Home » Crypto trading: pros, cons and best practices

Crypto trading: pros, cons and best practices

by Victor

Digital currencies gained popularity a few years after the release of Bitcoin in 2009, and since then, more cryptocurrencies have been issued. Now, people have plenty of options for trading and exchanging digital value, making cryptocurrency a controversial subject. Experienced investors state that crypto is the future of financial freedom, whereas others still don’t see this type of trading as reliable. So, in this article, we’ll have a short insight into the pros and cons of crypto trading and how you can make the most out of your digital wallet.

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Pros of crypto trading

Crypto trading has changed how we trade value because, in this process, there’s no official authority involved, which makes transfers faster. Along with this, the benefits of crypto trading include the following:

  • Anonymity. In crypto trading, you don’t have to share your personal information to be eligible to make transfers. At the same time, through the technology of smart contracts, you’re less likely to encounter a fake persona because the program will accept the transaction after each part has been verified;
  • Transparency. All data is recorded on the blockchain on an open ledger, so anyone can see what transactions are made but can’t modify or alter it;
  • Decentralization. Crypto is issued through a process called mining, where users have to solve complex mathematical problems with their computers. So, there’s no authority to limit the number of cryptos issued for a certain period. It all depends on supply and demand.
  • Potential for high returns. Many cryptocurrencies with low-cap markets have the potential to offer substantial gains. Still, they must be handled well and balanced with high-cap market cryptocurrencies to avoid risks.

Currently, there are two most reliable cryptocurrencies. First, there’s Bitcoin, which has proved that it can survive unstable waves of volatility all these years. Secondly, Ethereum is a blockchain that offers more than a way to make transactions. Users can also write smart contracts, program DApps and participate in DAOs. If you want to know how to buy ETH, many trading platforms provide safe exchange wallets, and you can choose between different payment methods, like debit and credit card, bank deposit and P2P trading.

Cons of crypto trading

Crypto trading is relatively new to people, even though it’s been on the market for a while. The problem is that since it’s not regulated, trading with cryptocurrencies requires a lot of risk-taking and risk management. The volatile market is causing investors to lose some assets at times or be hit by the loss of value of some crypto. But there are other disadvantages:

  • Price volatility. Low-cap cryptocurrencies have the biggest potential for high returns, but they’re dangerous to own or invest in because they’re unstable, and their price might change rapidly.
  • Production cost. At the beginning of Bitcoin, anyone could mine with a regular computer. But now, on almost any blockchain, you’d need strong computational power to mine, which makes it harder to invest each year. Mining requires a lot of energy to gain crypto.
  • Restrictions. Although there are discussions about crypto adoption worldwide, since millions of investors use it, some countries are still reticent about this financial option and have banned crypto (China) for a while. On the other hand, others wish to adopt it but regulate it the same way as fiat money.
  • Risk of losing your private key. Investing requires you to own a digital wallet for holding your coins. That wallet has a public and a private key. If you lose the private one, you’ll never be able to recover your coins, and you will lose your tokens.

Best trading practices

Whether you’re a beginner or not, it’s good to remember some basic trading practices from time to time because you may lose sight of your trading plan and follow market trends that are not always reliable. So, for successful and safe crypto trading, you must consider three basic practices.

First, be wary of the trading platform you choose. Here are some aspects to help you find the best one:

  • Look for an exchange platform that has been in business for a while;
  • Check the supported cryptocurrencies; some trading platforms have fewer options, but if you’re interested in altcoins more, search for smaller exchanges;
  • Research the fees of the platform because even though all of them might charge you a transaction fee, it would be best to look for the smallest amount if you’re a beginner;
  • Test the deposit methods to ensure you can add and withdraw money;
  • Analyze users’ reviews on the platform;

Now that you know how to pick the trading app fit for your needs, it’s time to think about your future investments. That means you’ll have to check the crypto wished to and analyze it based on liquidity levels, volatility stats and trading history. The first condition refers to the asset’s accessibility to be converted into cash. Then, understanding how volatile one market is will be crucial for your wallet since it’ll show you how predictable or not one asset is. Finally, the trading volume represents all traded cryptocurrencies from a certain period. For example, a high-trading crypto volume will have higher liquidity, meaning the price can increase.

The last practice involves choosing a trading strategy. Depending on your level of experience, you may try the following:

  • Arbitraging, where you buy crypto on one exchange and sell it on another platform at a higher price;
  • Bot trading, when you use automated software that will buy and sell according to predefined conditions to maximize profits;
  • Scalping involves buying and selling coins over a few hours and cashing out at the end of the day with a small percentage;
  • Technical analyzing, where you need to study the historical financial data of certain crypto to find trade opportunities;

Final thoughts

Trading cryptocurrencies can be challenging if you don’t start small. Even if you might be able to earn a lot of money, the risk increases, so deciding to enter the market slowly is the best choice if you want to have a stable profit.

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