STP Pro account will be more suitable. This allows you to trade with industry-leading spreads alongside a small commission. If funding your account with bank wire, there is no minimum deposit thresholds.
There is no guarantee you will make money with this provider.
Common Pitfalls When Day Trading Crypto
If your mind is now set on day tradingand you think you are ready then great! But you should know how to do it properly and not fall for the rookie mistakes so weâre going to briefly outline some of the things to be aware of when trading.
Cryptocurrency trading is a rollercoaster of ups and downs.
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Example : Capital Gain Or Loss
Tim found a deal on a living room set at an online vendor that accepts Bitcoin. Tim acquired $3,500 worth of Bitcoin to buy the furniture with. By the time he bought the furniture and converted his remaining Bitcoin back into dollars, the value of Tims Bitcoin had increased by $500. The gain realized by Tim was on account of capital, so Tim has to report a $500 capital gain on his income tax return. However, only 50% of that capital gain is taxable.
Crypto Day Trading Strategy
The idea behind crypto day trading is to look for trading opportunities that offer you the potential to make a quick profit. If day trading suits your own personality, lets dive in and get through a step-by-step guide on how to day trade cryptocurrency.
Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of this scalping strategy.
In this article, were going to look at the ‘buy’ side.
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Best Online Cryptocurrency Brokers
The trading platform you choose will likely make a big difference in your day trading results. The strategy that you choose should make a difference in the platform you choose because different platforms will have different strengths. For instance, scalpers need a fast execution time while volatility traders may profit more from an instant news feed.
Take a look at some of the best online cryptocurrency brokers and what they have to offer.
Learn How The Cryptocurrency Market Works
The cryptocurrency market operates in a different way from other financial markets, which makes it vital to learn how it works, and understand the jargon used to describe it, before you start trading.
The cryptocurrency market is a decentralised digital currency network, which means that it operates through a system of peer-to-peer transaction checks, rather than a central server. When cryptocurrencies are bought and sold, the transactions are added to the blockchain a shared digital ledger which records data through a process called mining.
Cryptocurrencies are also famously volatile, which makes it important to know what is likely to move the market this could be anything from ICOs and blockchain forks, to breaking news and government regulation.
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Learn About Blockchain Technology
Another vital step to cryptocurrency day trading is to learn more about blockchain technology and its alternatives. Even though nobody expects you to understand the complexities of blockchain technology, you should be familiar with its effect on crypto trading and volatility.
Basically, blockchain technology is the foundation of cryptocurrency trading. As the name suggests, blockchain is a chain of blocks secured by cryptography. Blockchain-based technology isa big deal as it provides both security and transparency.
Because of its benefits, blockchain has numerous applications far beyond the financial sector. Take gaming, for example one of the fastest-growing industries in the whole world! Blockchain technology can improve gaming aspects, such as digital ownership and user experience.
What Platforms Can Be Used To Day Trade Crypto
In order to trade cryptocurrency, you will need a platform that supports it. While there are plenty of platforms to trade on, each has its own guidelines and stipulations. One of the most important things you will need to consider when choosing a platform is the fees associated with using it.
The purpose of day trading is to get a return on your investment and not have to use your return to cover the fees associated with using the platform. Therefore, its recommended that you compare platform fees first. You will also want to consider the following:
- What cryptocurrencies does each platform support?
- Is the platform reputable?
- How’s the liquidity?
Liquidity refers to a coins ability to convert into another form of currency. A cryptocurrency that’s highly liquid can be converted without its initial price being affected, according to Business Insider. Converting one coin to another can cause a major reduction in price, so you need to understand which coins are highly liquid before you start day trading.
Some of the more popular platforms that can be utilized to day trade cryptocurrency include:
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How To Day Trade Bitcoin
Bitcoin is more volatile than many assets in the cryptocurrency market precisely because its incredibly liquid and is typically involved in over 40% of trades on any given day. Therefore, day trading bitcoin comes with a considerable amount of risk. Bitcoin prices are highly sensitive to public sentiments and regulatory changes. They fluctuate quickly depending on the types of news circulating in the industry, whether positive or negative. Therefore, before trading bitcoin, you want to study the market and get a better feel for the volatility in order to better time your entries into trades.
Bitcoin is a safe commitment for a new trader as it can be used as a long-term store of value. It also comes with relatively fewer risks compared to altcoins. Furthermore, trading bitcoin doesnt need to occur every single day. You only need to day trade bitcoin when all conditions align in your favor.
How To Start Day Trading Crypto
Now that we have covered the nuts and bolts of how crypto day trading works in practice, we can now show you how to get started with your first position.
For this step-by-step explanation, we will show you how to trade crypto from just $10 on a spread-only basis at SEC-regulated broker eToro in less than five minutes.
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Is Crypto Day Trading Worth It
Crypto day trading allows you to target consistent gains by entering and exiting positions risk-averse positions alongside stop-loss and take-profit orders. For some, crypto day trading is profitable. However, in order to make money by day trading digital currencies online, you need to learn the ins and outs of technical analysis.
Master The Art Of Arbitrage
Arbitrage is the act of buying crypto on a particular crypto day trading exchange and selling it immediately on another exchange at a higher price for a profit. Arbitrageurs normally take advantage of the varied rates on cryptocurrencies which often differ from platform to platform. So, buying a certain cryptocurrency such as Bitcoin or Ethereum on a platform for less and selling it on another platform that is still using the higher rate allows crypto day traders to make a profit. But swift decisions and quick action are whats needed when using this strategy.
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If You Understand How Volatile Markets Work Day Trading Cryptocurrency Might Be For You
A volatile market is one where youll find frequent fluctuations in a stock or cryptos price. Prices can change by the second, minute, or hour. To be able to successfully buy and sell cryptocurrency on a volatile market, you need to be able to identify the signs that signal when it’s time to buy and when its time to sell.
If you arent able to distinguish when a cryptocurrencys price will yield a decent return, you might lose your chance. Essentially, what this means is that in order to day trade cryptocurrency, you need to have a firm understanding of the crypto that you will be working with. You will want to have a strategy in place for how you plan to buy and sell your crypto.
Its also important that you understand how crypto markets work and the platforms that are available to trade on.
Day Trading Cryptocurrency: How To Get Started
Now that you know what day trading cryptocurrency requires, as well as what you need to consider, I am now going to show you how to get started!
The first step when looking at how to day trade cryptocurrency will require you to find a good exchange. A cryptocurrency exchange will allow you to buy and sell coins 24 hours per day. It is important to think about what kind of cryptocurrencies you are looking to get involved with.
If you are looking to day trade full time, then it is well worth choosing an exchange that has lots of difference pairings listed.
Note: A pairing refers to the two coins that are being traded. For example, if you believed that the price of Ethereum would increase against the price of Bitcoin, then you would need to find a BTC/ETH pairing!
It is also important to find an exchange that has lots of liquidity. This will ensure that you can always be matched with a buyer or seller, otherwise, you might not be able to close your trade when the price is falling!
A good place to start would be Binance, as they have hundreds of trading pairs available and they also have one of the largest trading volumes in the market. To find out more information on setting up an account at Binance, see my guide here!
Once you have opened an account with an exchange, it is time to deposit some funds. Most cryptocurrency exchanges do not allow you to deposit using a debit/credit card or bank account, however, some do.
Trading Crypto Doesnt Have To Be Cryptic
Regardless of the strategy you choose, you must be willing to accept losses in a volatile market like cryptocurrency. Have your exit plan ready before you enter any trade. Dont follow the hot tips crowd invest only in coins that you actually believe in even for just the day.
Also, keep in mind that the market provides endless opportunity. So dont bite your head off if youre playing cautious and miss one, and dont chase the gazelles that have already run off of the farm. Trading is more than anything an emotional journey you must keep a clear head and stick to your chosen strategy through thick and thin.
Trading More Than You Can Afford To Lose
Early in their trading journeys, beginners tend to put their entire life savings into cryptocurrency trading, hoping to get rich quickly. Cryptocurrencies are speculative financial instruments that are subject to huge price swings which can change at any moment, and even professional traders do experience significant losses at times.
Day trading, on the other hand, is not a get-rich-quick scheme but a clever strategy to generate income and create wealth over time. It requires adequate planning, proper execution, risk management, and trading skills. Good risk management skills protect cryptocurrency traders from losing all their capital or making significant losses.
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Crypto Day Trading: Taxes And Regulations
Its important for traders to educate themselves about the rules and taxes associated with day trading in their area. For example, two important things for day traders to be familiar with are short-term capital gains taxes and the wash sale rule.
Short-term capital gains taxes apply to the sale of any asset that was held for less than a year. This means any earnings are taxed as regular income or at the marginal rate, so based on an investors tax bracket. The IRS changes these numbers every year in order to adjust for inflation. For the 2021 to 2022 tax rate, the rates ranged from 0% to 37%.
The wash sale rule is also a must-know for day traders. This rule prevents investors from taking a loss on their taxable income when they sell a security then buy the same security within the next 30 days.
There are many more nuances regarding taxes and day trading. Traders should consult with a certified tax professional to understand all the necessary details for their own situation.