Cryptocurrencies are fast becoming mainstream. Both private investors and financial institutions are taking more interest in cryptocurrencies.
More people want to trade cryptocurrencies, but it can be complicated to decide what type of trading style is best for you.
There are many ways to make money with cryptocurrency. Here are some popular types of trading styles that may work for you.
There are two main types of trading strategies for digital trading currencies: holding onto your coins day-trading them through exchanges or using margin trading without owning any coins at all.
These strategies aren’t mutually exclusive; if you’re holding, you’ll need an exchange or wallet, and there are plenty of opportunities for short-term traders within crypto exchanges as well.
Here are some ways to trade cryptocurrencies for profit:
Margin trading is when you borrow money from your broker to get into a position. You can leverage long or short positions with this method, and the amount of money you get out of it depends on how much people are willing to lend at a given time in the same way as with cryptocurrency exchanges.
It is a high-risk trading strategy, not only because of its volatility but because, in most cases, margin calls in case there’s a sudden downward movement in price, which may result in forced liquidation if the collateral isn’t enough.
It means that when traders lose money, brokers win. There are many risks involved in margin trading, including potential external hacks that could lead to the closure of your account if you’re not careful.
This strategy involves buying cryptocurrencies and holding onto them to sell them later at a higher price. While this isn’t considered trading, it is hazardous.
You risk losing everything if they fall in value or become completely worthless by holding onto cryptos.
You can lose out big time even if cryptos go up by 100% because, let’s say Bitcoin does some astronomically high number like USD 100,000 per coin; well, if it fell to 50% its current value (which would be around $5k), then your bitcoins would be worth half as much as before making you lose big time.
If Bitcoin became worthless, all the value would be gone, and your bitcoins wouldn’t be worth anything. In this regard, holding can be as risky as margin trading.
Diversifying lets you spread out your risk among different cryptos instead of just one; if one coin falls, then you’re not losing everything because other coins may still go up in value.
That’s why many people choose to invest in multiple cryptos like Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Monero (XMR) etc. If something goes wrong, you will probably only lose a specific proportion of your entire investment.
Long-term trading is another strategy that involves buying coins and holding onto them for months or even years.
It can be done through either margin trading or not owning any coins at all, but the strategies are similar in that they both involve waiting for the value to go up enough so you can sell it off with profits.
In this respect, there isn’t much difference between cryptocurrencies and fiat currencies as you’ll often hear people say, “Time in the market beats timing the market”.
Meaning if you hold long enough, your investment will usually increase in price even though cryptocurrencies tend to move by hundreds of percentage points per day.
Scalping is a short-term trading strategy that involves buying cryptos and selling them off within minutes or even seconds at a higher price, repeatedly doing this during a single trading day to make profits.
It can be done through either margin trading with leverage or not owning any coins at all. Still, the strategies are similar in that they involve making quick decisions depending on price fluctuations.
Scalping works best for those who are okay with taking risks, don’t mind moving in and out of positions quickly, and want to make some money fast by jumping into the market when there’s blood in the streets so they can take advantage before it’s too late.
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