Cryptocurrency Trading Vs Stock Trading
Cryptocurrency trading is often seen as more high risk than stock trading, but it depends on what stocks or cryptocurrency youre trading and how youre trading it. Trading penny stocks or trading options can be equally, if not more, risky than trading cryptocurrency.
Before trading cryptocurrency, you should be aware that you risk losing your money to the market. If you really believe in the future of cryptocurrency, holding your crypto assets for the long term may be more beneficial than trying to time the markets.
How Does Cryptocurrency Work
Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders.
Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets.
If you own cryptocurrency, you dont own anything tangible. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party.
Although Bitcoin has been around since 2009, cryptocurrencies and applications of blockchain technology are still emerging in financial terms, and more uses are expected in the future. Transactions including bonds, stocks, and other financial assets could eventually be traded using the technology.
Choose How You’ll Pay
While there are thousands of cryptocurrencies being traded around the world, you’ll find that the most popular options are widely available for purchase in fiat currencies such as the U.S. dollar. If you’re a first-time buyer, you’ll very likely have to use regular money to buy cryptocurrency.
If you’re a more experienced investor, you may want to trade some of your existing crypto holdings for another type of cryptocurrency for instance Bitcoin for Ethereum.
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What Is The Tax Rate Of Crypto Day Trading
Governments around the world are scrambling to create regulatory frameworks for cryptocurrency. In the United States, the legal classification of cryptocurrency as securities, commodities, currency, or property remains somewhat ambiguous. However, the Internal Revenue Service does already recognize gains in the value of cryptocurrency as taxable. Visit their website here or contact the agency directly for more information.
What Is Crypto Trading
Trading, in the traditional understanding, is speculating on the asset prices to get profit. The same comes to crypto trading, with the only difference that you buy and sell digital assets. For instance, at CEX.IO you can place market and limit orders to trade Ethereum against dollars or any other available assets.
Also Check: What Can We Buy With Bitcoin
Stick To Cryptos That Serve A Purpose
There are literally thousands of cryptocurrencies you can trade, but many, if not most, of these wont ever amount to anything. Although you may get lucky and make money trading any crypto, if youre looking to build long-term wealth, youll have to invest in cryptos that have staying power.
Read the whitepapers on any cryptos you plan to invest in to see how they are tied to the blockchain, what their utility is and how they are better/cheaper/faster than any of their competitors. This is the best way to filter out the long-term winners from the losers.
Benefit From High Liquidity Markets
Our liquid order books allow high-speed order execution even for huge-amount trades. Additionally, we regularly evaluate and improve the performance of the currency pairs presented on our marketplace. Still, when considering listing a new coin or token, we estimate its demand, fault tolerance, and throughput to avoid shady coins with zero market activity. Besides, millions of active crypto and Bitcoin traders help us to maintain markets of a high-quality and appropriate liquidity level.
We believe that an intuitive and laconic interface together with advanced trading instruments and world-class security make CEX.IO the best place to trade cryptocurrencies.
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Which Cryptocurrency Is Best For Day Trading
The highly volatile, highly changeable nature of crypto means that any general pronouncements of best and worst are likely to be outdated within a few months. However, a simple way to decide whether a given cryptocurrency is a good day trading candidate is to find out whether it has high liquidity and high trading volume . Generally, these numbers should both be in the region of several hundred million USD or more.
How Do You Take Profits In Crypto And Reinvest
So, when should you take profits on crypto? Its tricky to know exactly when is a good time to take profits, as it often involves solid planning and discipline. Its a good problem to have because it means youve made profits. However, it can also be difficult, especially with no clear goal about what to do with the money you made.
Taking profits is tricky. Youre essentially asking: Is this profit enough or do I want more? Categorically, of course, more would always be better. But, when it comes to trading, knowing when to halt is part of being smart and avoiding losses. Furthermore, knowing how to invest crypto profits in lucrative channels also requires research and keen decision-making skills.
To know when to take profits, ask yourself the following questions:
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Quality Of Customer Support
For the customers, receiving answers to their questions is always an indicator of the quality of work. Making everything possible to ensure fast processing of your inquiries, the customer support at CEX.IO works 24/7. And each member of the support team goes through carefully designed intensive training to be able to deal with any possible queries. In such a way the platform may often be identified as the most responsive among Bitcoin exchanges.
Cryptocurrency Trading Vs Investing
As you learn how to buy and trade cryptocurrencies, you must differentiate between crypto trading and investing. What is the difference? Which is better? And, how do you take advantage of this distinction to effectively make your trades? The two terms are often used interchangeably, but they are different.
They are only similar to the extent that the end goal is the same gaining profit from your activities. They are different in that results from trading activities are generally expected within a short to medium-term period. This could be anything from minutes or hours to a few days or weeks. With investing, the trader is in it for the long haul. Were talking about months all the way to years or even more.
As a beginner, you probably want to choose a trading strategy that involves medium to long-term trading and investing. This will typically require more time to research and analyze your trades before committing.
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Diversify Your Crypto Portfolio
It doesnt pay to have too much invested in one single cryptocurrency.
As with stocks and shares, spread your money out among different digital currencies.
This means you dont risk being over-exposed should one of them plummet in value especially as the market prices of these investments are highly volatile.
There are thousands to choose from, so do your research.
Accept Cryptocurrencies If You Are A Merchant
Another way to earn cryptos is accepting them in exchange for your products or services if you are a merchant. As a merchant, you have access to many cryptocurrencies and Bitcoin payment processors that can help you in accepting cryptocurrencies.
Even online businesses owners and e-commerce websites can adopt this way, thereby getting the dual benefit of crypto price appreciation and also earning cryptos directly.
See this for more details: 7 Popular Bitcoin Payment Gateways For Merchants.
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Spend A Part Of Your Earnings Then Reinvest The Rest
One option is to use a small part of your crypto earnings before reinvesting the rest. By doing so, you can ensure that you can eventually cash out and earn a hundred percent of your profits.
Essentially, youre protecting yourself from future losses by ensuring that your seed funds are not lost. Some investors wait for their profits to reach the amount they deposited as their seed capital to prevent future losses while providing a way to continue investing.
You can also reinvest for the next bull run after taking out some of your gains before reinvesting.
Decide Where To Buy It
There are many ways to buy cryptocurrency, though the most accessible method for beginners is likely to be a centralized exchange. Centralized exchanges act as a third party overseeing transactions to give customers confidence that they are getting what they pay for. These exchanges typically sell crypto at market rates, and they make money on fees for various aspects of their services.
If you’re more accustomed to traditional brokerage accounts, there are a few online brokers that offer access to cryptocurrencies as well as stocks. Of the online brokers reviewed by NerdWallet, these include Robinhood, Webull, SoFi Active Investing and TradeStation. If you’re looking for an exchange that operates solely within the cryptocurrency world, look for pure-play crypto exchanges. These platforms, such as Coinbase, Gemini and Kraken, won’t give you access to core assets like stocks and bonds, but they typically have a much better selection of cryptocurrencies, and more on-platform crypto storage options.
» Investing in cryptocurrency? Here are our picks for best cryptocurrency exchanges and platforms.
Though centralized exchanges are relatively easy to use, they also can be an attractive target for hackers given the volume of crypto that flows through them.
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Use Native Currencies To Pay Trading Fees
Several crypto exchanges have their own native currencies, such as Binance’s BNB Coin or FTX’s FTT Token. If you pay fees using the native token, you’ll often get a discount of 20% or more on your trading fees. Depending on the platform, you may be eligible for other benefits, too, such as increased staking rewards.
Making Money By Trading Cryptocurrency
One of the most popular ways to make money from cryptocurrencies is trading. Its not too different from, say, trading shares or valuable metals.
The main aim is to purchase at the lowest price you can and sell at a higher rate, to generate the best profit possible. But the big difference between crypto trading and stock markets is the exchange rates high volatility.
Trading involves placing money on a short-term stock: traders buy and sell quickly to generate higher revenues. If you miss the right time to make the purchase or sale, you could end up with a loss. Experienced traders know to survey the companys present results to achieve better prices and short-term profits.
On the other hand, investing means keeping away from market trends and focusing on value instead. Investors are playing a long-term game and monitoring their stocks closely. Theyre waiting for stock to reach its highest potential patiently.
The most common trading strategies offering the best profits are:
- Intraday trading
- Position trading
- Trend trading
Well explore each of these in closer detail further down the page to show you how to make money with Bitcoin and other cryptos. But before we do, we want to emphasize that you should never choose a trading strategy at random. You need to analyze the potential outcomes and issues before you try to make money.
Here are the pros and cons of trading cryptos:
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Crypto Outlook: Can You Make Money With Cryptocurrency
While the early gains in crypto have already been made, the industry remains in the initial stages of development. The internet, for example, was developed in 1969 and the World Wide Web was introduced in 1990. By comparison, cryptocurrencies have been around for just over a decade.
Recent research by venture capital firm a16z shows that the crypto space evolves in cycles. A cycle generally starts with an increase in prices of the crypto assets, driving social and traditional media buzz. The coverage and excitement bring more people into the space, contributing new code, ideas and creating new projects. This eventually starts the next cycle.
To date, we have seen three crypto cycles that peaked in 2011, 2013 and 2017. Despite price falls in each cycle, there has been consistent growth in developer activity, social media activity and a number of start-ups created in the space. The peak of the next cycle is likely to coincide with new technological breakthroughs and rising crypto prices.
Long-term price appreciation is likely to be supported by increased interest in cryptocurrencies as an asset class by institutional investors. The daily average volume of cryptocurrencies traded is just 1 per cent of the foreign exchange market. Despite growing to over $200bn in market capitalisation, crypto assets are still a fraction of the global equity market and the global debt market , not to mention global real estate.
Make A Cryptocurrency Brokerage Account
Unless you already own cryptocurrency, youll need to make an account with a crypto brokerage. Coinbase, Gemini and eToro are among the best crypto brokerages on the market. All 3 of these options offer a simple user interface and a variety of altcoins to choose from.
To make an account, youll need to provide your crypto brokerage with personal identification information, similar to opening an account with a stock brokerage. Some common information you need to provide when setting up your account includes your Social Security number, address, date of birth and email address.
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Wait For The Money Flow Index To Reach The 100 Level
An MFI reading of 100 shows the presence of the big sharks stepping into the markets. When buying, smart money cant hide their footsteps. They inevitably leave tracks of their activity in the market and we can read that activity through the MFI indicator.
Technical indicators arent always right, so in order to fine-tune our day trading strategy, weve added a few more conditions. Namely, during the current day, we need to skip the first two MFI readings of 100 and study the crypto price reaction.
The price needs to hold up during the first and second 100 MFI reading.
If the price drops after the first two MFI 100 readings, then this suggests that most likely were going to have a down day.
Lets now determine the appropriate place to go buy Bitcoin and what are the technical conditions that need to be satisfied.
Buying & Holding Cryptocurrencies For Dividends
Another smart way of earning through cryptocurrencies is to buy and hold cryptocurrencies that pay you dividends.
There are many great cryptocurrencies that pay you a fair share just for holding them and you are not even required to stake them, especially in a wallet.
Some of these cryptocurrencies are:
We did a detailed analysis of these currencies for you to understand in detail and choose the right ones for your portfolio.
Also Check: How To Make Money In Cryptocurrency Trading
What Stops Beginners From Making An Income From Cryptocurrency
#1 Make money with cryptocurrency will take a lot of time and consistent effort.
Most newie traders, unlike experienced investors, don’t immerse themselves fully in the markets. You need enough time to get to the point where they can trade professionally.
#2 You have no clear trading strategy
Ask yourself a question: “What is my trading strategy?”. If you answered: Strategy? Well, I simply bought and waited in hope, so was that considered a strategy? . Now we need to talk.
There are many potential problems that you may encounter whether it is based on technical indicators or basic data on crypto assets or based on technology, However, your trading strategy will lead you to the right way.
#3 You blindly hope to rise
The blind hope of a rebound or Bullrun is something every trader has experienced at least once.
That’s why you will see repeated reminders in investment documents that, “What happened in the past is not an indicator of future price movements.”
Indeed, there is a difference between technical analysis and staring at the screen and chanting “Bitcoin will reach 100,000” until that happens.
#4 You are averaging your position during the downtrend
You probably know that some people can buy A for 100, the price falls to 80 and still doesn’t cut losses as previously thought, and then to 60 people who hope that the market will return, spend money and buy in hoping to be in an “average” position and cut losses.
#5 You completely forgot about risk management
The Value Depends Largely On Popular Opinion
Investing in crypto-assets is highly speculative. The market value can fluctuate a lot over short periods of time, and is affected by things like media hype and investor opinion.
The price of crypto may depend on:
- its popularity at a given time
- how easy it is to trade or use it
- the perceived value of the currency
- its underlying blockchain technology
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