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How to Trade Cryptocurrency: A Beginners Guide

While many may hold onto the belief that the Cryptocurrency market is risky and unsuitable for their trading needs, ever since their invention in 2009, more and more investors have been pouring their money into the fascinating world of Crypto which combines technology and finance.

Nonetheless, despite their appeal, Crypto remains one of the most volatile markets out there. As such, if you're a new trader seeking to potentially benefit from Crypto price swings, it is essential to cover popular trading basics of this market to make more informed decisions.

Accordingly, this Plus500 Beginner's Guide article delves into the nuances of Crypto trading and provides you with an overview of what it takes to start your Crypto trading journey.

an illustration of Cryptocurrency trading

What Is Cryptocurrency Trading?

Cryptocurrency trading refers to the act of predicting the direction of Cryptocurrency prices like Bitcoin, Ethereum, or Solana with the hope of making a profit from the price swings.

How the Cryptocurrency Market Works

The Cryptocurrency market is comprised of digital currencies that run on blockchain technology (digital data recording ledger) and are decentralised. This means that unlike fiat currencies which are regulated and controlled by a central bank, Cryptocurrencies do not have a central oversight body and therefore are not impacted by government regulation.

Instead, the protocol that Cryptocurrencies follow is called peer-to-peer (P2P) whereby Cryptocurrencies are sold and bought and then added to the blockchain in a process called "Cryptocurrency mining."

Mining Cryptocurrency means that Crypto transactions are finalized and new Cryptocurrencies are produced. Those engaged in mining are called "Crypto Miners" and are often rewarded with Cryptocurrencies of their own.

Factors That Affect Cryptocurrency Prices

A plethora of factors can affect Cryptocurrency prices and the main ones are as follows:

Supply & Demand

Generally speaking, Crypto prices may rise in tandem with the rise in demand for Crypto. On the flip side, when Cryptocurrency supply rises in relation to demand, the prices may drop.

A notable example of how supply and demand affect Crypto prices is the Bitcoin halving events which happens every four years and cuts Bitcoin production in half. Usually, after a Bitcoin halving, the prices of Crypto, in general, and Bitcoin, in particular, rise.

Economic Factors

Economic conditions such as high inflation, high interest rates, and a recession can affect Crypto prices.

For example, during recessions, many investors and traders may shy away from Cryptocurrencies due to their volatile nature, which, in turn, can lead to a drop in Crypto prices.

On the other hand, when the economy is rebounding, investors may be more drawn to Cryptocurrencies, which can lead to a rise in prices.

Market Sentiment

When market sentiment towards Cryptocurrencies is positive, then more people may be inclined to buy Cryptocurrencies, hence leading to Crypto price boosts, and vice-versa.

Regulations

The Cryptocurrency market is known for being under regulatory scrutiny, which may be why Spot Bitcoin ETFs took quite some time to get approved by the US Securities and Exchange Commission (SEC). As such, any regulatory changes and updates can lead Bitcoin prices to fluctuate.

To get a better overview of the factors that shift Cryptocurrency prices, you can read our articles titled "What Moves Bitcoin's Price" and "What Is Cryptocurrency Trading."

How to Trade Crypto: A Step-by-Step Guide

If the Cryptocurrency market interests you, and you'd like to gain exposure to rising and falling Cryptocurrency prices without having to own the underlying Crypto asset, then Cryptocurrency Contracts for Difference (CFDs) may be suitable for you.

Cryptocurrency CFDs are derivative contracts that allow you to trade on both rising and falling Crypto prices. In addition, CFDs are leveraged, which means that both your gains and losses get magnified.

Finally, Cryptocurrency CFDs do not grant your ownership of the Cryptocurrency (unlike Cryptocurrency exchanges). Instead, they provide you with the ability to trade on both rising and falling Crypto prices without the need to maintain Crypto storage, wallets, or passwords.

If you're interested in finding out if Cryptocurrency CFDs suit you, you can read our article titled "Why Trade Cryptocurrency CFDs" or watch our Trader's Guide video titled "What Is CFD Trading" to find out more.

To trade Crypto CFDs, follow these steps:

  1. Look for a reputable and regulated CFD platform
  2. Open a CFD trading account
  3. Upload the necessary information and documentation to get your account verified
  4. Log into your trading account
  5. Select the preferred type of Cryptocurrency CFD
  6. Open a buy or sell position based on your trading needs and goals

Types of Cryptocurrencies CFDs

As of March 2024, on Plus500's CFD platform, you can trade over 20 Crypto CFDs*, and they are as follows:

*Availability subject to regulator

Pros and Cons of Cryptocurrency Trading

Whereas Cryptocurrencies may be an exciting prospect to some, it is important to note that they are volatile and risky.

Accordingly, one must educate oneself on the pros and cons of Cryptocurrency CFD trading, and the dangers of the Crypto market, and keep tabs on the factors that can shift Crypto prices.

Pros

  • Portfolio Diversification

    Crypto CFDs allow you to access multiple types of Cryptocurrencies, each with its own characteristics. This can be helpful for those seeking to diversify their portfolio and gain more trading opportunities.

  • No Storage Costs or Crypro Wallets

    Unlike traditional Cryptocurrency exchanges, whereby the trader buys a Cryptocurrency and has to store it in a digital wallet to shield it from cyber attacks, Crypto CFDs do not require a wallet or storage costs as the trader does not have ownership of the Crypto.

Cons

  • Regulatory Issues

    Compared to fiat currencies or other market assets like commodities, for example, Cryptocurrencies are considered new. As such, they may experience regulatory hurdles and challenges as they become more developed.

  • Volatility

    Crypto CFDs are considered volatile as CFDs are susceptible to market price swings, which, in turn, can be risky and unpredictable.

Cryptocurrency Trading Strategies

There's no black-or-white approach to Crypto trading, however, some of the main strategies traders utilise are Day Trading and Range Trading.

Day Trading

Day trading refers to the opening and closing of a Crypto position based on the intraday price changes and is suitable for those seeking short-term gains.

Range Trading

This trading strategy takes into account Support and Resistance levels to find out when to open or close a Crypto trade. Support is the highest price rise, and Resistance is the maximum lowest Crypto price.

an illustration of range trading

You can find out more about the different trading strategies in our Trader's Guide article and video titled "Popular Trading Strategies."

How to Analyse Cryptocurrencies

Those seeking to understand Crypto prices and movements better may want to consider Fundamental Analysis and Technical Analysis among other strategies.

Fundamental Analysis refers to the Cryptocurrency's intrinsic value/worth based on its price movements, economic health, and market conditions, while Technical Analysis weighs past price movements through trading charts to gauge the possible future trajectory of the Cryptocurrency.

You can explore these types of trading analyses in our articles on "Getting Started with Fundamental Analysis" and "Know the Basics: Technical Analysis for Beginners."

Conclusion

In summary, Cryptocurrencies can provide you with access to a plethora of trading opportunities. However, despite their allure, it is crucial to keep in mind the fact that Cryptos are volatile and can be risky. As such, developing a trading plan, and educating yourself about the Crypto markets and their advantages and disadvantages is important to your overall success. Additionally, you may want to consider using risk management tools to mitigate risk.

Other Helpful Resources for Improving Your Cryptocurrency Knowledge

Back To Beginner's Guide

FAQs

Crypto trading can be complex and difficult to grasp. However, with the right tools, Crypto trading can become more accessible.

To start with Cryptocurrency trading, you need to open a trading account with a reliable and reputable Cryptocurrency provider.

The different types of Cryptocurrencies include stablecoins, utility tokens, payment cryptocurrencies, and Central Bank Digital Currencies (CBDC).

Cryptocurrency is considered digital currencies and not real money like fiat currencies. Despite this, Cryptocurrencies can be used to conduct transactions and purchases in some places and can be converted into fiat currencies.

As of 2024, there are over 10,000 Cryptocurrencies in circulation.

All the information or commentary in this page is published in good faith and for general information and educational purposes only. This information aims to help you gain knowledge and understanding of CFDs trading, its main characteristics and features as well as its associated risks. It does not constitute financial, investment or other advice on which you can rely. Any references to past performance, historical returns, future projections, and statistical forecasts are no guarantee of future returns or future performance. Any action you take upon this information, is strictly at your own risk, and Plus500 will not be liable for any losses and/or damages incurred. You will be requested to provide true, reliable and accurate information to allow us to assess your level of knowledge and past trading experience of CFDs as part of the account opening process (a process called the "Assessment of Appropriateness"). If we determine that CFD services are not appropriate for your level of experience and/or knowledge of CFDs we will notify you and we may not be able to offer you a trading account with us.

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