How To Trade Crypto: The Ultimate Investing Guide
Key Questions Answered
This article is all about how to trade crypto for the true blue beginner, meaning:
If you have never stepped foot near forex/stock markets…
…feel queasy at the sight of charts,
…do not consider yourself a “savvy” investor,
But are nevertheless interested to learn about crypto trading and investing, you’ve come to the right page.
Before we begin…
“It’s very high risk. You can lose your life savings overnight.”
“You can earn 10,000% and retire by this time next year.”
These statements sum up the spectrum of what people think about crypto trading.
Yes, a small majority of people do make life-changing profits in a few short years, and some do tragically end up losing all their money.
But the truth, for the majority of traders, falls somewhere in between.
What you will learn in this guide will likely not make you rich quick–most people lose money when they have the get-rich-quick mindset. It will, however, tell you:
- The 4 most critical things to look out for
- How to read the market so that you protect yourself from nasty surprises
- The step-by-step guide to making your first crypto trade
- And of course, how much you can earn
What are the benefits of trading cryptocurrency?
1) You don’t need a lot of capital
Unlike the stock market where you need minimally a couple of thousands of dollars to start off with, crypto allows you to buy in minuscule amounts–even a few dollars each time. However, do bear in mind that each time you buy or sell crypto, there is a small fee charged (0.01% on Phemex), so you want to ensure that it doesn’t eat into your profits.
To learn more about trading fees, read this: What are crypto transaction fees and how do they work? – Phemex Academy
2) Low barriers to entry
In traditional stock markets, there are checks in place to ensure that new investors have the necessary experience to start trading and manage risks. Governments regulate these platforms in the name of protecting consumers. In crypto, all you need is a smart phone, internet and money.
3) High volatility
When people talk about crypto being highly “volatile” it means that you can literally take a toilet break and come back to see your portfolio value go up–or down–by 10%, sometimes even more.
On 11 January 2021, during a bull cycle, Bitcoin lost about $8,000 to $30100 within an hour, after a rumor that the Bitcoin network had suffered a double-spend attack.
About a month later, it spiked by almost $9,000 and hit a new all-time high within a day after news broke that Tesla had invested $1.5 billion in BTC.
It is this volatility that creates money-making opportunities, because you can rapidly sell off, and reinvest the money for the next trade (on the flip side, this is also why many people shun crypto trading.)
This does not mean you have to be glued to your computer or phone 24/7. You can set your trade orders to buy or sell a coin when the price reaches your target, and it will be executed even when you’re away.
How much money do I need to start crypto trading?
As mentioned earlier, you don’t need a lot of money to get started in crypto trading.
The most important thing to remember, though, is that you never trade with money you cannot afford to lose–for some people, this can be $100. For others, it can be $1,000 or $100,000.
Take time to learn about the market and get a sense of its pace. Sharpen your trading and chart reading skills. Understand the different trading strategies that best match your preference, risk tolerance and time availability, as well as your psychological blindspots (mastering the emotions of fear and greed takes time and self-awareness.)
You can always increase your trading capital later on.
Let’s now look at the two most common trading methods: spot trading and contract trading.
What is spot trading?
Spot trading is the trading of stocks, commodities or crypto at the “spot” or current price. This is the easiest and most straightforward type of trading for beginners–buy low, sell high.
If you invest $10 and the crypto appreciates by 5%, you earn $0.50 when you sell the crypto. If you invest $1,000, you will earn $50.
As such, in spot trading, the returns you stand to gain are limited to the amount of money you put in.
Which is why there is a second type of trading–contract trading.
What is contract trading?
As we just saw, in spot trading, you can earn $5 on an investment of $100 if your coin appreciates by 5%.
In contract trading, you can amplify this earning by 10X with the same investment of $100–by using borrowed money.
In this case, that $100 is your collateral.
If you borrow another $900, your total trading volume becomes $1,000. If your coin appreciates by 5%, your entire stash becomes $1,050 ($1,000 + 5%). You sell off, return the $900 you borrowed, and are left with $150, translating into a profit of $50, even though you only invested $100.
You have just 10X-ed your return as compared to if you had done a spot trade with the same amount of $100 capital; this is called “power of leverage.”
What’s the catch you ask?
Your collateral can get wiped out if the market does not go your way. In other words, if you entered a long trade hoping the price of your coin will go up by 5% but it went down by 5%, you can lose your entire $100. This is called getting “liquidated.”
This is because the party who loaned you the $900–usually the exchange–will want to rapidly sell off your $100 crypto assets for cash to recoup the money loaned to you, because it looks like the market has gone the other direction and you may not be able to pay them back.
On the other hand, if it had been a spot trade, even if your coin is down by 5%, what you have is just unrealized loss or “paper” loss. You can wait for the coin price to go up and sell at your original target profit, or even more.
For a comprehensive explanation, read What is Contract Trading: How to Trade Crypto Derivatives
While Phemex offers both spot trading and contract trading, we recommend starting with spot trading if you’re a beginner. Contract trading requires a higher level of skill and market knowledge, and is the deeper end of the pool where the big boys swim.
What are some beginner-friendly crypto trading strategies?
Look up “crypto trading strategies” on Google and you will come across terms like day trading and scalp trading (the kind of trading that involves eating at the desk, looking at multiple screens and sometimes not showering for days), as well as high-frequency and arbitrage trading
At the beginner level, we’re not concerned about all these for now.
Broadly speaking, there are two strategies you should know–short term and long term. Which strategy you choose will depend mainly on your goals.
If you are looking to grow your wealth in the long term, buy and hold.
If you are more interested in regular, short-term gains, buy and sell, then rinse and repeat.
Let’s break it down.
Short-term trading: buy and sell
Short-term crypto trading refers to making multiple trades throughout the day, week or month. A successful trade is completed when you buy a coin, and sell it at your target profit rate.
Let’s say you have $1,000 to invest. These are the steps you can take when deciding when to buy (we will use Bitcoin in all our examples but it applies to any crypto you choose).
The first thing you need to know is the all-time high (ATH) of the coin–this is the highest price the coin has ever reached in its existence. For BTC, that is $68,789.63. If a coin is at, or near, its ATH, you may want to wait until prices correct i.e. fall before buying.
Current Bitcoin price is $20,000. Seems like a steal–almost 70% down from ATH! Should you go all in with your $1,000? Hold your horses. You need to know the market.
Generally, there are two market trends–bullish and bearish. In a bullish market, prices keep rising. Throughout the day, there may be dips (on a 15 or 30-minute chart) but when you zoom out and look at a day chart, the trend is clearly going up. In this market, you can consider buying when prices are something like 30% below ATH (more if you are very conservative).
In a bearish market, like the one we are in now in Sep 2022, price movements are generally downward. As such, even if BTC feels cheap to buy now, you may not want to go all in with your $1,000, because what if prices fall even more? In this case, you can consider splitting your buy orders into increments that look something like the below. This is called dollar cost averaging (DCA), and helps traders to keep buying the dip.
- First $200 when BTC is $20,000
- Next $200 when BTC is $18,000
- Next $200 when BTC is $15,000
Set your buy limit order (What are Market, Limit and Stop Orders: Basic Order Types Explained).
Then, set your sell limit order based on your profit target – this can be 3% or 5% (if you are DCA-ing, there is some basic math you need to do to work out the right price to sell).
Once the price hits your targets, your orders will be executed, and you can then reinvest your capital to open a new trade to buy another coin, or the same coin at another price.
Do note that these steps above are simply recommended guidelines to get you started, and may differ according to your personal risk preference, financial situation, and other factors.
Long-term investing: Buy and hold
If you are highly convinced in the future of crypto, and/or you do not really have time to trade, buying and holding your crypto assets for the long term may be more beneficial and profitable.
In fact, many investors who bought Bitcoin are not selling for short-term 5%, 10% or even 30% gains, because they believe Bitcoin will eventually reach a high six-figure sum before the decade is over.
Long term in crypto can mean anything from a year to 3,5 or more years (you can appreciate why it’s a little tricky to give a definitive time period, since Bitcoin has only been around for 13 years!)
With long-term trading, the idea is to accumulate coins at as low a price as possible.
You may not need to scrutinize 15/30-minute/hourly price charts (when you’re aiming for sizable 100% or 300% returns in the long run, it doesn’t matter if you buy Bitcoin at $19,834 or $21,350).
However, you would still want to have a sense of the state of the market before buying–is it currently overvalued or undervalued?
Let’s take a look at the Bitcoin Fear and Greed Index. Back in Feb 2021–it signaled “Extreme Greed.” This means the market is euphoric, people are buying and pushing prices higher and higher.
As such, Bitcoin is likely overvalued at this point, and you would be buying at a high price (sure enough, Bitcoin inched up from $56,000 to $64,000, hovered there for two months, before collapsing back to the $30,000 zone.)
The general rule of thumb is to buy when the market is fearful, and sell when it is greedy.
Let’s take a look at the Bitcoin Rainbow Chart. Similar to the Fear and Greed Index, this chart measures the market sentiment at certain price points. At time of writing, Bitcoin is trading at $20,921, about 70% down from its all-time high–”basically a fire sale” is what the Rainbow Chart says.
Bitcoin Rainbow Chart (Source: Blockchaincenter.net)
Looks like a good time to buy, but should you go all in? The answer is no, because what if it drops even more? Again, dollar cost averaging is a good strategy here.
Key takeaways for long-term trading:
- Make sure you’re using money you don’t need for the next 3-6 years so that you will not be pressured to sell at a loss.
- Never go all in at once for the same reason mentioned above.
7 steps to making your first crypto spot trade
Now that you know about short-term trading and long-term investing strategies, you’re ready to get started. Here’s how.
1) Choose an exchange. There are a number of established crypto exchanges these days to choose from–such as Phemex, which offers 250+ spot trading pairs.
2) Register for a trading account. It takes all of 30 seconds; all you need is an email address. Another plug: all new Phemex users get up to $180 in cash back bonuses (just click on the banner at the bottom of this page.)
3) Decide how much you want to invest. This can be anything from $100 to $100 million.
4) Fund your account. Deposit fiat currency i.e. money from your bank account/debit card or credit card to the crypto exchange.
5) Convert your fiat to USDT or USDC stablecoins. Stablecoins are the “local currencies” in the world of crypto. These are the base currencies most crypto are pegged against, like BTC/USDT or ETH/USDC. The value of one USDT or USDC is always $1.
6) Buy a coin. For beginners, we recommend you start with a top 20 crypto like Bitcoin, Ethereum, Solana or XRP (rankings can be found from CoinMarketCap) because these coins are more established and hence more stable in prices. It is highly unlikely that they will go to zero, but you will also not make anything like 1,000% return anytime soon.
7) Sell the coin. Basic principle–buy low, sell high. How high? That depends on your investing strategy.
Congratulations–you have just made your first crypto trade!
To take the first step and set up your trading account, click here.
How fast can I make money trading crypto? How much can I earn in a month?
It really depends on the amount of capital you put in.
Let’s say you invest $100 into Bitcoin. If the market is moving fast (or what people call a “trending market”), the coin’s price may appreciate by 5% within a day–which means you sell and make a profit of $5. If you invested $10,000, that nets you $500. In slower markets, it may take days to see a price move by even 3% either way.
If you want to get a better sense of the market pace, you can look at a coin’s price chart on a shorter time frame, like 15-minutes or 30 minutes. If there is a lot of movement and fluctuation, you may be able to complete anything from 2-3 trades in a week. Obviously, the more trades you make, the more money you can earn.
As mentioned earlier, some traders prefer to take a longer term approach to trading–they may buy a coin and sit on it for months or even a year plus.
Generally, the same rule in traditional investing applies to crypto trading: the higher the risk i.e. the more money you invest, the higher the reward.
Is it possible to lose all my money in crypto trading?
Short answer, yes. Crypto trading is undoubtedly high-risk, but it’s actually not that easy to lose all your money, unless:
- You get scammed or rug pulled (see below section on risks of crypto trading). When this happens, the scam coin becomes completely worthless and you lose all your money.
- You get hacked (either through your personal crypto wallet, through a phishing email, or through the exchange you use, oftentimes by neglecting to set up a two-factor authentication.)
- You let your emotions get the better of you and you panic-sell at a loss.)
- You engage in contract trading without the necessary experience and get liquidated.
The good news is that with some self-control and common sense, all these can be fairly easily avoided.
What are the risks of trading cryptocurrency?
Cryptocurrency trading is a relatively new phenomenon, and as such, it is still largely unregulated. Among other things, “unregulated” means that if you buy a coin and the developers who created that coin later run off with all the money, you have no way of getting your investment back and nobody to sue or complain to.
Yep, it’s the wild wild west out here.
The most infamous of such scams in recent memory was the Squid Game rug pull, where its creators disappeared with $3.38 million. The token, which had soared from under a dollar to more than $2,000 within days, dived to almost zero within 10 minutes once the scammers made off with their ill-gotten gains.
As scary as this sounds, though, it’s actually a very manageable risk, and one that can be avoided by doing some basic research (if traders had bothered to check out the Squid Game website, they would have noticed the multiple typos–massive red flag).
Check out our step-by-step guide to doing crypto research so you don’t get scammed.
Earlier, we talked about how volatility in crypto can work for you. However, it can just as easily work against you. Bitcoin once dropped by 30% in a single day in May 2021 when China announced a crypto clampdown. It’s this sort of volatility that has inspired memes such as this:
This double-digit volatility is unheard of in the traditional stock markets, and can lead to overnight losses for traders who are unprepared for sudden changes in price.
Cryptocurrency exchanges are often targeted by hackers, and if an exchange is successfully hacked, traders could lose all of their funds. The most famous example of this was the hack of the Tokyo-based Bitcoin exchange Mt. Gox, in which almost 750,000 of customers’ bitcoins (along with 100,000 of its own bitcoins) worth a total of about $473 million at the time, were lost.
This risk can be highly mitigated by trading only with established crypto exchanges like Phemex that have sound safety and security measures in place.
In addition, you’d want to read up on things like crypto wallets and seed phrases–profitable trading is useless if you cannot protect your earnings from hackers or plain lack of attention to detail. Crypto, after all, is about taking charge of your own finances.
Is there a way I can practice first?
Absolutely–paper trading is a simulated trading activity where investors buy and sell securities, such as stocks, bonds and crypto using “play” money. This allows them to practice buying and selling, and get a feel for how the trading process works, the market momentum i.e. how fast prices change, without putting any real money at risk.
To get your feet wet in crypto trading, head over to Phemex’s simulated trading platform.
As you start to invest in cryptocurrencies, chances are that you will make mistakes. You will give in to the FOMO and buy a coin at too high a price, you will panic sell at a loss, part with your money just because an influencer says so without doing your own research, and the list goes on.
This is why you should only trade with money you can afford to lose, because you can brush it off, live to trade another day, and get better at the game.
And while we have labeled this as an “ultimate” guide, there is much more to crypto trading than what has been covered in this article, such as reading chart patterns, understanding technical analysis and indicators, building a crypto portfolio, doing coin-specific research, and so on.
The great thing is that crypto isn’t going anywhere, so take your time and enjoy the learning process!