how do trading platforms work?

To get started in cryptocurrency trading, the best solution is to use an online broker, also called a broker. But beware, to choose the best platform of this kind, several elements must be taken into account.

Bitcoin, Ethereum, Ripple, Dogecoin, LiteCoin… cryptocurrencies are popular and represent an attractive financial asset. When it comes to investing in crypto, several schools compete. One vision is to save cryptocurrency with a long-term goal, which is called stacking. Another strategy is to bet on the downward and upward price trend to buy at the right time and then sell at a high price. This is trading, a much more short-term technique that can make it possible to make profits quickly.

CFD trading through a broker

To carry out cryptocurrency trading, the best solution is to use an online broker, also called a broker. To choose the best platform of this kind, several elements must be taken into account: the amount of the various fees, the compatible financial assets, the customer service or the tools and functionalities made available to the user. eToro is one of the best known online brokers, but we can also mention AvaTrade, Libertex, Admiral Markets, XTB and many others.

By going through one of these services, you can then access the famous CFD (Contract for difference) trades. It is essentially a matter of concluding a contract with a broker, who will act as an intermediary for trading. It is a popular method that is used in the world of finance far beyond cryptocurrencies, for trading commodities, currencies, stocks, indices…

CFD trading does not involve the actual asset (we only speculate on the evolution of its value) and works independently of the market, which makes it more flexible than direct buying and allows you to benefit from more leeway: access to foreign markets, leveraged trading, fractional shares and short selling. Leverage in particular is a very popular mechanism, which allows you to quickly increase your investment capacity to react quickly to market fluctuations. Concretely, the trader borrows money from his broker to increase the return on investment. A device to be used sparingly, therefore, taking into account what we can afford or not.

Buy & Hold vs. Day Trading vs. Scalping

Thanks to the tools made available by the brokers, the crypto trader will be able to set up his trading strategy. Three main axes stand out in this regard.

  • Buy & Hold is the act of holding assets for the medium or long term and betting on general trends rather than micro-movements. This technique is less stressful than the others because the investor does not have the feeling of losing or gaining money as soon as the price changes. It involves having trust over time in the acquired cryptocurrency.
  • Day Trading is well suited for CFD trading as well as leverage. As the name suggests, this is about buying and selling cryptocurrency in a single day, and therefore speculating on the variation of its price in terms of hours only. Most brokers charge overnight funding fees, which means you are charged low interest if you want to hold assets overnight. Day Trading avoids these fees.
  • Scalping is the most aggressive trading method, but also the most intense and stressful. Done well, it can however lead to very interesting gains in the short term. We take the same principle as Day Trading, but this time, it is not on a fluctuation of the course over hours that we will bet, but rather on a few minutes, even a few seconds.

Online trading platforms and brokers are legion, educate yourself seriously about them and the benefits they offer their clients before embarking on such operations.

Define automatic actions

To limit the risks by trading by CFD, especially if you activate a leverage effect, any good online broker offers tools allowing you to define thresholds beyond which you choose to resell your assets, and what the market is favorable to you. or unfavorable.

  • With Stop Loss, you decide on a lower value limit for the cryptocurrency(s) you are trading with. If the price of the crypto falls and reaches this threshold, your assets are resold automatically in order to limit losses. One of the advantages of CFDs is that the user is in control of the Stop Loss, which he decides himself. By using other mechanisms, the Stop Loss can be predefined and immutable.
  • In the same vein, Take Profit is a threshold beyond which your assets are resold automatically. But this time, the cryptocurrency has gone up in value, and you choose to sell to make a profit before taking the risk of the price falling.

It is strongly recommended, even essential, to set a Stop Loss for trading purposes. Taking Profit is more optional and will depend on your goals.

This article is a publication sponsored by Cryptonaute.

Leave a Comment