Cryptocurrency Trading For Beginners: The Ultimate Guide To Trading Cryptocurrency

Last Updated July 23rd 2021
21 Min Read

In 2010, there was only one cryptocurrency – Bitcoin – and no one outside the cryptography and computer science circles knew about it. Today, cryptocurrency trading and investment is a trillion-dollar industry. Its underlying technology – blockchain – has sent shockwaves across the world and welcomed fierce opposition from corporations and governments alike as it seeks to disrupt key industries, especially the global financial systems.

But what is a cryptocurrency? How does it work, and how can I start trading cryptocurrencies?

We explain all these in this cryptocurrency trading for beginners guide. We tell you what cryptocurrencies are, how they work and explain how they are traded by introducing you to crypto exchanges.

We also tell you about the different trading strategies and introduce you to the different forms of cryptocurrency trading. By the end of this guide, we will also have taught you to buy your first coin. Here comes everything you need to know about cryptocurrency trading.


What Are Cryptocurrencies?

What is Cryptocurrency Trading, and How Does it Work

What Is An Exchange?

What Is the Difference Between Cryptocurrency Trading and Investing?

Cryptocurrency Trading Strategies

How to Identify the Cryptocurrency to Invest in

How to Prepare to Trade Cryptocurrencies

Step by Step Guide to Buying your First Cryptocurrency

Step by Step Guide to Buying your First Cryptocurrency

Must-read Cryptocurrency Trading Tips

What are the Challenges Facing Crypto Trading?

Pros and Cons of Cryptocurrency Trading

Final Word



What Are Cryptocurrencies?

A cryptocurrency refers to a digital or virtual currency that is created by algorithms that rely on cryptography. The algorithm is specially designed to award cryptocurrencies to computers that help verify transactions on a blockchain. And blockchain here refers to a highly decentralized database that uses cryptography to secure transactions and store the ownership of cryptocurrencies.

Bitcoin was the first-ever cryptocurrency created and was introduced to the public in early by the pseudonymous Satoshi Nakamoto.

But did you know that the digital and anonymous money concept had been there since the 80s? The history of cryptocurrencies, started in 1983 when a computer Scientist and cryptographer – David Chaum – created the first anonymous electronic money and referred to it as eCash. His theory would be studied and tested by numerous cryptographers and computer scientists in the 1990s and early 2000s. But it took Satoshi Nakamoto to actualize it and introduce the first functional digital currency.

Like Chaum before him, Nakamoto intended for the anonymous and cryptographically secured digital currency to be used as an alternative medium of exchange.

He was confident that Bitcoin will eventually replace the inflation-prone and government-controlled fiat currency. Today, however, the cryptocurrency is used more as a store of value ad trading instrument than it is used in facilitating payments and cross-border cash transfers.

Bitcoin’s success has also inspired the establishment of even more blockchains and cryptocurrencies. They are all referred to as alternative cryptocurrencies or alternative bitcoins – Alt Coins.

Here are the ten most popular cryptocurrencies based on their market capitalization

Cryptocurrency Maximum Supply (units of digital currency in millions) Market Cap (As of June 2021) in Billions of USD
Bitcoin (BTC) 21 $702
Ethereum (ETH) Unlimited $317
Binance Coin (BNB) 170.5 $61.6
Tether (USDT) Unlimited $61.7
Polkadot (DOT) Unlimited $23.7
Cardano (ADA) 45,000 $56
Ripple (XRP) 100,000 $46
Uniswap (UNI) 1000 $15.6
Litecoin (LTC) 84 $12.3
Chainlink (LINK) 1000 $13

Table created using data adapted from Coinmarketcap

What Is Cryptocurrency Trading And How Does It Work

Cryptocurrency trading refers to the act of speculating on the future price direction of Bitcoin or other cryptocurrencies. In its most basic form, crypto trading involves buying the digital asset at a low price (dip), holding on to it, and selling it when the price rises (peak) – effectively turning a profit.

How long you hold onto the cryptocurrency is largely dependent on your preferred form of cryptocurrency trading and the trading strategy.

Different forms of cryptocurrency trading:

There most popular form of cryptocurrency trading involves buying and selling the actual virtual coins. However, considering the fact that cryptocurrencies do not have a physical form, buying and selling virtual cash involves the exchange of the private key associated with a digital currency.

The private key here refers to a particular coin’s unique identifier – much like the serial number on the dollar bill. The private key is proof of ownership of a cryptocurrency and is generated by the cryptographic algorithms associated with a particular blockchain, for instance, Bitcoin or Ethereum.

Other forms of crypto trading include:

- Contracts for difference (CFDs):

Trading crypto CFDs involves speculating on the future price movement of the digital asset without actually buying one. It is more of a bet or a contract between a trader and their broker/exchange where the buyer promises to pay the difference in value between current and a future price if it goes against their prediction, vice versa.

- Futures:

Cryptocurrency futures are binding contracts between where two parties agree to buy or sell bitcoins at an exact price and on a specific future date. If you expect the price of crypto to go up, you can then go long on a contract. If you bet that the price of the contract will fall, you can short a contract.

In most cases, crypto futures trading is facilitated by exchanges that will match your long or short futures bet with another futures trader. If the cryptocurrency price goes up by the expiry date of the contract (can be after a few days, weeks, or months), you make money if you bet it would go up, and lose if you had bet on the price to fall.

- Options:

Options work like futures contracts. They, too, are exchange-traded bets that the price of a cryptocurrency, say Bitcoins, will go down. The only difference between the two is that while you are obliged to make good on your Futures contract, you have the choice of buying/selling the contract or simply letting it lapse – in the case of options contracts.

trade cryptos

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

What Is An Exchange?

The crypto exchange refers to an online business that creates a platform that brings together cryptocurrency buyers and sellers. It is the middleman facilitating the exchange of one cryptocurrency for another or cryptocurrency for fiat cash between buyers and sellers. They then charge a transaction facilitation fee, simply known as the trading fee, in the form of either spreads or brokerage commission, or both.

In addition to facilitating crypto trade, most exchanges provide such auxiliary services as education and training on crypto trading, market research, and analysis tools, they integrate multiple payment methods, and some even provide crypto storage services – crypto wallets.

Here are the top ten cryptocurrency exchanges based on such factors as trading volumes, liquidity, and the number of users:

Exchange Av. Number of weekly users (Millions) No. of supported cryptos
Binance 25.79 348
Coinbase PRO 4.33 53
Kraken 4.64 62
Huobi Global 1.54 318
BitFinex 1.18 130
Bithumb 2.04 160
KuCoin 1.02 296
CoinOne 0.66 168
Binance.US 1.11 54
BitStamp 1.02 18

Table created using data adapted from Coinmarketcap

What Is the Difference Between Cryptocurrency Trading and Investing?

Cryptocurrency trading and investing both involve the act of buying and selling digital currencies. In most cases, both crypto trading and investing are informed by a need to turn a profit from the changes in the price of a cryptocurrency. The primary difference between the two forms of interacting with Bitcoin lies in how long the buyer intends to hold onto the purchased cryptocurrencies.

When you invest in cryptocurrencies, the general feeling about the move is that you are buying a digital currency, say Bitcoin or Ethereum, with the intention of holding onto it for a long time. In most instances, crypto investors view digital currencies as a store of value – a digital gold – and believe that they will experience a perpetual price increase.

This, however, does not mean that they don’t take into account the asset’s wild price volatility. They are appreciative of this fact but still hold the belief that short-term price fluctuations have no impact on the digital asset’s long-term price uptrend.

Cryptocurrency traders, on the other hand, involve buying a digital asset and selling it as soon as it proves profitable. Unlike crypto investors who devote a significant amount of their time researching the fundamentals of a given coin, traders are only interested in the technical analysis that reveals the next short-term price direction of the coin.

Similarly, unlike crypto investors who will only speculate on a crypto’s price growth, traders may embrace different trade strategies that make it possible for them to long or short the price of a cryptocurrency.

So, what are the commonly used crypto trading strategies?

Cryptocurrency Trading Strategies

Cryptocurrency Day Trading

Day trading is a form of short-term trading that involves making multiple cryptocurrency purchases and sales throughout the day. It is also referred to as intraday trading and is premised on the fact that all your trades will be closed before the end of the day. In most cases, the trader will only hold on to a trade for just a few minutes or hours before reselling either to turn a profit or avoid incurring significant losses.

To and accurately predict a cryptocurrency’s next price direction, Day traders rely on technical analysis tools and indicators (we look at the below). For instance, a bitcoin day trader will decide to long or short the coin just by looking at the trader sentiment measuring tools or by studying the candlesticks making up the bitcoin price chart.

Cryptocurrency Scalping

Scalping can be viewed as the more aggressive form of day trading. Like day trading, a scalper will always strive to have all their trades closed before the end of eth business day.

But while the average day trader opens and closes a handful of trades throughout the day, a scalper trades dozens and possibly hundreds of trades within the same period. Unlike the day trader who may hold onto a trade for a few hours, scalpers hold onto trades for just a few seconds or minutes.

Here, the goal is to accumulate as many small profit margins from as many trades and possible throughout the day while keeping the trading risks at a minimum.

To maximize the number of trades made in a day, possible earnings, and the accuracy of price predictions, most scalpers have turned automated trading bots.

Others have turned to signal trading where they depend on another, possibly a more experienced crypto trader, to send them ‘trading signals.’ These signals offer directions on the crypto to buy, when to buy, and when to exit the trade.

Cryptocurrency Swing Trading

Swing trading is a speculative cryptocurrency trading strategy that involves taking advantage of market swings. A swing trader relies on both fundamental and technical analysis tools and indicators to identify the beginning of a crypto trend/swing. It can be a price uptrend (that informs a buy/long decision) or a pullback (that informs a sell/short decision).

The trader then opens a trade at the beginning of the trend and rides it to the end. In the case of an upward price movement, the trader will hold on to the trade until its prices start to decline, and in case of a decrease in price, they will hold on to the trade until its prices start to increase.

Unlike day trading, where trades all trades are closed by the end of the day, swing trading may involve riding a wave for days, weeks, or even months.

Position Trading/HODLing

HODLing is to cryptocurrency trading what position trading is to stock trading. They both are a common trading strategy that involves buying a cryptocurrency (opening a position) and holding on to that position for a long period – possibly months or years. It is a speculative form of trading that is pegged on the conviction that the price of the preferred cryptocurrency – say Bitcoin or Ripple – will rise into perpetuity.

Unlike swing traders and day traders, position traders aren’t concerned by the short-term price fluctuation of a given currency. They are confident even when bartered, the digital asset will ultimately regain its value and possibly hit above its past price record.  

HODLing is a typo for HOLDing that originated from a comment from a crypto investor who said “I AM HODLING” on Bitcoin Forum while intending to say they were holding onto Bitcoin regardless of the market conditions. It has become popular within the crypto circles, and now instead of saying that you are taking a position on Bitcoins or other cryptocurrencies, you can simply say that you are HODLing.

How To Identify The Cryptocurrency To Invest In

Cryptocurrencies though hugely popular, are by far one the riskiest and most volatile trading instruments today. It is not rare for a cryptocurrency to post significant price gain or losses within a relatively short period. But this is not the only handle you’ll have in your search for the best cryptocurrency to buy. You also have to choose the best coin from the 4000+ coins available today.

So, how do you isolate a coin from this massive list and ensure that you make the best trade decision by keeping the profit prospects up and the risks low? By relying on technical and fundamental market analysis.

Technical Analysis

Technical analysis is a form of market research that seeks to help a trader identity the trading opportunities by forecasting the price direction of a cryptocurrency. It involves examining the statistical trends recorded by the instrument, especially its volume and price direction.

In studying the price movements and trade volumes, technical analysts are able to identify trade historical price patterns that they can use to predict the future price direction of a specific cryptocurrency.

In most instances, technical analysis is applied by short-term traders. These are only interested in understanding how past forces of demand and supply have affected crypto prices in the past and how it is expected to affect its future prices.

Technical analysis may also be split into chart patterns and statistical indicators the most common of the two include:

  • Candlestick charting
  • Moving averages
  • Relative strength index
  • Moving average convergence-divergence
  • MYC trading indicator
  • Bollinger bands
  • Fibonacci retracement
  • Stochastic oscillator

Fundamental Analysis

Fundamental analysis is a form of market research that traders use to determine the intrinsic value of a digital currency. It refers to a set of tools and indicators used by cryptocurrency traders and investors alike in determining the underlying value of a digital asset.

Fundamental analysis traders are confident that by determining the worth, usefulness, and practicability of a digital currency, they may be able to forecast its future direction.

Typically, fundamental analysis looks into such factors as company earnings, earnings per shares, and other factors as industry performance. But since cryptocurrencies aren’t issued by corporations. The analysis angle, therefore, shifts towards the facets of the cryptocurrency.

These are the factors you should consider when carrying fundamental analysis for a cryptocurrency:

  • Its whitepaper
  • Its roadmap
  • The developers
  • The target market
  • The project developers
  • The project creators
  • Potential red flags, rumours, expert opinions, and market sentiments about the cryptocurrency

These should be enough to tell about the digital currency’s future performance. For instance, a highly practical asset, which seeks to solve a tangible problem, and has a reputable team of creators, will inspire optimism in the market, which in turn pushes cryptocurrency prices up.

How To Prepare To Trade Cryptocurrencies

Stage 1: Identify the digital currency you would like to purchase

Stage 2: Decide on the trading strategy for you: long term or short term

Stage 3: Acquire a reputable cryptocurrency wallet

Stage 4: Learn how to analyze the markets, interpret analysis indicators, and read charts

Stage 5: Identify the crypto exchange you would like to use and create a user account with them

Note: Account registration involves furnishing the exchange with your personal details like your name and address. Some will also subject you to KYC and AML procedures and want to verify your identity by asking for photos of your government-issued identification documents and a selfie portrait.

Step By Step Guide To Buying Your First Cryptocurrency

Before you can start trading, you first need to decide on the cryptocurrency you want to buy. Then find a reputable exchange and ensure that it lists your preferred cryptocurrency as a tradable instrument. You will also need to acquire a cryptocurrency wallet.

Step 1:  Start by creating a trader account with your preferred brokerage.

Step 2: Once the trader account is approved, fund it by depositing some fiat cash therein.

Step 3: Access the exchange’s user dashboard, find the cryptocurrency you wish to buy, click on the buy button, enter the trade details such as the amount of cash you wish to spend on the trade.

Step 4: The exchange will ask for the address to the crypto wallet where would your purchase deposited.

Step 5: Enter the wallet address.

Note: Ensure you get the right wallet for the right coin. For instance, you must only use a Bitcoin wallet address to receive Bitcoins and not any other digital currency.

Step 6: Confirm that the transaction details (amount of coins to buy and wallet) are correct before authorizing the purchase.

trade cryptos

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

Must-read Cryptocurrency Trading Tips

  • Acquire a good and reliable crypto wallet, if possible, go for the more secure hardware wallets.
  • Keep your crypto trading accounts and wallets safe by activating two-factor authentication.
  • Master and stick to the different risk management tools.
  • Avoid emotional trading.
  • Go slow on the leverage when trading crypto derivatives.
  • Learn about different crypto scams and how to avoid them.
  • Don’t put all your eggs in one basket: Consider diversifying your crypto portfolio.

What Are The Challenges Facing Crypto Trading?

  • Pump and dump schemes designed to manipulate the prices of different cryptocurrencies.
  • Crypto scams propagated by lack of regulation when issuing ICOs.
  • Lack of liquidity for some coins.
  • Delayed transaction processing, especially for the not-so-scalable Bitcoin blockchain.
  • Association with illegal online activities and the dark web.
  • The blockchain may be considered young and immature.
  • The threat of regulation and or bans by the government.

Pros And Cons Of Cryptocurrency Trading

Pros of cryptocurrency trading:

✅ Allows for pseudo-anonymous, at times wholly anonymous, online transactions

✅ Can be used both as a currency and a trading instrument/investment product

✅ The finite supply of most cryptocurrencies ensures they are inflation-proof

✅ Crypto investments have reported a higher ROI than any other investment vehicle

Cons of cryptocurrency trading:

❌ Cryptocurrencies record wildly volatile price movements

❌ The industry is unregulated, and thus no compensation in case of loss

❌ Recurrent fraudulent cases

❌ Volatilities and limited acceptance makes it a poor store of value

Final Word

Cryptocurrency trading – creating an account with a crypto exchange and opening a trade- has never been hard. The hardest challenge lies in identifying the best crypto exchange for you, the best crypto to trade or invest in, deciding on the strategy that works for you, and taming your emotions when trading.

In this cryptocurrency trading guide for beginners, we have explained what cryptocurrencies are and how they work, gave you crypto trading tips, and provided you with directions on how to place your first crypto trade.

It now is up to you to dig deeper and discover the trading strategy that fits your crypto trading goals, come up with a crypto portfolio, and register with one of the best crypto exchanges.

eToro – The Best Platform To 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.

Read More:

How to Trade Cryptocurrencies During Volatile Times

5 Common Cryptocurrency Mistakes All New Investors Make

Top 7 Profitable Cryptocurrencies Other Than Bitcoin


Is cryptocurrency trading legal?

Well, though most governments across the world, safe for China, have not outrightly banned crypto trading within their borders, they also haven’t expressly okayed their trade. In most jurisdictions, cryptocurrency trading operates within the grey areas of the law.

How much do I need to start cryptocurrency trading?

How much you need to start trading is largely dependent on the minimum deposit required by your crypto exchange. Some like Binance allow you to trade with as little as $1.

Is crypto trading profitable?

Yes. In the last decade, cryptocurrencies reported a higher ROI than any other investment vehicle. Between January 2010 and February 2021, for instance, Bitcoin reported a return on investment exceeding 60,000%.

Will I have to pay taxes for my earnings from crypto trading?

Yes, most countries – including the US and the UK – have categorized cryptocurrencies as digital assets and stores of value. You will, therefore, be required to pay a capital gains tax on your cryptocurrency earnings.

Can I buy cryptocurrencies with cash?

Yes, most cryptocurrency exchanges available today support fiat to crypto trades. They make it possible for you to buy cryptocurrencies using fiat cash.

How much does it cost to trade cryptocurrencies?

The cost of trading cryptocurrencies is the aggregate of the network fees charged by a blockchain network and the transaction fees charged by an exchange. When buying less than 50 Bitcoins on Binance, for instance, you would expect to pay the 0.05 BTC network confirmation fee and a transaction fee of 0.1% of the trade amount.