Trading cryptocurrencies is very different from the well-known stock market. On this page you will learn all the ins and outs about trading cryptocurrencies. What is trading and how does it work?
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You have purchased your first Bitcoin and you see potential in the market. You can’t wait to start trading with it, only you have no idea how this works with crypto. We explain the basic principles, so that you too can trade easily.
“Buy low, sell high” – is the famous saying among active investors. In other words: “buy low and sell high”. This is of course very easy to say, because when should you buy and/or sell something? That will all be discussed, but first we explain what is meant by trading. Cryptocurrency (read more here) trading works exactly the same as investing in the traditional stock or forex market. The risks and opportunities are only slightly greater. You may even be familiar with platforms such as Plus500 or BUX. If so, congratulations – you can skip this article. Those who are not yet familiar with investing in crypto may read on, we are going to explain how it works. Here we tackle the basics, going through more advanced strategies with you in the future.
“Everyone needs a wallet or a bank account where your money is kept.”
What do you need?
All you need is:- 1. Purchased Bitcoin or other cryptocurrencies (how do I buy bitcoin?).
- 2. An account on a trading platform, also known as an ‘exchange‘.
The best platform for a beginner
How do you choose which trading platform is the best and most reliable to trade with your cryptocurrency? There are quite a few and the opinions about each platform differ per person. We recommend looking at the platform with the most volume. This is an indication of the number of people actively investing there. In this case, we have already done this for you. The top 6 exchanges at the moment are:
Bitvavo is a Dutch crypto exchange. You can easily buy crypto with iDeal for the lowest costs. There are now more than 50 different cryptocurrencies available on Bitvavo and this number continues to grow. For a limited time, you can benefit from free €1,000 trading fees when you sign up with Bitvavo. Sign up for free and get started today!
For beginners, we recommend Binance, this is the number 1 platform at the moment and is known for being very reliable. It is also available in the Dutch language!
Cryptocurrencies trading for beginners – how do I buy Ethereum?
Trading cryptocurrencies is exactly the same as trading on the traditional exchange. You try to buy low and sell higher. To show you how to do this, let’s take as an example buying Ethereum via Binance.
Step 1: Log in to the Binance exchange.
Then click at the top left on ‘beurs’ and then ‘basic’. You will see the following screen:
Don’t worry, it looks harder than it is. We walk you through it step by step. In this example, let’s assume that you want to buy Ethereum with your Bitcoin.
Step 2: At the top right, at the blue circle, enter ETH (this is the abbreviation of Ethereum). Then click on ETH/BTC.
If you want to buy another coin, enter the abbreviation of that coin here.
You will now see the Ethereum buy/sell platform. We have marked the most important three parts for you in figure 1.
- The chart, this shows the price of Ethereum. In this case, it is about the price history of Ethereum against Bitcoin. Each bar at the top of the screen shows the price per hour. You can set which time indication you want to use.
- The order book, here are all current buy and sell orders from everyone who trades in Ethereum.
- The order form, here you will enter the price for which you want to buy and sell Ethereum.
What do you see?
1. The chart
The chart shows the current price of Ethereum per hour. In the upper area you see a number of bars, these are called “candlesticks” or candles, and show the development of the price in the past hour. Green is an increase in the value of Ethereum, red is a decrease in value.
For more long-term trading, we recommend setting the time indication on the chart at 1 day. To do this, click on “1D” at the top of the chart.
In addition, you see two more areas below the graph. For now you can ignore these, these are indicators that help you place orders. These indicators are mainly used by more advanced traders. For now, we mainly show you how to place orders yourself.
2. The order book
You see all kinds of numbers that are constantly changing, maybe this even looks intimidating. Don’t worry, it’s very simple. What you see in Figure 2 are orders from other people who want to buy or sell Ethereum. At the top are the sell orders, at the bottom are the buy orders. The current price is then shown in the middle.
- Price (BTC), this is the price in number of Bitcoin that people ask for buying or selling Ethereum.
- Amount (ETH), this is the amount of Ethereum that one wants to buy and/or sell.
- Total (BTC), this is the total value of the amount expressed in number of Ethereum multiplied by the price they are asking (Total = Amount x Price).
At the top of the sell section is a sell order from someone who wants to sell 1,857 Ethereum for the price of 0.033820 Bitcoin each. The total value of this order is therefore 1.857 x 0.033820 = approximately 0.06 btc. In the middle you see the current price of Ethereum, it is in figure 0.033737 Bitcoin per Ethereum. The sell order that we used as an example should therefore be read in such a way that someone wants to sell Ethereum when the current price corresponds to this. The value of Ethereum will therefore have to rise before the sale is carried out. This price increases as the number of buy orders and their entered value increases. Congratulations, you now know how the price of a cryptocurrency is determined and how to read the order book. In practice you may not use this much, but it is nevertheless good to know!
3. The order form
At the bottom of your screen you see the order form (figure 3). You will see three terms.
- limit; here you can manually enter the price per Ethereum. You can set it higher or lower than the current price. You lower it if you think the current price is going to fall.
- Market; here you only have to enter the amount of Ethereum you wish to buy and sell. The order will automatically use the current price.
- Stop limit; advanced and can be ignored for now.
Step 3: click on ‘Market’ and enter the amount of Ethereum you wish to buy under ‘amount’.
In the market part, Binance chooses to automatically choose the lowest price for the purchase of Ethereum. So this is the first sell order that is above the current price in figure 2. In the example we assume that you want to buy 3 Ethereum. Fill this in and then click on “Buy Ethereum” (if you are logged in, a green button will appear at the bottom of the order form). Congratulations, you are now the proud owner of 3 Ethereum! But what now?
Step 4: Wait and see what the Ethereum price trend will be.
Depending on how actively you want to trade, this can vary from 5 minutes to 5 days and even 5 years. In the future we will explain to you what effective strategies can be. Your goal is to buy as low as possible and sell as high as possible. You can use the graph in figure 1 as an aid.
Step 5: Sell your Ethereum.
You have been waiting for a while and you see that Ethereum price has gone up (or down) and you think, now I want to either take my profit or take my loss. You sell your Ethereum in exactly the same way as you bought it, except you use the right screen of the order form (figure 3). Enter here the amount of Ethereum you wish to sell and voila, you have your Bitcoin back. Depending on how successful your trade was, you now have more or less Bitcoin. Your goal as a trader is to increase the amount of Bitcoin you own as much as possible. Congratulations! You now know how to trade cryptocurrencies and you have taken your first step as a trader in the crypto market. You now know what trading is and how to do it. Please note that trading cryptocurrencies comes with risks and you have the possibility of losing your bet. If you want to trade, we advise you to start with a small amount and learn how it works. There are many strategies you can think of on how to trade successfully, we will go through them with you in the future.