Steemit Crypto Academy Season 4 Week 6 - Beginner's Course |Trading Cryptocurrencies.
Hello, Steemians Welcome to the 6th week of season 4 in the Steemit Crypto Academy. I trust everyone is good and gaining adequate knowledge on cryptocurrency technology. In the previous lessons, we have discussed some of the basic information needed to make a good trading decision via technical analysis. In this lesson, we will be talking about how to read cryptocurrencies.
Like I will always say, trading cryptocurrency is very profitable due to the highly volatile nature of the market. A cryptocurrency pair can spike up to 1000% in some minutes making a trader realize almost 100× his initial capital on the asset. Now imagine if the market goes against your prediction during this period, this means that you are doomed and may even lose your entire trading capital.
As a beginner in the crypto market, you will encounter a lot of crypto trading available to you. This can be the spot trading or the futures trading. Having knowledge of the markets and the risks involved in trading them can help you trade with caution and avoid unnecessary losses. Now let's get to understand these different crypto trading.
As a beginner in the crypto market, spot trading is the basic type of investment you can make. This entails purchasing a cryptocurrency and holding it until the value appreciates. Then you can sell it back to make a profit. The spot market brings buyers and sellers together to transact their crypto assets at price known as spot price This type of investment gives you ownership on the underlying asset and allows you to trade your coins anytime in the market.
Advantages of Spot trading
The advantage of spot trading is that an investor purchases the underlying assets and claim ownership of the cryptocurrency. Similarly, a trader does not face any form of liquidation during a bear market or when the market goes against his prediction. He can decide to hold his coins until the price appreciates for him to recover his losses and even make more profit. Another advantage of the spot market is that there is no minimum investment capital in the spot market. An investor can benefit from the crypto market using little capital.
Disadvantages of Spot trading
Due to the highly volatile nature of the crypto market, some novice traders buy crypto assets on the spot at inflated prices. This can pose a risk to the investors' capital. Similarly, a trader does not benefit from the bear market or take advantage of the bear market for his gains. Rather, a trader will sell his crypto asset on loss during a bear market or hold it until the price comes back up to their purchase price.
For example, the trader who bought BTC at $19k in December 2017 either sold BTC at loss or held them in their wallet until December 2020 to get to breakeven. Whereas, traders in the futures market can take advantage of the up and movement of price in the market.
Futures trading is an advanced trading system for professional traders. This type of trading is a capital no for beginners into cryptocurrency due to the high level of risk associated with trading in the futures market. The futures market is a type of market that enables traders to take advantage of the up and down movement of price. Traders can analyze the price of an assets fn predict the future price of this asset. The futures market enables traders to either go long (buy) when they anticipate that price will increase or go short (sell) if they anticipate that price will drop.
Unlike spot trading where traders purchase the real asset. In futures trading, traders do not purchase the underlying asset, rather they purchase futures contracts with prices pegged with the real value of the real asset. Furthermore, futures traders are given leverages which gives them more purchasing power to buy huge contracts with little capital.
Leveraging in futures trading maximizes your profit as well as your losses. This trader can liquids your account in minutes due to the nature of the crypto market. For this reason, it is recommended to use leverages that best suit you and also carry out an effective analysis before trading on futures. The X terminology like 2x, 5x, 10x, 100x is mostly used in the crypto market.
Advantages of Futures trading
The leverages offered to traders are a great advantage to make a huge profit in the market. Traders can build their portfolio making 100x their initial capital on a single trade. Furthermore, the futures market also gives the traders the advantage of hedging. This allows traders to protect their investment portfolio even when price is against their prediction. Also, traders can take advantage of the bear and bull market making them benefit in either direction of the market.
Disadvantages of Futures trading
When trading futures, you do not purchase the underlying crypto asset, unlike the spot market. Similarly, trading futures comes with a great risk associated with leveraged capital. This can lead to a huge loss of capital and probably account liquidation.
Margin trading is slightly different from futures trading. Margin trading has to do with having more purchasing power than the trading capital in your account. In margin trading, users have more purchasing power by borrowing funds from a third-party provider. The third party here can be an exchange or other traders. Borrowing funds in margin trading enable users to trade assets greater than their initial capital to take advantage of the market.
Margin traders are also given leverages just like in futures trading. A trader with $10 can purchase a crypto asset of $1000 using 100x leverage to maximize his gains. Also, note that the losses incurred are directly proportional to the leverage you used. This simply means that a user can incur huge losses in margin trading and can even be liquidated when he can't provide enough funds to keep their position open when the market is against their prediction.
Advantages of Margin Trading
Margin trading comes with huge benefits to traders who have less trading capital to take advantage of the opportunities offered in the cryptocurrency market. Users can make huge profits with little capital in their accounts. Margin trading gives users more purchasing power to split their positions using low funds.
Disadvantages of Margin Trading
Due to the leverages offered in margin trading, traders are exposed to the risk of losing their entire trading capital when the market is against their prediction. Similarly, the losses incurred are relatively huge in the sense that a user needs to have enough funds to pay up his borrowed asset when in loss to avoid facing liquidation. Furthermore, margin trading is not for beginners into cryptocurrency. It required high trading experience to carry out both technical and fundamental analysis to make the right trading decision.
In trading cryptocurrency, a trader is allowed to control his entry and exit in the market. The exchange/broker can also be requested to execute an order when all requirements are met by the trader. Similarly, some order modes help traders to manage their risks and enter the market when the price goes according to their prediction. Let's get down to order types.
This is the fastest and easiest way to execute an order. Market orders enable the broker/exchange to execute a position instantly at the current market price. Market orders are carried out instantly at the best available price on the order book. An example can be seen in the screenshot below.
The screenshot above shows the spot market of BTC/USDT pair. from what we can see, we have a market order to buy 20USDT worth of BTC. Clicking Buy BTC will execute the order instantly at the best market price in the order book.
This type of order allows a trader to execute his position when the price gets to a certain level in the market. This type of order enables traders to place buy and sell orders when they believe that price will get to this point based on their analysis. Below are the different types of pending orders available in cryptocurrency trading.
1) Limit order:
The limit order is a pending order that enables positions to be triggered/executed at a specific price. Let's take, for example, the current price of XRP/USDT is $1.15. From my analysis, XRP is expected to retrace to at least $1.09 before going bullish. I can place a limit order to buy XRP at $1.09. This means that my position to buy 20 XRP will be triggered when the price gets to $1.09. An example can be shown in the screenshot below.
From the chart above, I have performed technical analysis and expected price to retrace to $1.09 before going bullish. I placed a limit order to buy 20 XRP at $1.09. This means that my trade will be executed to buy 20 XRP when price comes down to $1.09 as seen on the chart.
Example of limit order on Binance exchange.
From the screenshot above, a limit order has been executed to buy 20 XRP at $1.09. The pending order can also be seen and will be filled up once price gets to $1.09.
2) Stop-limit order:
This is another amazing pending order that allows users to place a limit order on a crypto pair when a stop price has been hit. Let's use an example to explain this properly. Let's assume the current price of XRP is $1.14. From your analysis, price is expected to drop before going bullish. I can use a stop-limit order to place a buy limit order when price hits a stop price. This can further be explained using the chart below.
From the chart above, a stop-limit order has been placed on XRP/USD to buy 20 XRP when price hits a stop price of $1.11. This simply means that a buy-limit order will only be placed when the price of XRP/USD comes down to $1.11. This order is different from a limit order in the sense that it doesn't execute the limit order immediately. Rather, it waits for price to reach a certain level before it places a limit order.
An example of a stop-limit order on Binance exchange.
From the screenshot above, a stop-limit order has been placed to buy 20 XRP at $1.09 when price drops to $1.11. The pending order can also be seen above.
3) OCO order:
OCO stands for "One Cancels the Other". This type of order helps traders to avoid potential risks in the market. OCO simply means, as soon as one order is executed, the other order is canceled. OCO orders enable traders to open two different orders at the same time.
For example, let's assume the price of BTC is approaching a resistance level and you are not sure of what will happen at this resistance. We all know that when price gets to either a resistance or support level, it can either break it or reverse to the opposite direction. During this time, a trader can place an OCO order which comprises of a limit order and a stop-limit order to take profits and also minimize risks in the market.
Let's assume that BTC/USD is approaching a resistance level at $54k and might drop. You can place an OCO order with a sell limit order to take profit at $54k and a stop-limit order at $50k in case price reverses down.
This means that, if the price of BTC/USD gets to $54k, a sell order will be triggered while the stop-limit order will be canceled. On the other hand, if BTC/USD drops to 50k, a stop-limit order will be triggered while the limit order will be canceled. The OCO order helps traders to place stop losses which will enable them to minimize losses when price goes against their prediction.
An example of an OCO order on Binance exchange.
An OCO order can be seen in Binance exchange on the screenshot above. A limit order to sell BTC at $54k and also a stop-limit order to sell BTC at $49.5k when a stop price is hit at $50k.
Stoploss Order:Stoploss orders are automatic orders placed to exit a position when the market is against your prediction. This order helps you to protect your trading capital during market crashes because there's no guarantee that price will go in our favor. Stoploss orders can be placed alongside market orders and pending orders.
Take Profit Order:Take profit is also an automatic placed to exit a position when price is in our favor. Trading aims to make a profit and it is essential to have an exit when price is in your favor. A take profit is triggered to book profits automatically and close a position when price reaches the profit level. A profit order can also be placed alongside market orders and pending orders.
Performing Spot Trading on Binance Exchange
In this section, I will perform how to perform spot trading on the Binance exchange. This spot trading will be performed on XRP/USDT. The following steps can be followed to perform spot trading in Binance Exchange:
- Login to your Binance account and click on Wallet as shown in the picture below.
- After that, click on spot and ensure that you have the underlying asset to carry out the trade. In this case, I have USDT which we will use to purchase XRP.
- Click on Trade on the homepage.
- After that, the trading interface pops up, click on spot because we want to perform a spot trading.
- Click on the currency pair at the top to choose the pair you want to spot trade on.
- After clicking that, a search bar pops up where you can enter either the base currency or the quote currency and all the trading pairs on the currency will show up. Scroll down to your preferred pair and click on it. In this case, our preferred pair is XRP/USDT.
- After clicking on your preferred pair, the spot trading interface pops up. Since I'm are buying XRP with USDT, I clicked on buy.
- There are parameters to be filled just like the mode of execution and the amount of USDT you want to use to purchase USDT. But before that, click on the arrow down to see the different modes of order execution on the Binance exchange. After putting the required parameters and mode of execution, click on BUY XRP to execute the order. In this case, I have carried out a buy limit order to buy 20 XRP at $1. The order is pending and will be triggered once the price of XRP drops to $1.
- After you have executed your trade by any of the orders explained above, click on the icon as shown in the picture below to view and monitor your orders. Similarly, open order, completed order, and order history can be viewed in this section.
In this lesson, I have introduced some key concepts about trading cryptocurrencies a beginner will encounter during their trading journey. Knowledge and information about the market are key factors to having a good trading success. We also highlighted the advantages and disadvantages of the different trading styles. As a beginner, you might want to jump into margin trading and futures trading because of the high benefits associated with them.
Trading is risky, especially in cryptocurrency. I recommend spot trading to beginners to build their confidence and understand the market properly before going into futures trading and margin trading. I will suggest leverage of 2x or 3x for beginners who have an interest in futures and margin trading.
Finally, cryptocurrency trading is not easy due to the highly volatile nature of the market. Always plan your trade properly and make use of good risk management for successful trading.
Thank you for being part of this lesson.
- Explain the following stating its advantages and disadvantages:
- a) Explain the different types of orders in trading.
b) How can a trader manage risk using an OCO order? (technical example needed).
- a) Open a limit order on any crypto asset with a minimum of 5USDT and explain the steps followed. (Screenshots needed from any cryptocurrency exchange).
- Using a demo account of any trading platform, carry out a technical analysis using any indicator and open a buy/sell position on any crypto asset. The following are expected.
i)Why you chose the crypto asset
ii)Why you chose the indicator and how it suits your trading style.
iii)Indicate the exit orders. (Screenshots required).
- Homework must be posted in Steemit Crypto Academy community. Your homework title format should be " [Your Title] - Crypto Academy / S4W6- Homework Post for @reminiscence01".
- Plagiarism is a great offense in Steemit Crypto Academy and it won’t be tolerated. Ensure you refrain from any form of plagiarism.
- Your post should not contain less than 400 words.
- All images, graphs, and screenshots from external sources should be fully referenced, and ensure to use watermark with your username on your own screenshots.
- Use the tag #reminiscence01-s4week6 #cryptoacademy and your country tag among the first five tags. Also include other relevant tags like #trading, #orders #cryptocurrency.
- Homework task run from Sunday 00:00 October 10th to Saturday 11:59 pm October 16th UTC Time.
- Only users with a minimum of 200 Steem Power and having minimum reputation of 55 are eligible to perform this homework. Also, note that you must not be powering down.
- Users who have used upvote tools to gain SP or build their reputation are not eligible for this homework.
Note: You can only drop your homework link in the comment section if not reviewed after 48 hours.
The comment section is freely opened for suggestions and feedback on the lesson and homework.