In this post, I explained the crypto trading types.
The ultimate goal of crypto trading is to make profits. Ain’t it?
But there are different ways to go about it.
While all are profitable, not every trading type may be suitable for you.
Keep reading to understand the different trading types and which one is best for you.
Post Summary
- Crypto Trading Types
- Crypto Trading Types Available On Exchanges
- Which Crypto Trading Type Is The Best Option For You
- Conclusion
Click on any item above to read its details immediately.
1. Crypto Trading Types
Crypto trading is the exchange of cryptocurrencies for either another crypto or for fiat money with the aim of making a profit.
Two major types of trading are:
Let’s take them one after the other.
A. Short term trading
Just like the name sounds, this type of trading involves holding crypto for a short period.
It aims at maximizing sudden shifts in the market to make profits.
Therefore, the trader is okay with making a small profit from a single trade.
Also, he is ready to make multiple trades per day.
Though it is short-term, this trading type is time-consuming.
You’d have to monitor the market every minute to know when to sell or buy.
Short-term trading can take different styles. They are:
i. Scalping
This style of trading requires that you keep your eyes on the monitor all day.
It enables you to take advantage of the slightest shift in the market.
To make the most of this trading style, you should know the fees charged by the exchange you’re using.
Since you’ll be performing multiple trades, you want to make sure that profits supersede the fees.
Using scalping, a trader can sell out in seconds and lock in profits in market price before a dip occurs.
However, the profits here are generally low but will accumulate with time.
ii. Day trading
This trading occurs during most hours of the day when the market is most active.
It’s not as quick as scalping as the trader may stay up to 30 minutes before making a decision to buy or sell crypto.
Day trading is a good option for traders who intend to make a living from crypto trading.
It requires you to put in long hours monitoring the market.
And as such, it is difficult to be dedicated to another task at the same time.
Also, you need to apply a hands-on approach as the value of crypto can change at any time.
Since you’ll be making multiple trades, it is advisable to use smaller amounts and minimize risks.
iii. Swing trading
Another style of short-term trading is Swing trading.
Here, it takes more than a day to make trading decisions.
When an opening is made, the trader watches the market for days before closing at the most favorable condition.
Swing traders understand the market fluctuation of coins and do not panic at the slightest drop in value.
They are very good with market analysis and are not in a hurry to buy or sell.
B. Long term trading
Judging from its name again, this type of trading involves holding cryptocurrency for a long period.
The goal is to benefit from the increase in value of the coin in the long run.
Most newbies opt for this type of trading.
They buy the coin when it is cheap with the hope that the value will increase by a good percentage, hold, and sell when it eventually does.
Long-term trading enables you to make a high-profit margin on a single trade.
Gratefully, you don’t need to monitor the market all the time.
Also, you do not need a large capital to start; just buy little and let it grow over time.
Moreover, Long-term trading has various styles. They are:
i. Hodling
Hodling is the simplest form of cryptocurrency trading.
It is not trading per se but more of investment.
You don’t need to spend time monitoring the market.
Instead, you buy the crypto, leave it to increase its value over time (even though a decline of value); then sell when the value has increased by a great percentage.
This type of trading requires patience so that you will not sell your asset during a downtrend.
Thankfully, you can use try options like crypto savings, lending services, staking, etc, provided by exchanges to hold your asset.
It will prevent you from selling out in panic and at the same time yield profits for you.
There is no particular duration for this type of trading, most investors withdraw their assets when their value doubles.
Others remove their profits at intervals and leave the capital to keep multiplying.
It all depends on what is convenient for you.
ii. Position trading
Just like hodling, this is more like an investment than trading.
Position trading means that you conduct thorough research on a coin before buying it.
You will not only buy it but you will hold it because you believe the coin has great potential.
Position traders usually buy a coin and take their eyes off the market charts for a long time.
Think of it as you’ve studied this coin and you know its potential.
So, you buy it and hold your position until the coin meets your expectations.
Then you sell and make your profit.
Amazing!
Moving on, let’s take a look at the varieties of trading common in cryptocurrency exchanges.
Keep reading!
2. Crypto Trading Types Available On Exchanges
I know that we’ve seen the different styles of trading, but when you go to an exchange where you’ll buy crypto, you’ll not see them listed there.
Rather you will see services like:
- Spot trading
- Margin trading
- Leveraged trading
- Futures trading
- Derivatives trading
- CFD trading
- Options tradings
Now, let’s take them one after the other.
a. Spot trading
Spot trading is the most basic form of trading on cryptocurrency exchanges.
It is a constant process of buying and selling coins at a set price for immediate settlement.
You simply make profits from market fluctuations when you trade your coins.
b. Margin trading or Leveraged trading
This is a method of trading assets using funds provided by a third party and returning them after profits are made.
It allows you to access greater sums of capital and realize larger profits on successful trades.
In other words, you leverage available funds to make trades/profits.
Margin trading requires you to commit a percentage of the total order value (called margin).
Leverage talks about the ratio of borrowed funds to the margin.
Learn more about this type of trading here.
c. Futures trading
This type of trading involves buying or selling a futures contract that represents a coin’s value at a specific date in the future.
Here, you speculate on the future value of a cryptocurrency, whether there will be an increase in price or a drop.
You make profits when your speculation is right.
Learn more here.
d. Derivatives trading
Derivative trading is when traders buy or sell derivative contracts to enhance gains.
They believe the profit is higher when compared with buying the underlying asset outright.
Also, traders are able to go short and profit from falling asset prices.
It’s similar to futures trading because futures contracts derive their value from an underlying asset.
Click here to learn more.
e. CFD trading
This is the buying and selling of CFDs. (CFD means ‘contract for difference’).
They are a derivative product because they enable you to speculate on financial markets such as shares, forex, indices, and commodities.
And you don’t need to take ownership of the underlying assets.
When you trade a CFD, you agree to exchange the difference in the price of an asset from the point at which the contract is opened to when it is closed.
You speculate on price movements in either direction (increase or decrease).
The profit or loss you make depends on the extent to which your prediction is correct.
Interesting, huh? eToro is popular for offering this service.
f. Options trading
This is just like derivatives trading.
And that’s because options derive their prices from other assets like calls, puts, futures, forwards, etc.
If you buy an options contract, then you can buy or sell an underlying asset at a set price on or before a certain date.
Get more information on how options trading works here.
That’s it on the varieties of trading available on exchanges.
Notice that spot and margin trading are short-term while the rest give a feel of long-term trading. 🙂
Next, we’ll discuss which trading type is the best option for you.
Keep reading!
3. Which Crypto Trading Type Is The Best Option For You?
It all depends on what you want.
Which assets are you trading? The kind that is yielding profits now or the one that has potential for future gains?
You want to go short-term on the one that is trending and long-term on the one with potential or a mixture of both.
Again, how soon do you want to cash out, and how much time are you willing to put into analyzing the market?
If you’re not in a hurry, you can opt for hodling or position trading and catch out on your investments later.
But if you have the time to study the market and you’re interested in making quick gains, you can go for scalping, day, or swing trading.
In that case, you need to think smartly and act quickly to minimize risks.
Moreover, you can combine different styles of trading to meet your goals.
Also, it is recommended that you try out as many trading styles as possible to discover the one that is most effective for you.
Additionally, trading in small quantities is a good way to start as you figure out what is best for you and build experience.
Generally, newbies are advised to start with investments before going into trading proper.
Whichever way, remember that the crypto market is very volatile, there’ll be losses as much as the gains, if not more.
So, no feelings attached! 😃
Go through this risk management post to know how to minimize your risks while trading.
Getting Started!
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Go to www.ctmastery.com to enroll in our Cryptocurrency Trading course and thank me later.
You can also join our Telegram community at https://t.me/ctmastery.
4. Conclusion
This is where we’ll draw the drapes in our discussion on Crypto Trading types.
We talked about the different styles of short-term and long-term trading.
Also, we explored the varieties of trading available on crypto exchanges.
The best trading type for you depends largely on your goals and level of experience.
I hope this article was worth your time. Please share it with your friends.
Got any questions for me? You can drop them in the comments box.
And if you need help getting started on your crypto journey, don’t miss our comprehensive crypto trading mastery course.
Cheers!
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