Cryptocurrency Trading – Terms and Tactics | Trading Forex
Choices
This guide is not intended to be a guide to trading, and if you want to trade cryptocurrencies, we assume that you are already a competent trader. If you do want to trade, by which we mean short-term speculation using a national currency as a base, your options are brokerage houses and online derivatives exchanges. At the time of writing, there are about 40 brokerages worldwide offering trading in cryptocurrencies. All of them offer Bitcoin, about half of them offer Ethereum and Litecoin, and about one-quarter offer either Ripple or Dash. This means that if you want to trade more than Bitcoin, your choices will probably be limited.Daily Forex publishes a list of selected brokerages offering trading in Cryptocurrencies. At the time of writing, eToro and MARKETS.COM are notable within this list for offering negative balance protection, meaning a trader cannot be liable for more money than they deposit no matter what happens.
Leverage
It has been said earlier in this guide that cryptocurrencies are extremely risky, and the value of any of them could fall to almost nothing in a moment. For this reason, the question of leverage is very important, and many brokers offer no leverage on Cryptocurrencies. About 40% offer leverage under 10 to 1, with just a few going as high as 20 or even 30 to 1. Please understand that if you trade cryptocurrency with leverage, unless your broker offers guaranteed negative balance protection or cast-iron guaranteed stops, you could end up being liable for far more than you deposit, and face legal proceedings for any debt.Long and Short
One of the major advantages of trading is the ability to take both long and short positions in cryptocurrencies. You can profit from betting it will go up, and from betting it will go down.Spreads & Overnight Financing Charges
As cryptocurrencies are very risky assets, spreads and commissions are usually very high compared to other, less risky assets. This means that short-term trading can be relatively costly if too many trades are taken. Spreads are high, typically more than $10, at current market prices representing a fee of approximately 0.24%, which is steep. Additionally, some brokers offer minimums as high as 10 Bitcoin, at which you cannot trade less than about $40,000 worth at current prices. At a typical maximum leverage of 10 to 1, you would need to deposit $4,000 to place a single minimum-sized trade. However, there are brokers offering minimums as low as 0.10 Bitcoin, worth about $420 unleveraged at the current market price, which is much more affordable.Overnight financing rates in contrast are often reasonable. A charge of 0.07% of the value of the position per day is currently typical. This means that if you opened a position of 0.10 Bitcoin worth $420, your account would be deducted a fee of 0.07% of that amount each day you kept the position open ($0.29).
Fundamental Analysis
We believe that while correct fundamental analysis can be a useful tool in profitable trading, it is far less important for cryptocurrency trading than technical analysis. Getting your technical analysis right is absolutely critical for cryptocurrency trading, but if you also get your fundamental analysis right, you could have the confidence to ride winning trades to large reward to risk ratios (assuming you make sure that you don’t get killed by letting overnight financing charges run too high by staying in the trade for too long).When it comes to cryptocurrencies, fundamental analysis is fairly limited – it is really only a call on whether the currency is likely to have a successful long-term future or not. There are not any simple and obvious metrics that can be used to justify that decision, other than perhaps the total number of owners, market capitalization, and the number of significant business which are accepting that currency as payment. Beyond these, it would be difficult for most people to make an informed judgement. If you have the capability to make such a judgement, then that is great, but if you don’t, it is not necessarily a major disadvantage. You can try to trade successfully with technical analysis alone, as many traders do.
Technical Analysis
The good news for technical traders is that cryptocurrencies in general, and Bitcoin in particular, behave very technically, usually respecting obvious support and resistance levels and major trend lines. The respect for technical levels makes sense, as unlike major currencies which have real and disruptive order flows from the real economy, trading in cryptocurrencies is almost entirely speculative and will remain so until they become widely used means of exchange. Apart from hacks and hard forks, there are not going to be any external events which influence the price much, except for governments and banks announcing new rules on the legality or operation of cryptocurrencies. For this reason, we think that Bitcoin can be a technical analyst’s dream, and we have noticed, particularly over recent months, that Bitcoin’s price movements seem to be more clearly obvious after examining a chart of historical prices, than any other instruments in the Forex market.On a technical level, Bitcoin and Ethereum are usually the easiest cryptocurrencies to trade. In trading, it is usually preferable to trade only the most liquid instruments, and these two are by far the most liquid cryptocurrencies. Bitcoin can be traded successfully using support and resistance to determine the probable line of movement and candlestick price action to time the reversals. The typically very high volatility can be an issue as it requires large stops, but the subsequent movements are usually so large that it works out well. In the next article, we will look at some Bitcoin trading strategies.
Source
Cryptocurrency Trading – Terms and Tactics | Trading Forex
Choices
This guide is not intended to be a guide to trading, and if you want to trade cryptocurrencies, we assume that you are already a competent trader. If you do want to trade, by which we mean short-term speculation using a national currency as a base, your options are brokerage houses and online derivatives exchanges. At the time of writing, there are about 40 brokerages worldwide offering trading in cryptocurrencies. All of them offer Bitcoin, about half of them offer Ethereum and Litecoin, and about one-quarter offer either Ripple or Dash. This means that if you want to trade more than Bitcoin, your choices will probably be limited.Daily Forex publishes a list of selected brokerages offering trading in Cryptocurrencies. At the time of writing, eToro and MARKETS.COM are notable within this list for offering negative balance protection, meaning a trader cannot be liable for more money than they deposit no matter what happens.
Leverage
It has been said earlier in this guide that cryptocurrencies are extremely risky, and the value of any of them could fall to almost nothing in a moment. For this reason, the question of leverage is very important, and many brokers offer no leverage on Cryptocurrencies. About 40% offer leverage under 10 to 1, with just a few going as high as 20 or even 30 to 1. Please understand that if you trade cryptocurrency with leverage, unless your broker offers guaranteed negative balance protection or cast-iron guaranteed stops, you could end up being liable for far more than you deposit, and face legal proceedings for any debt.Long and Short
One of the major advantages of trading is the ability to take both long and short positions in cryptocurrencies. You can profit from betting it will go up, and from betting it will go down.Spreads & Overnight Financing Charges
As cryptocurrencies are very risky assets, spreads and commissions are usually very high compared to other, less risky assets. This means that short-term trading can be relatively costly if too many trades are taken. Spreads are high, typically more than $10, at current market prices representing a fee of approximately 0.24%, which is steep. Additionally, some brokers offer minimums as high as 10 Bitcoin, at which you cannot trade less than about $40,000 worth at current prices. At a typical maximum leverage of 10 to 1, you would need to deposit $4,000 to place a single minimum-sized trade. However, there are brokers offering minimums as low as 0.10 Bitcoin, worth about $420 unleveraged at the current market price, which is much more affordable.Overnight financing rates in contrast are often reasonable. A charge of 0.07% of the value of the position per day is currently typical. This means that if you opened a position of 0.10 Bitcoin worth $420, your account would be deducted a fee of 0.07% of that amount each day you kept the position open ($0.29).
Fundamental Analysis
We believe that while correct fundamental analysis can be a useful tool in profitable trading, it is far less important for cryptocurrency trading than technical analysis. Getting your technical analysis right is absolutely critical for cryptocurrency trading, but if you also get your fundamental analysis right, you could have the confidence to ride winning trades to large reward to risk ratios (assuming you make sure that you don’t get killed by letting overnight financing charges run too high by staying in the trade for too long).When it comes to cryptocurrencies, fundamental analysis is fairly limited – it is really only a call on whether the currency is likely to have a successful long-term future or not. There are not any simple and obvious metrics that can be used to justify that decision, other than perhaps the total number of owners, market capitalization, and the number of significant business which are accepting that currency as payment. Beyond these, it would be difficult for most people to make an informed judgement. If you have the capability to make such a judgement, then that is great, but if you don’t, it is not necessarily a major disadvantage. You can try to trade successfully with technical analysis alone, as many traders do.
Technical Analysis
The good news for technical traders is that cryptocurrencies in general, and Bitcoin in particular, behave very technically, usually respecting obvious support and resistance levels and major trend lines. The respect for technical levels makes sense, as unlike major currencies which have real and disruptive order flows from the real economy, trading in cryptocurrencies is almost entirely speculative and will remain so until they become widely used means of exchange. Apart from hacks and hard forks, there are not going to be any external events which influence the price much, except for governments and banks announcing new rules on the legality or operation of cryptocurrencies. For this reason, we think that Bitcoin can be a technical analyst’s dream, and we have noticed, particularly over recent months, that Bitcoin’s price movements seem to be more clearly obvious after examining a chart of historical prices, than any other instruments in the Forex market.On a technical level, Bitcoin and Ethereum are usually the easiest cryptocurrencies to trade. In trading, it is usually preferable to trade only the most liquid instruments, and these two are by far the most liquid cryptocurrencies. Bitcoin can be traded successfully using support and resistance to determine the probable line of movement and candlestick price action to time the reversals. The typically very high volatility can be an issue as it requires large stops, but the subsequent movements are usually so large that it works out well. In the next article, we will look at some Bitcoin trading strategies.
Source
Cryptocurrency Trading – Terms and Tactics | Trading Forex
Choices
This guide is not intended to be a guide to trading, and if you want to trade cryptocurrencies, we assume that you are already a competent trader. If you do want to trade, by which we mean short-term speculation using a national currency as a base, your options are brokerage houses and online derivatives exchanges. At the time of writing, there are about 40 brokerages worldwide offering trading in cryptocurrencies. All of them offer Bitcoin, about half of them offer Ethereum and Litecoin, and about one-quarter offer either Ripple or Dash. This means that if you want to trade more than Bitcoin, your choices will probably be limited.Daily Forex publishes a list of selected brokerages offering trading in Cryptocurrencies. At the time of writing, eToro and MARKETS.COM are notable within this list for offering negative balance protection, meaning a trader cannot be liable for more money than they deposit no matter what happens.
Leverage
It has been said earlier in this guide that cryptocurrencies are extremely risky, and the value of any of them could fall to almost nothing in a moment. For this reason, the question of leverage is very important, and many brokers offer no leverage on Cryptocurrencies. About 40% offer leverage under 10 to 1, with just a few going as high as 20 or even 30 to 1. Please understand that if you trade cryptocurrency with leverage, unless your broker offers guaranteed negative balance protection or cast-iron guaranteed stops, you could end up being liable for far more than you deposit, and face legal proceedings for any debt.Long and Short
One of the major advantages of trading is the ability to take both long and short positions in cryptocurrencies. You can profit from betting it will go up, and from betting it will go down.Spreads & Overnight Financing Charges
As cryptocurrencies are very risky assets, spreads and commissions are usually very high compared to other, less risky assets. This means that short-term trading can be relatively costly if too many trades are taken. Spreads are high, typically more than $10, at current market prices representing a fee of approximately 0.24%, which is steep. Additionally, some brokers offer minimums as high as 10 Bitcoin, at which you cannot trade less than about $40,000 worth at current prices. At a typical maximum leverage of 10 to 1, you would need to deposit $4,000 to place a single minimum-sized trade. However, there are brokers offering minimums as low as 0.10 Bitcoin, worth about $420 unleveraged at the current market price, which is much more affordable.Overnight financing rates in contrast are often reasonable. A charge of 0.07% of the value of the position per day is currently typical. This means that if you opened a position of 0.10 Bitcoin worth $420, your account would be deducted a fee of 0.07% of that amount each day you kept the position open ($0.29).
Fundamental Analysis
We believe that while correct fundamental analysis can be a useful tool in profitable trading, it is far less important for cryptocurrency trading than technical analysis. Getting your technical analysis right is absolutely critical for cryptocurrency trading, but if you also get your fundamental analysis right, you could have the confidence to ride winning trades to large reward to risk ratios (assuming you make sure that you don’t get killed by letting overnight financing charges run too high by staying in the trade for too long).When it comes to cryptocurrencies, fundamental analysis is fairly limited – it is really only a call on whether the currency is likely to have a successful long-term future or not. There are not any simple and obvious metrics that can be used to justify that decision, other than perhaps the total number of owners, market capitalization, and the number of significant business which are accepting that currency as payment. Beyond these, it would be difficult for most people to make an informed judgement. If you have the capability to make such a judgement, then that is great, but if you don’t, it is not necessarily a major disadvantage. You can try to trade successfully with technical analysis alone, as many traders do.
Technical Analysis
The good news for technical traders is that cryptocurrencies in general, and Bitcoin in particular, behave very technically, usually respecting obvious support and resistance levels and major trend lines. The respect for technical levels makes sense, as unlike major currencies which have real and disruptive order flows from the real economy, trading in cryptocurrencies is almost entirely speculative and will remain so until they become widely used means of exchange. Apart from hacks and hard forks, there are not going to be any external events which influence the price much, except for governments and banks announcing new rules on the legality or operation of cryptocurrencies. For this reason, we think that Bitcoin can be a technical analyst’s dream, and we have noticed, particularly over recent months, that Bitcoin’s price movements seem to be more clearly obvious after examining a chart of historical prices, than any other instruments in the Forex market.On a technical level, Bitcoin and Ethereum are usually the easiest cryptocurrencies to trade. In trading, it is usually preferable to trade only the most liquid instruments, and these two are by far the most liquid cryptocurrencies. Bitcoin can be traded successfully using support and resistance to determine the probable line of movement and candlestick price action to time the reversals. The typically very high volatility can be an issue as it requires large stops, but the subsequent movements are usually so large that it works out well. In the next article, we will look at some Bitcoin trading strategies.
Source