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09. Four Things to Consider Before You Begin Crypto Trading

Disclaimer: This article is an educational guide to CFD trading and the financial markets and should not be considered as advice. Trading CFDs is high risk. Always ensure you understand the potential risks and rewards associated with trading before you trade.

 

The global cryptocurrency market was estimated to be worth $1.3 billion in 2021 and is expected to expand to $2.8 billion by 2028, representing a CAGR of over 12%. These figures, published by market research firm BlueWeave Consulting, highlight the growing popularity of cryptos. If you’re considering crypto trading, this is a great time to begin. But before you do, here are a few things to know about this exciting market.

 

1. How to Start Trading Cryptocurrency

Broadly speaking, there are two ways to trade cryptos. These are:

 

Crypto Currency Exchange

Crypto exchanges allow traders to open their accounts and link them to their crypto wallets. Some wallets store your crypto assets, while others simply record all your crypto-related transactions. The wallet owner bears complete responsibility for the security and ownership of the assets. A public key or address is typically used to send cryptos, while a private key is proof that you own the crypto in your wallet.

Opening a crypto wallet and protecting it from hacks and malware can seem cumbersome and overwhelming for beginners.

 

Trading Cryptos with CFDs

To overcome the vulnerabilities of wallets and keys, beginners may consider crypto trading through CFDs (contracts for difference). With CFDs, traders can speculate on price movements in the crypto market without the hassles of owning and securing these digital coins. Moreover, CFDs allow trading with leverage, which means that traders can open positions with only a fraction of the overall value of the trade. While this significantly increases the profit potential, it also magnifies associated risks and must be used with caution. Check out our crypto section our website for more info on the crypto CFDs we offer and how to manage your risk.

Since CFDs do not involve owning the underlying asset, you can speculate in both rising and falling crypto markets. Another benefit is that the cost of trading via CFDs is significantly lower than trading through exchanges.

 

Did you know?

The crypto market is always open. Holidays or weekends, it never closes!

 

2. Factors Affecting the Crypto Market

Here are the various factors that impact the cryptocurrency market:

 

Demand and Supply

As with any other asset, crypto prices are impacted by the market forces of demand and supply. An increase in demand boosts crypto prices, while an increase in supply dampens prices.

 

Risk Appetite in the Market

Like equities, cryptocurrencies are also seen as risky assets. Any news that impacts investor risk appetite will have an impact on crypto prices. The higher the risk appetite, the greater the demand and, hence, the price of cryptocurrencies.

 

Regulations

Increased government regulations may be perceived as a negative, especially when there are bans on cryptos by certain countries. However, government regulations can have a positive impact too, as they safeguard trader interests. This encourages more traders to enter the market, boosting the demand for cryptos and lending upside to prices.

 

Economic Factors

Economic data releases, especially those that impact fiat currencies, have a major impact on crypto prices. For instance, rising inflation and a slowdown in GDP growth in bigger economies have a negative impact on major currencies and boost the demand for cryptocurrencies. On the other hand, soaring inflation or a meaningful slowdown in economic expansion can impact market risk appetite and exert pressure on the demand for cryptocurrencies.

 

Geopolitical Events

Geopolitical events that hurt the demand for traditional assets tend to have a positive impact on the crypto market. However, continued geopolitical tensions can hurt investor sentiments, leading to a decline in the crypto market.

 

Asset-Specific Drivers

An increase in supply, a change in the underlying business model, and a change in mining costs or mining rewards are all factors that impact cryptocurrency demand.

 

Social Media

Cryptos are extremely popular among Gen Z, which is why prices are impacted by social media buzz.

 

Did you know?

In January 2021, Elon Musk changing his Twitter bio to #Bitcoin sent the price of this cryptocurrency higher by almost 20% in just a few hours.

 

 

3. How to Choose a Cryptocurrency to Trade?

There are two very important aspects to consider when choosing a cryptocurrency to begin trading:

 

Market Cap

This is the total market value of a cryptocurrency and is typically expressed in US dollars. It indicates the amount of investor and trader interest in a crypto coin. New traders often begin with larger cryptocurrencies. Bitcoin is the crypto with the highest market cap (at $378.57 billion as on September 16, 2022) and dominates around 40% of the market.

 

Did you know?

All cryptocurrencies apart from Bitcoin are together known as altcoins. This is because Bitcoin enjoys the lion’s share of the crypto market.

 

Price Gains

Traders tend to begin cryptocurrency trading with coins that have a history, rather than new ones. An increase in a cryptocurrency’s price over a period of time is seen as a testament to its future growth potential. For instance, Bitcoin was officially launched in 2009. The value of 1 bitcoin rose from below $400 in 2015 to around $20,000 in 2022. While trading involves much shorter timeframes, long-term growth is an indicator of the strength of a cryptocurrency.

 

Distinguishing Factors

The technology or strategy backing a cryptocurrency plays a key role in determining its performance in the market. For instance:

  • Bitcoin introduced blockchain technology to the world. The crypto king also introduced the concept of a digital currency with a limited supply.
  • Ethereum launched smart contracts, which allow transactions to be triggered automatically once predefined conditions are met. This aided the introduction of DeFi (decentralised finance). These use cases support Ethereum’s value in the crypto market.
  • Litecoin is the oldest cryptocurrency after Bitcoin. Given its similarities to Bitcoin, Litecoin is often referred to as “the silver to Bitcoin’s gold.”

You can trade CFDs of all these cryptos with ADSS.

 

Did you know?

Ethereum went through the Big Merge on September 15, 2022 (an upgrade to Ethereum blockchain), to improve its sustainability and reduce its carbon footprint.

 

4. Technical Analysis to Trade Crypto

Most new traders rely on technical analysis, as this focuses merely on past price performance to predict future price movements. Candlestick charts are most popularly used, along with technical indicators to provide trading signals. The MACD (moving average convergence/divergence) is a widely used indicator for cryptocurrency trading, owing to its ease of use. It helps assess whether a short-term price momentum follows the longer-term price trend or if a trend change is in store.

 

Tip
When trading cryptocurrencies, it’s best to use stop loss orders to manage risk.

Key Takeaways

  • CFDs allow traders to trade cryptocurrencies without the hassles associated with creating crypto wallets and keys.
  • Most traders begin their journey in the crypto world with coins that have the highest market cap.
  • Cryptocurrencies are often used as a hedge for fiat currency exposure.
  • Bitcoin, Ethereum, and Litecoin are among the three most popular choices.

 

Open a live account with ADSS and gain access to the exciting world of popular cryptocurrencies.

Learn. Explore. Pursue more.

 

Join our trading community to access our free weekly webinars, and our library of tutorial videos and how-to guides. Designed to help you navigate the index, forex, equities, cryptocurrency and commodities markets, analyse the latest news and insights and become a better trader.

 


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Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.

ADS Securities LLC (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates as a trading broker for Over the Counter (“OTC”) Derivatives contracts and foreign exchange spot markets. ADSS is a limited liability company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.

The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.

ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.