All You Must Know About Day Trading In Cryptocurrency

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Cryptoasset investing is highly volatitle and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Last Updated August 26th 2021
9 Min Read

There has been a boom in cryptocurrency trading in recent years. Huge trading volume and high volatility are some reasons for its popularity. Because of these reasons, market makers consider it suitable for day trading as well. Day trading is one of the most active trading strategies in the financial markets.

But how much day trading crypto is a good idea? Can you make money with day trading crypto?

Price discrepancies and movements in cryptocurrency have indeed brought a significant opportunity for day traders. However, before you enter and start the day trading crypto, you must know the market structure, funding option, market analysis, tax implications, and much more about it.

Day Trading

In this trading type, a trader speculates on his assets and financial products during a single day. The trader will buy and sell all his financial instruments within several hours a day. As a result, he remains unaffected by any risks and price fluctuations in the market between the time market closes on the day and opens the next day. 

Unlike long-term traders who rely on investing strategies, day traders keep an eye on the short-term market movements and place a large number of orders in a day to gain profit.


This is a virtual or digital currency exchange system wherein no banks verify the transactions. Here, encryption or advanced coding is used to secure and verify the transactions. There is no physical money involved. Instead, payments are registered as digital entries on an online database. You can store your cryptocurrency in a crypto wallet.

Because of its high liquidity, traders are seeking opportunities in this industry. 

Some of the popular currencies are:

  • Bitcoin: This is the most popular and biggest cryptocurrency in the world. Due to its popularity, this is the most technically upgraded digital asset. Around half of the trading activity occurs in this digital currency in billions of dollars. This is one of the top choices due to its high volatility for day traders in cryptocurrency.
  • Altcoins: Altcoin refers to alternatives to Bitcoin which were introduced after bitcoin’s success. There are many cryptocurrencies in this category with different technological uses and differences. Altcoins are covering up any drawbacks in bitcoins and come up with benefits in their new versions. One of the most popular altcoin is Ethereum
  • Stable Coins: To lessen the volatile nature of cryptocurrency trading, stable coins were introduced. These coins peg their value to some goods such as precious metals, fiat currencies, and other cryptocurrencies. If in case cryptocurrency fails, these goods are kept in reserve to redeem. In stable coins, price fluctuations can occur only in a narrow range.

Some Basic Things To Know Before Day Trading Crypto

Manage your risk

While day trading crypto, do risk your capital to the extent that you can afford to lose otherwise it will create financial stress. There is one good rule of thumb for investing. Do not put more than 1% of your capital at risk on a single trade. With this, you can invest your capital across many trades, and reduce your risk.

Start slow

No matter how much you understand the nitty-gritty of cryptocurrency, always start slow. This new asset class is quite unpredictable and dangerous too. Start with small trades and increase as you gain experience.

Educate yourself

Always try to educate yourself as much as you can about the cryptocurrency market. Learn about the strategies and don’t hesitate to take professional advice if you want. In the end, the best you can learn is through the process of trading itself. 

Don't Miss: How to Day Trade Cryptocurrencies in Two Hours or Less (Extensive Guide)

Understand The Market Structure For Day Trading Crypto

Due to the fragmented nature of cryptocurrency and the ease of setting up an exchange, there are a large number of trading platforms in this industry. There is no need for any broker and exchange itself is an exchange venue as well as a broker.

For every exchange, you can attract market makers to offer their bids. As a result, there are significant changes in prices and liquidity. Thus, you can expect huge opportunities as well as risks in day trading crypto. Further, this crypto market has an international customer base. As a result, it is open 24/7 for 365 days except at times of system upgrades or periodic maintenance. You are free to trade at any time of the day.

Some of the exchange platforms such as Coinbase or Bit stamp welcome transactions in USD and EURO and conduct AML/KYC programs to fulfill all the regulations. However, exchange platforms in Asia and outside the USA do not allow transactions in USD but only in stable coins and other cryptocurrencies. As there are lesser regulations in crypto, you can have more options in cryptocurrencies against stable coins.

Funding And Security In Day Trading Crypto

Most exchange platforms allow bank accounts, wire transfers, and debit card payments for funding your exchange accounts. Some other exchanges also support credit cards and PayPal. However, it’s good to verify if any fees are involved in these funding options. If you are already in day trading crypto, it is better to fund your account through crypto-wallets.

Generally, a day trader looks for leverage to increase his profits. However, cryptocurrency may disappoint you as most of the cryptocurrency spot exchanges lack leverage. However, now the scenario is changing and exchanges are allowing leverage trading for their customers. For example, Coinbase Pro has recently started offering leverage. This is, of course, good news for day traders in crypto. Further, cryptocurrencies do not offer a shorting of assets in their regular exchanges.

The cryptocurrency market is often listed in bad books when it comes to security due to some past incidences of theft. Although the situation is improving a lot. Still, you must always look for the platforms that offer security for all your funds. It’s better to opt for platforms that work under well-regulated jurisdictions. 

Market Data And Trade Information In Day Trading Crypto

Exchanges have an order book that shows you the real-time data related to all your order requests of buying or selling a cryptocurrency. This order book has data mentioned in the order of price. However, you can also see your order quantity. The difference between your highest buying order and lowest selling order is known as Spread. Due to extreme price fluctuation in crypto, spreads are often wider than any other trading market.

You can also see the history of your recent trades on the platforms. This history information includes price, trade size, and time. This information can give you a good idea about the crypto movements for your future trades.

When you are day trading in Crypto, you must understand that the exchanges are not related to each other. As a result, there can be price inconsistency in one asset over different exchanges. You must take advantage of this price discrepancy to maximize your profits in day trading.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Trading Basics In Day Trading Crypto

In any crypto trading, two parties exchange the assets, one is the maker and the other is the taker. The maker has an order in his order book, and a taker triggers the market. Based on the market activity, the makers continuously update their prices. Once a person places an order and if it is filled immediately, he becomes a taker. On the other hand, if you place an order like a limit order, that does not fill immediately, you become a maker. 

Cryptocurrency exchanges charge a certain amount for your trading. You can either pay a certain fee per trade along with a fixed percentage for each trade, or the fees can vary based on the trade’s status (maker or taker). Often, the fees for makers are less as it attracts for more makers to add liquidity to the market. Based on trading tiers, the fee is reduced. For an entry-level tier, the fee is kept at a higher rate. Also, there can be varying deposit and withdrawal fees on the exchanges.

When you are trading, you can place different types of orders. The most common one is a market order wherein the trade is executed as soon as the order is placed on the current available price. Alternatively, you can place a limit order in which you can fix a buy or sell price. If the fixed price is achieved, the order is filled.

Apart from this, as a day trader, you can take advantage of stop-loss orders. In this, you can limit your losses by selling your assets if they fall below the stop price. Another type of stop loss is trailing stop in which the trigger price rises as the cryptocurrency price rises to fix your profits. 

Read Also: Cryptocurrency Day Trading Strategies

Arbitrage: A Day Trading Method In Cryptocurrency

There are high price discrepancies and fragmentation in the crypto market and its financial products and you can take advantage of the same. Arbitrage is one such method of taking benefits out of price inconsistencies in short-term trades between markets and products.

You can take arbitrage opportunities in two ways; Cross Exchange and Cross Product.

  • As the prices across different cryptocurrency exchanges are not consistent and vary based on the supply and demand of users for a particular exchange, you can buy or sell your assets across different exchanges.
  • On the other hand, cross-product allows you to take advantage of price differences from one trading pair to another within one exchange. For this, you may need to trade in and trade out in multiple cryptocurrencies in a day.

Chart Analysis In Day Trading Crypto

You can do the technical analysis based on the history of an asset and its price. This information indicates any future movements in the price. Some exchanges also offer some innovative tools for technical analysis such as trend lines or moving averages.

Tax Implications In Day Trading Crypto

The tax implications on cryptocurrencies have been in discussion for years now. Some consider it as intangible property and thus put it out of any tax implication. However, according to the IRS regulations, today, crypto traders come under capital gain taxes. However, IRS allows you to claim your losses in crypto trades even if you trade on the same asset again within 30 days.

How To Regulate Your Trading To Mitigate Risks

Apart from considering the security offered by exchanges in crypto, you must have information on how these exchanges are regulated for the safety of your assets.

  • In the US, most of the states have legislation to regulate the companies dealing in cryptocurrency.
  • If you want to operate in New York, you need to take a Bit License introduced by the New York State Department of Financial Services (NYDFS).
  • Some of the cryptocurrencies such as Bitcoin and Ethereum are considered as commodities and thus exchanges are doing their efforts to regulate them accordingly
  • Most of the US-based cryptocurrency exchanges enforce KYC (know your customer) and AML (Anti-money laundering) regulations on customers to prevent any illegal activity in the future.

Outside the US, different countries have different degrees of regulation for protecting the digital assets of their customers. Apart from this, you can maximize your profits in day trading crypto based on the execution quality of the exchange. It judges how quickly and at what prices the trade gets executed. High execution quality is an indication of fair trade.


Even after having a lot of information, knowledge about strategies, and experience in trading, you should always be ready to accept losses due to the volatile nature of the crypto industry. Be ready with your exit plan. Be it day trading or any other; invest only in coins that you believe in.

eToro – The Best Platform To Day Trade Cryptocurrencies

eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

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