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What is Trading and Cryptocurrency Trading, Their Main Features

  • Andrew Strogoff
    Cryptotips

    Crypto trading and its features, the difference between trading and investing, trading tips


 What is Trading and Cryptocurrency Trading, Their Main Features
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Trading is an operation where one party buys something from the other party in exchange for money. We do trading in our everyday life when we purchase foodstuff, clothes or even services.

This concept is also used for the financial markets where traders and investors buy and sell several types of assets and derivatives. Market participants purchase stocks i.e. for a lower price and wait until their cost rises to sell them. The more the price rises from the purchase level, the more profit you can get.

This is how it works in general. Nowadays almost everybody can open an account with a special company, named broker (or find a cryptocurrency exchange) and start trading. Blockchain innovations allowed users to start speculations on their own (without any intermediate) as traders are able to enter special exchanges and to place orders to gain money on the price difference.


We are going to cover such subjects as history, basics, principles, examples, pros and cons of trading in this introducing article.

History of trading

History of trading

First exchanges were established in Europe in the XVI century. Their main goal was to provide merchants with marketplaces and the governments with the opportunity to place bonds. Trading with stocks and shares developed later as the response to growing commercial needs and companies’ expansion.

Such a notion as “trader” appeared first with the establishment of London Stock Exchange in the end of the XVII century.

Meanwhile, stock trading appeared in Asia one century later. Rice exchange in Japan started to operate in the XVII century. This period and geographical location are both interesting for traders as Japan is the home country for Munehisa Homma, who developed his famous Japanese candlestick method, allowing speculators to both read the price properly and to forecast future fluctuations.

Currency markets are younger. Forex appeared after the fall of the Bretton Woods system as European countries refused to support gold standard (a system, where currencies were linked directly to gold). Cryptocurrency trading emerged in the early 2010s when first exchanges started their activities.

Small retail traders and investors were enabled to start trading in the end of 1980s with the appearance of margin trading. In the early 1980s, some British dealing companies began to offer services to those individuals who had lower capitals. In 1986, most central banks accepted this trading mechanism and allowed almost unlimited opportunities for people to speculate and to invest in different types of financial assets.

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What is the difference between trading and investing?

What is the difference between trading and investing?

There is a big difference between those two notions. The main task of investors is to gain profits gradually, by purchasing and holding assets until their price growths. They also buy stock to get dividends.

Trading, on the other hand, involves more frequent buying and selling of assets as speculators aim to generate returns from the price difference.

There is one more thing to pay attention to. Investors have less performance than traders. The first group may be content with 10 percent of annual profit when the second group may have about 10 percent monthly.

Nowadays this line between traders and investors is almost invisible, especially within the cryptocurrency industry. Investors, there are long-term (or position) traders while traders are speculators holding their positions for hours or days.

Trading basics – supply and demand

The main idea of trading is to find an underrated asset, buy it and hold until its price rise in order to sell it later. It sounds obvious but here lies the main principle of trading. How do traders and investors know, when to purchase a currency pair or a stock and when to get rid of it?

There is a so-called supply and demand law. It explains the interaction between the supply of an asset and a demand for it. When those two aspects are misbalanced, the price goes upper or lower, depending on what is higher.

The cost of an asset will go upwards when demand grows. It means that more market participants want to buy it. And vice versa, when demand is weakening and supply becomes stronger, the price is likely to fall.

Let us give a simple example. Let’s say, a retailer has 10 apples to sell. There is only one buyer for them, who is ready to purchase apples for $5 per kilo. Will the buyer try to raise their cost? Definitely not as the demand is limited to one customer only.

Let’s make it a bit more difficult. We have 10 apple sellers and only four potential customers. The demand is lower than the supply in this case. Sellers will be forced to reduce prices as they have to literally fight for each customer. Those who hold their price at the initial level, have fewer chances to sell their apples than those who are ready to lower their costs.

However, in a couple of hours, the situation has changed as new customers came to the market and the ratio is currently the following: 20 customers/10 seller. There is a lack of apples and retailers can increase the price. Supply is lower than demand in this situation.

Main factors, influencing supply:

  1. Production capacity.
  2. Production costs.
  3. The number of competitors.

Main factors

Factors, affecting demand:

  1. The number of substitutes.
  2. The cost of goods and services.
  3. Advertising.
  4. Price changes for complementary products.

How does supply and demand work on financial markets?

atm

Let’s have a look at the chart. We have drawn an ascending line which demonstrates how the balance between supply and demand changes. In the starting point of this red line, we have higher demand and lower supply.

Then the price goes upwards along the red line and both demand and supply become balanced. At some point, demand becomes lower and supply is higher. When this happens, the price reverses and starts to decline. This is how it works for financial markets.

Three main trading principles

There are several principles for traders to follow in order to succeed. We are going to mention three main aspects that are necessary for every successful currency and stocks speculators.

Buy lows and sell highs

This principle is based mainly on the cyclic nature of market fluctuations. If you look at any asset’s chart (including cryptocurrencies), you will see that their price has periods of decline and growth. If a currency is cheap currently, it is likely to increase its price in future and vice versa, if a currency is expensive at any moment, the price is likely to decline.

This aspect is very important for every trader as those who know where to buy and to sell are more successful than those, who place orders randomly. Traders who stick to this principle of trading, have higher chances to win.

This may sound obvious, but many beginners buy highs and sell lows as they have no idea how to find entry points properly. Those traders suffer losses and then start to learn something about trading. Those who pay significant attention to theory, have chances to become skilled investors.

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Follow the market

This recommendation means a speculator has to always look for tendencies and follow them. If there is an uptrend, a trader is better to purchase an asset. In cases when the price goes downwards, investors are advised to get rid of it.

There is a proverb “Trend is your friend” meaning those who have found a tendency, have better chances to take profits. Trading against the trend is also possible, but these strategies are complicated and require more skills and experience.

Manage risks properly

Manage risks properly

The main reason for managing risks is the random result of every single trade. There is no a single strategy guarantying trader positive results in every position. Risks accompany investors during their market operations. Moreover, no one is able to reduce risks to zero levels. However, traders who manage them properly may minimize them.

What does it mean “to manage risks”? This includes calculations of eventual profits and losses that a trader can take and afford. Many cryptocurrency exchanges offer to their clients several tools to manage their risks by placing stop losses and even take profits.

Let us give you a clear example of the importance of risk management. A trader has bought one bitcoin for $9,000. The price declined to $6,000 and he decides to sell it. Trader’s losses were $3,000. Another trader has bought Bitcoin for $9,000 and placed a stop loss at $8,500. The price declined to $6,000, but this time stop losses triggered when the price reached $8,500. Trader’s losses were $500 only.

This is a simple but clear example of importance of proper risk management. There are several methods of how to do it and we are going to demonstrate them in our following articles.

Examples of trading

Here we are going to demonstrate you chart example of trading.

trading

This example is about long position. It means a trader thinks that the price of XRP/USD is at its lows and the situation looks promising for buyers. What is the best decision here? Naturally, to follow the market. It means to purchase XMR/USD somewhere here. Let’s suppose this trader buys the currency pair at 0.5067. He holds his positions until the price reaches the second point and sells XMR/USD when the price reaches 0.7078.

The profit is 0.2011 pips (the smallest price change unit on financial markets). To make it easier to understand, if a trader has bought 100 Ripple coins at 0.5067, he would have an opportunity to earn $200. For each XMR, trader gains 20 cents of profit.

Looks pretty easy, but this is just an example. When traders look at price history, they always know where to purchase or to get rid of an asset. However, when they start real trading, it is not so easy to forecast future fluctuations. Professionals use different analysis methods to predict quotes. We are going to cover all of them in our following articles.

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Pros and Cons of trading

The main advantages of this activity are:

  1. This profession is always in demand. Successful traders may earn money on their own or to become a part of cryptocurrency hedge funds, for example. The amount of those financial institutions increase every year meaning skilled traders have more opportunities to find a well-paid job.
  2. Trading offers an opportunity to start a business for yourself. There are no bosses, no orders, no tasks, no salary (except when you are working for a hedge fund or a bank, i.e.). You take all your profits (paying commission and other costs).
  3. This is an intellectual profession. Everything depends on how a trader controls himself, manages risks, reads the market situation. Professional traders see their accounts grow.
  4. Unlimited profits. When a person goes to a part or a full-time job, he has a fixed salary (or percent from company’s earnings, which is usually low). Those who trade, have the opportunity to gain more in case they are right. Those who had 100 BTC in 2009-2015, for example, became millionaires as the price reached $20,000 level and then declined towards $8,000-$9,000 in 2017-2018.
  5. Trading gives new knowledge and skills.
  6. No need to go to the office. Traders can place orders from everywhere if there is Internet connection there. Speculators use PCs, notebooks, mobile devices as a modern trading terminal are cross-platform.
  7. Low entrance requirements. Many brokers, as well as cryptocurrency exchanges, have no minimum deposit level. This means almost everybody can try trading.

As for the disadvantages, they are the following:

  1. Risks. They accompany every market position. Trader risks to lose a part of his investments or all money he deposits.
  2. High responsibility. Trading is not for lazy people. A speculator always has to be on guard, look for information, learn new tactics and strategies, analysis methods and so on.
  3. Trading is stressful. Speculators have to monitor their mind and physical health. Trading is stress and you need to learn how to decrease it.

Cryptocurrency trading features

Cryptocurrency trading is similar to other industries like Forex or stocks. Here are some features of this kind of investing:

  1. There are no brokers or dealers. Crypto traders go to special online exchanges where they can buy and sell coins.
  2. Cryptocurrency trading is available 24/7 as compared to Forex and stocks.
  3. The liquidity is lower. This leads to higher volatility and gaps.
  4. Lower volumes especially for exotic coins. This may result in pump & dump strategies.
  5. There are no tools like economic calendar or companies’ reports meaning the fundamental analysis of cryptos is harder to conduct.
  6. Hard to establish correlation between the coins. Forex and stocks traders always use correlation to predict prices and to hedge their risks. Correlation means different assets move in the same direction. In crypto market it is impossible to find correlations as there is no connection between different coins.
  7. There are no liquidity providers. When you trade on Forex, you deal with the liquidity providers – huge banks and market makers. In cryptocurrency industry, all trades are executed within exchange.

Conclusion

Trading offers many opportunities for investors and speculators. However, this is not just a simple road with no obstacles. In order to afford it, you need to learn, get experience and appropriate skills.

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Bitstamp Review: Cryptocurrency Exchange For All Types Of Traders

  • Andrew Strogoff
    ⭐ Features

    Bitstamp is a very tough player of the crypto exchange industry, offering many features to its clients


Bitstamp Review: Cryptocurrency Exchange For All Types Of Traders
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trading platform

Hello, mates. I know that many of you are looking for a trading place where you can buy and sell both cryptos and fiat money. This review is related to Bitstamp cryptocurrency exchange. Here I will cover such points as registration procedure (including personal verification), trading features, conditions (including fees) and some other important aspects.


Before I start describing the main features of this trading platform, I would like to familiarize you with the company itself. Bitstamp is one of the oldest cryptocurrency marketplaces in the world. The company began its activity in 2011 in the UK. However, later they have opened other offices in Luxemburg and New York. Crypto exchange Bitstamp received its license in Luxemburg.

This marketplace is widely known within the cryptocurrency community and I would tell that this is true as you hardly can find a trader who heard nothing about it. Moreover, several famous and popular tabloids like Forbes, Coindesk, Reuters have mentioned Bitstamp in their articles. The company has established cooperation with Ripple, CACEIS and Swissquote.

This crypto exchange trading place offers English only. There are no other language options at all. However, it gathers traders from all over the world.

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How to create an account with Bitstamp

Before you start trading with this exchange, you need to create your account. There are no difficulties to do it, as the form is very easy. You need to fill in your name, email address and accept terms of use and Bitstamp Privacy Policy.

 account with Bitstamp

Above you can find the form that I have already filled in. After pressing on “Register” you will proceed to the second step. You will be sent an email with a confirmation link in order to end account creation procedure.

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Once you have created your account, you can proceed with its verification. Here I want to make a reservation. I think it is not a secret that there are trading platforms with no obligatory verification procedure, meaning without confirming your identity, you will be able to trade but with some limitations.

Bitstamp requires verification from all service users without any exception. Moreover, you will not be able to proceed to deposit and withdrawal step before you confirm your identity. This requirement is obligatory because the platform has a license.

Now I am going to stop on details of the verification procedure. After you have created your account, you can login and navigate to “Verify account.”

I can say that this procedure is a bit harder than creating an account as you have not only to provide your personal data, but also to provide exchange with your ID documents scans. What kind of personal information is required?

You need to provide Bitstamp with data, indicated in your ID. Additionally, you need to upload the following documents:

  1. ID photo.

  2. Proof of residence document photo (this can be your bank statement, utility bill or taxes certificate, for example).

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How to deposit and withdraw money

Bitstamp offers the opportunity for all its clients to deposit and withdraw in both fiat currencies and cryptos. You can use, for example, VISA or MasterCard as well as SEPA (European Bank). As for cryptocurrencies, you are allowed to deposit and withdraw with Bitcoin, Litecoin, Ripple, Ethereum and others.

How to place your first order with Bitstamp, order types, trading tools

When you have already created your account and verified it, deposited some amount, you can start trading. Here, I want to make a couple of points for you to pay attention to. Bitstamp offers a high-quality trading platform with several features including professional charts and some other important.

The first thing that I have noticed when I have entered the platform for the first time was the number of currency pairs, which is lower as compared to the most of competitors. The number of pairs is slightly above 10.

order typesNow let’s get down to the trading platform. This is a very important aspect for every trader as charts allow users not only to see the current price but also to analyze it using historical data. Bitstamp offers modern full functional chart with several trading tools.

Take a look at the screenshot. You can see there candlestick chart. In the upper part of the chart, you can choose indicators and different graphic tools. As for indicators, there are many useful algorithms including the most popular Bollinger Bands, ADX, ATR and the others. Graphic tools are represented by different types of lines and other geometric patterns. Here you can find Fibonacci retracement as well.

Before you open any trade you need to choose a trading pair. This option is also available in the upper side of the platform. The next step is to choose the order type. Here I want you to pay attention to the different types of trades that are available with Bitstamp: they are the following:

  1. Instant order. The easiest one that is recommended by the exchange to beginner traders. Here you buy or sell cryptocurrency at the current market price.

  2. Market order. Is it a kind of instant order, but you can buy or sell cryptocurrencies at best prices. This order is suitable for those who have some trading skills already and want to improve their entry points.

  3. Limit order allows traders and investors to choose the price at which they will buy or sell cryptos. This one is suitable for professionals and skilled market players. The main idea of this order is to set a price at a desirable level and wait for the crypto to reach it.

  4. Stop order. This kind of trade allows users to limit their losses in case if the price goes in the opposite direction.

Once you have chosen your pair and order type, you can input the amount you want to sell or to buy and start trading. As far as you can see, there is nothing difficult here.

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Bitstamp fees

Almost all cryptocurrency exchanges take their fees not only for trading but also for deposit and withdrawal procedures. Trading fees at Bitstamp are diversified meaning the more you trade, the less you pay. This is a fair approach, I think as exchange earns more when you have higher month trading volumes.

As for deposit and withdrawal fees, they are taken by the company but they do not come directly to the company’s pocket as this money goes to payment systems.

The highest trading commission rate is 0.25 percent. It is taken from all those who’s monthly trading volume is below $20,000.

Security and support service

I have a good news for you. Bitstamp requires two-factor authentication since June 2018. This is a mandatory procedure, which increases the security level of your own trading account. You can use both Google Autenticator or Duo Mobile services.

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Moreover, you can switch on notifications about all the important events that take place in your trading account. Those messages will be transferred directly to your email address. This allows users to get updates on all the important events and take measures in case of any suspicious acts.

As for the support service, some users say that sometimes it takes time to receive any answer from the team. The speed of reaction is slow, but to tell the truth, I think that this is due to the inflow of investors. Bitstamp is one of many exchanges having such problems and I hope they are going to solve them in the future.

Pros and cons

This is my most preferable part of any crypto exchange review. Here I’m going to underline those pros and cons I think the most important of the company. I’m going to start with advantages. Here they are:

  1. Great working experience. Bitstamp operates since 2011. The team does not hide their members, which is a positive aspect as they are trusted by the crypto community.

  2. Bitstamp has its license and operates according to legislation. Users may be sure that their money is safe and they will not be scammed by the administration.

  3. Liquidity. This exchange has high liquidity as there are serious daily trading volumes. This means that the currency pairs are less volatile and you can use all types of orders.

  4. Several payment methods allowed. Bitstamp offers not only cryptocurrencies but also fiat money. You can deposit USD and EUR as well as withdraw them from your trading account. Credit and debit cards such as MasterCard or VISA are also available.

  5. Friendly user interface. I heard no complaints about Bitstamp’s interface from users and I found no negative testimonials about it.

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And now I’m going to share with you my negative thoughts about the exchange. They are not numerous, but I think it will be interesting for you:

  1. Verification requirements. This is not the big problem, but I think there are those who want to stay anonymous in crypto industry. Bitstamp does not allow to stay in shadow as every user has to do the verification procedure before getting access to trading.

  2. A small number of cryptocurrency pairs. It is true. You will not find any altcoins from above the top 20. However, Bitstamp offers in its turn the possibility to work with hybrid pairs including USD and other fiats. The exchange can be used as your pass into the world of altcoins as you may buy BTC or ETH here and then transfer those cryptos to other exchanges with a wider range of pairs, which do not support fiat money.

  3. Lack of localization. The website is in English only. Other languages are unavailable. I’m far from thinking that the international language is not enough for such a trading platform, but for some traders, it may be a real problem to work with the exchange.

Bitstamp overview

Before making the full stop, I would like to make a brief overview of this crypto exchange. I’m not going to give any recommendations as it is up to you to decide whether to place your investments there or to find some other trading platforms. However, I want you to pay attention to some interesting moments.

Bitstamp operates since 2011 and there were no significant security issues. This is the first thing that I have paid attention to. Bitstamp offers great opportunities for all those traders who want to use technical analysis in their trading routine as there is a large number of indicators and other important tools available.

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