So, you have heard about crypto trading, and you are wondering how it works. You have the urge to trade online, but you don't know-how. Worry no more, for you will learn everything you need to know about crypto trading in just a few.
Crypto trading involves the buying, selling, and exchange of one cryptocurrency for another or fiat currency like USD for cryptocurrency. Examples of some cryptocurrency exchanges used in this type of trade in no particular order are Bitcoin, Coinbase, Kraken, CashApp, Bitsquaure, Bitstamp, and Ethereum.
The Cryptocurrency market uses two types of trading: the centralized and the decentralized approaches. Centralized methods of trading, as you all know, are not immune to hacks. Therefore, the vulnerability faced by the centralized approach led to the need for a decentralized method of trading.
The decentralized method is strictly between the buyer and the seller. In this approach, no government authority, company, or middle-men are involved. Here, you are allowed to contact your seller or buyer and carry out your transaction.
So, what type of trading is available in cryptocurrency trading? Ok! There are three general types of trading involved in this type of trading, as discussed below.
1. Traditional method. Here, the exchange of cryptocurrency is transacted in the old-style of trading, similar to the stock exchange. Traditional cryptocurrency exchange uses both centralized and decentralized methods of trading and is based on the prices of goods in the market. Bitcoin, Coinbase, and Kraken are some examples of traditional cryptocurrency exchanges.
2. Use of brokers-this involves three parties, namely the broker, seller, and buyer. Usually, the broker sets the price of the cryptocurrency on a website where sellers and buyers can easily access and contact him/her. Coinbase, Shapeshift, and Cash App examples of exchanges that allow the use of brokers.
3. Direct trading methods. Here, the trade is strictly decentralized, implying it involves peer-to-peer transactions. The seller is allowed to set the selling price and the exchange rate to use. The buyer looks for a seller that matches his/her buying price and contacts them. The direct method of trading cryptocurrency is ideal for anyone who doesn't want to deal with middle-men.
Now, having understood the types of trading, the next question you might have is, how do you store your cryptocurrency after buying. There are two ways in which you can store your cryptocurrencies; using cold or hot storage.
Hot storage involves the use of a wallet linked to the internet. Such wallets are ideal to use as they give you instant access to your funds any time anywhere, allowing you to trade whenever you want to. However, they are not immune to hacks; therefore, risky to use.
Cold storage stores crypto in a cold wallet that is completely cut off from the internet. Unlike hot wallets, cold wallets are wholly exempt from viruses and hacks and are very handy if you want to store your coins for a long period. However, they are not practical for daily use, nor are they friendly to new traders.
Now, you have an idea of what you need; the next thing you should know is how the trade is carried out.
• If you already have an exchange account, transfer your crypto into that account and if you don't have crypto, use the exchange to buy crypto using fiat currency like USD. Also, note that not all exchanges allow the use of fiat currency to buy crypto.
• The exchange keeps your cryptocurrencies while you look at the value of other available cryptocurrencies.
•.After watching, you either decide to buy or sell your cryptocurrencies via an order you place to your exchange.
• The exchange looks for the best-seller or buyer to fit your trade and completes your transaction
Crypto trading is an excellent opportunity for anyone who wants to trade online. It offers liquidity, which means a smooth and quick conversion of cryptocurrency to cash and also allows for a 24-hour trade. However, this type of trade involves high risks; therefore, learning some risk management techniques can be a great idea.
There is nothing complicated about crypto trading and how it works. Crypto trading can be your big break if you do it right. If you are a beginner, you can start trading with brokers and also try to use hot wallets to store your funds. Also, being keen to see how prices of cryptocurrency fluctuate is something to always have your eyes on.