Cryptocurrencies and online trading were always destined to collide. At their core, cryptocurrencies are digital, able to be exchanged at a moment’s notice. Thanks to dedicated crypto exchanges and derivatives brokers who provide online trading services, traders have the luxury of speculating on their favorite crypto markets, enjoying flexibility, convenience, and low capital commitment. Despite the benefits, trading cryptocurrency does come with substantial risks. However, it can be a rewarding experience under the right conditions.
About Crypto Online Trading
Trading crypto online involves speculating on the prices of various digital currency markets through a crypto exchange or broker. All online crypto trading involves derivatives, meaning users trade the asset without technically owning the coins in a wallet.
Another crucial aspect of crypto online trading is the presence of ‘contracts for difference‘ (CFDs). A CFD or contract for difference means that a trader enters an agreement with a broker or exchange to settle the difference (either through a loss or profit) from a crypto market’s present and closing value.
With the prevalence of derivatives and CFDs, traders can profit from upward (buying or going ‘long’) and downward (selling or going ‘short’) movements. Given the high volatility of digital currencies, this market offers plenty of opportunities in both directions.
Leverage is another archetypal feature of online trading. This mechanism allows one to trade a more prominent position than their account typically allows. Traders commit a small deposit (called margin) and gain the same positional exposure as though they had more money.
However, the familiar, cliched adage that leverage is a double-edged sword remains, as it amplifies wins and losses equally. Still, the highest leverage in crypto is at most 100x or 1:100.
The number of online-traded crypto markets, including Bitcoin, Ethereum, XRP, Litecoin, BNB, Solana, Dogecoin, Cardano, TRON, and many others, continues to grow. These markets are usually priced in USD, but other platforms can offer other quote currencies like the euro and the British pound.
The decentralized nature of cryptocurrencies allows for around-the-clock trading (on exchanges). This flexibility also contributes to the rapid market changes due to the number of speculators.
The crypto market can move based on several factors:
- Key events: regulatory updates, technical breaches, and significant network updates are factors that play a role in the price of cryptocurrencies.
- Social media: this is common with meme coins like Dogecoin and Shiba Inu. Hype or attention-driven mentions on platforms like Twitter can result in sudden price changes. Social media is a studied metric in tools like the Crypto Fear & Greed Index, which offers an overview of sentiment in the crypto market.
- Tokenomics: Digital currencies with a limited supply are considered more valuable. Meanwhile, those with an infinite supply are regarded as less valuable. Tokenomics also covers how new coins come in and out of the market and incentives for holders, which also affect price.
Market capitalization: This metric is derived by multiplying a coin’s price by its circulating supply. An increasing market cap signals growth, while a decreasing market cap indicates stagnation. Traders can study trends to rank the value of a certain cryptocurrency.
Popular Crypto Online Trading Strategies
It is crucial to find the approach that works for you, and traders can use several trading strategies:
- HODLing: ‘HODL’ is a popular slang term in crypto that translates to ‘hold on for dear life.’ It describes a strategy where traders buy and hold onto their positions for as long as possible, regardless of what’s happening in the short term.
- Swing trading: This strategy sees traders holding their positions from a few days to weeks, capitalizing on extended ‘swings’ in the market.
- Day trading: This strategy involves traders opening and closing multiple positions in one trading day, taking advantage of short-term fluctuations for quick gains.
- Scalping: In this trading style, one profits from tiny price changes by frequently opening positions, usually lasting for a few seconds or minutes.
- Breakout trading: Here, traders capitalize on moments when the price of a crypto market forcefully breaches a support or resistance level.
Pros and Cons of Crypto Online Trading
Let’s cover the good and bad of trading crypto online and how to minimize some cons.
Pros:
- Leverage: One of the most attractive features of trading crypto is that traders can profit large amounts quickly in a short time and with minimal capital.
- No need to own a cryptocurrency directly: As trading crypto is a derivative, traders don’t have to own a wallet to keep their traded assets.
- Ability to go long and short: Traders have the duality of buying and selling cryptocurrencies at will.
Cons:
- Rollover fees: Due to leverage (essentially ‘borrowed funds’), CFDs come with swaps or overnight costs. These get charged every night or after a certain number of hours. While minimal, they can add up to a noticeable amount the longer a trader holds a position.
- Lack of regulation: The crypto market remains largely unregulated, which increases users’ risk of financial loss. The absence of regulation means that traders may be offered unsuitable products without oversight.
- Over-leveraging: Traders can easily lose more money than initially planned due to the presence of margin.
This is where crypto trading platforms like OANDA can bridge the gap between traditional crypto and online trading. Through the broker’s partnership with Paxos (a regulated crypto brokerage), traders gain the best of both worlds with deep liquidity, high security, and competitive fees.
Trading crypto through OANDA does not involve leverage, emulating the same condition as owning digital assets on a crypto exchange. Similarly, no overnight fees apply.
Prioritizing Education in the Crypto Market
Trading crypto online benefits those with a short and long-term approach to participating in this market. Thanks to advantages like leverage and the ease of buying and selling, users can fully engage in the ever-growing space of digital currencies with numerous strategies. Yet, many variables, ranging from social media to tokenomics, can positively and negatively affect the price of cryptocurrencies. These contribute to the volatility of the market, which can leave traders vulnerable to huge losses. Thus, properly educating yourself about crypto and online trading is the key to managing the risks and trading as safely as possible.
