Cryptocurrency trading appears as a potentially lucrative option to people who read up on cryptocurrency. If you want to consider starting trading, getting an understanding of the basics of cryptocurrency is a good idea. You don’t need to become an expert in cryptocurrency or crypto trading in order to get started off. A basic idea of the workings of cryptocurrency along with information about where to trade cryptocurrencies can be enough. This guide aims to provide information on cryptocurrency trading for beginners. It will introduce to the basic mechanisms of trading in cryptocurrency. Armed with necessary knowledge, you can practice crypto trading and gain necessary experience.
Fundamentals of Cryptocurrencies
As you may know, a cryptocurrency is a digital and largely decentralized currency except for the ones launched by some governments. It is cryptographically protected. The transaction data involving cryptocurrencies is stored in a decentralized ledger. This decentralized ledger is commonly referred to as blockchain. It is this blockchain technology that keeps the transactions in cryptocurrencies secure. Miners solve cryptographic puzzles to verify the transactions involving cryptocurrencies. After verification, these transactions are stored in interlinked blocks. Multiple copies of each block exist throughout the world. Systems acting as nodes store all this blockchain data. Most cryptocurrencies aren’t regulated or monitored by any central agency apart from the ones launched by some government entities. Thus, some people believe that it is more secure and that it may be the currency of the people. Time will tell.
What is Cryptocurrency Trading?
Now that you have read up on the basics of cryptocurrency, it is time to delve into crypto trading. Trading of cryptocurrencies involves changing ownership of cryptocurrency units between people. It may also involve exchanges of trading rights between people with cryptocurrency as the underlying asset. When you trade in cryptocurrency, you either acquire cryptocurrency from someone or you sell it to someone. For this to happen, both the buyer and the seller need to agree on a common price. Once this is done, a successful trade is executed.
The basic principle of cryptocurrency trading is that you buy low and sell high. This means that you try to buy cryptocurrency at a lower price and then you try to sell it at a higher price. These prices aren’t arbitrarily decided. Cryptocurrency exchanges have prevailing prices based on which trades can be made. So, you attempt to buy cryptocurrencies when the prevailing prices are low or when you expect them to go up. Then, you try to sell them when the prices have risen.
Basic Strategy of Cryptocurrency Trading
You need to know that high prices and low prices are relative in nature. You also need to analyse the current valuation of a cryptocurrency and parse through data before you can label it. The labels are namely overvalued or undervalued. If a cryptocurrency is overvalued, it means that it is priced higher than its intrinsic value. This generally means that the prices will go down. On the contrary, undervalued means that the current price of the cryptocurrency is lower than its intrinsic value. Thus, the prices might go up.
Once you have analysed, you will get an idea about whether the prices are going to go up or down. If you feel that they are going to go up, then you can purchase at that price and then sell later. If you feel that the prices may go down, then you may want to wait for a slump in prices before buying. The Torex Price Notification Tool helps you do this by alerting you about price fluctuations.
Let’s take an example to elaborate on this. If one unit of a cryptocurrency is $100, then by itself you can’t call it high or low. Buying units of cryptocurrency at $100 and selling them at $110 means a profit of $10 per unit. Similarly, buying units of cryptocurrencies at $90 and selling them at $100 also yields a profit of $10 per unit. Thus, low and high prices are relative in nature. It all depends on whether you expect the prices to go up or down.
Where Does Cryptocurrency Trading Take Place?
By now, you know about the basics of cryptocurrency, crypto trading and the basic strategies behind crypto trading. The next step is understanding where cryptocurrency trading takes place. Cryptocurrency trading takes place on cryptocurrency exchanges.
A cryptocurrency exchange is basically a platform where buyers and sellers of cryptocurrencies unite to execute trades. People wanting to buy cryptocurrencies place orders on the exchange. These orders state the quantity and the price range in which a buyer wants to trade the cryptocurrency. Similarly, sellers of cryptocurrencies also place their orders on the exchange. Their orders also state the quantity which they are selling and the price band within which they are willing to trade. A trade on an exchange executes when the price bands between the buyers and the sellers match. Only if the price bands of the buy and sell orders on the exchange match will the trading happen.
What is API trading?
API refers to Application Programming Interface. It is a cluster of programming codes which help in linking one platform to another. These codes parse responses, query data and facilitate the exchange of instructions between different software platforms. API keys help in linking two different software suites for cross-functional usage.
In terms of trading, API is used to link trading accounts with exchanges and other algorithmic platforms. Coming to cryptocurrency, API is used to link trading accounts with cryptocurrency exchanges and external trading platforms. While exchanges facilitate trades, trading platforms provide supportive features. These features may aid traders in making informed decisions and providing additional features that can complement the services provided by crypto exchanges. The API link allows the crypto trading platform to exchange data with the trader’s account on the cryptocurrency exchange.
You may wish to use API trading in order to utilize services offered by other trading platforms apart from the cryptocurrency exchanges. Exchanges will allow you to place trades but you might need some additional crypto trading tools to help you make better trades. These tools may help you analyse data and possibly reach effective conclusions. You will need to use API trading to perform trades but you can use the tools without API integration as well. You can generate API keys through the exchanges and then enter them on the platform of your choice. This will allow the exchange and the trading platform to interface with each other and swap data.
Crypto Trading Platforms
Crypto trading platforms provide you with additional advantages and tools that you can use to potentially make successful trades. They aim to make the trading process easier for their users by providing supplementary market data and trading possibilities. Crypto trading tools can be relevant since you may have to navigate volatility while trading in cryptocurrencies. Trading platforms try to provide a composite portal to both beginners and seasoned traders. They usually have tools to help with analytics and predict market trends. Some platforms also allow you to trade across multiple exchanges. As a beginner, you may want to opt for a good trading platform to possibly help you make better trades.
If you are looking for diverse trading options or diverse trading tools, then you can try using Torex. Torex is a cross-functional crypto trading platform that supports API trading. It allows you to parallelly monitor the prices of cryptocurrencies across multiple cryptocurrency exchanges. This means that you can monitor the markets from a single Torex interface and track cryptocurrency price movements. Another advantage of this is that it allows you to get the price option for your trade. You can parse through the price bands prevailing in the orders on the exchanges and then decide where you wish to trade. You might end up bagging the successful deal across several different exchanges for your trade.
Torex considers implementing news aggregators which can be used to parse through relevant news which may affect the prices of cryptocurrencies. Torex provides advanced analytics which you can use to perform technical analysis. This may help you chart the trends and try to predict which way the prices might go. Torex also has a crypto arbitrage tool which you can use to possibly capitalize on arbitrage opportunities across different exchanges. You can also assess the market depth and liquidity prevailing in the market using Torex. Moreover, cross-functional platforms like Torex can make it possible for you to make use of price differences across different crypto exchanges. You can buy at one exchange and sell at another in an attempt to make a profit. This may not always be the case, but it helps to have this option.
Cryptocurrency trading for beginners isn’t necessarily hard. Some people may want to get acquainted with the cryptocurrency trading glossary to understand some terms and the jargon involved. Through this guide, you now have a brief idea as to how crypto trading works and where it is done. This amount of knowledge is just one of the steps on your pace to cryptocurrency trading. You can learn more while you go and you can get better at charting market trends over time. This can further boost your expertise down the line. You can consider using Torex in order to take advantage of the features it has to offer. It may help you along your journey as a beginner in the cryptocurrency trading world.