With a plethora of trading & investing options available, you are sure to get into a chicken-and-egg situation.
However, one investing & trading option that has gained immense popularity in recent times is cryptocurrency.
If you have heard about it, then you must have wondered is trading crypto profitable. Can it make you filthy rich? How does it even work?
Find answers to all these & many such questions in this easy-to-read guide.
Crypto Trading: Simplified
Crypto Trading is nothing but the act of buying and selling digital currencies or cryptocurrencies in an attempt to make a profit through buying and selling them.
Trading to cryptocurrency is done through a cryptocurrency exchange and can be done 24×7, unlike the stock market.
Another important thing to note is that cryptocurrencies are decentralized, which means that they are not controlled or managed by any financial institution or government.
It is rather based on blockchain technology which records the details of all the transactions to ensure transparency.
Also, trading volumes in the crypto market are quite different from that of the stock market as they are higher and more volatile.
This is the reason why trading crypto is much riskier and potentially more profitable as compared to the stock market.
How Does Crypto Trading Works?
The first cryptocurrency was Bitcoin, which entered the market in 2009, and since then, it has remained the best cryptocurrency to trade among others.
So how does cryptocurrecny work exactly?
Cryptocurrency works on a blockchain network which you can think of as a public ledger. This blockchain network maintains a record of all transactions made.
Now, through a process called mining, units of cryptocurrencies are created. Mining involves solving complex mathematical problems that generate coins.
Cryptocurrencies are not tangible, and when you hold them, you simply hold a key that allows you to move a record from one person to another.
Benefits of Crypto Trading
Here are the main benefits of crypto trading:
- High-Profit Potential: The biggest advantage of cryptocurrency trading is high profit-earning potential. Since the Cryptocurrency market is extremely volatile, the price of cryptocurrencies fluctuates drastically, allowing traders to earn high profits.
- Flexibility: Unlike the stock market, the crypto market remains open 24×7, which means you can trade as and when you like allowing you more flexibility.
- Lower fees: Compared to the traditional stock market, cryptocurrency platforms incur lower fees and commission charges that allow you to keep more part of your profits.
- Fewer regulations: Since cryptocurrency platforms are not regulated, you get to enjoy more flexibility in terms of investment choices.
- Low entry barrier: Crypto market has a low barrier to entry as you do not need a lot of money to get started.
Drawbacks of Crypto Trading
Here are the main drawbacks of crypto trading:
- Volatile & Risky: As already mentioned, the crypto market is highly volatile; hence it is very risky. You could lose money as easily as you can gain it.
- Unreliable: Cryptocurrency is an untested form of investment and is still relatively new. So its long-term viability cannot be determined. Also, with the addition of advanced cryptocurrencies, there is also a risk of technological obsolescence.
- Lack of regulation: Since the crypto market is not regularised by the government or any other financial institution, it is hard to trust with an increased risk of fraud.
- Complex: Crypto exchange requires the use of complex software and algorithms, and someone with zero knowledge of the platform may find it hard to get the hang of it initially.
Is Trading Crypto Profitable?
To answer in short, yes, crypto trading is a profitable investment option.
However, owing to the volatile nature of the market, it is also very risky, more than the stock market.
Before you go all in into the cryptocurrency world, you need to have a solid understanding of this platform and its market and trends.
Knowing the ins and out of crypto trading, the right strategy, and knowledge can help you make a handsome profit, but you must also have the capacity to bear the risk it entails.
Different Ways to Trade Cryptocurrencies
Here are some different types of ways that will allow you to make money from crypto trading depending on the risk level, hold time, etc.
- Day trading: As the name suggests, in day trading, you buy and sell cryptocurrencies within a day to earn profit from price swings. This is a risky way to trade and requires expertise.
- Buy and hold strategy: In this, you buy cryptocurrencies to hold and sell in the future to earn profits.
- Staking: This involves holding cryptocurrencies in your digital wallet for a specific time period to support the crypto network and earn rewards in the form of new coins.
- Swing trading: In this, you hold cryptocurrencies for a week or for a few days to sell and earn a profit when the prices are comparatively high.
- Trading bots: In this, computer programs use and analyze algorithms to execute the trade automatically based on market data. So basically, bots do the crypto trading on your behalf.
- Copy trading: Copy trading allows you to connect your account to an experienced and successful trader’s account, and their trades are automatically replicated in your account. This is usually done by beginners as they lack the experience needed to make profits from crypto trading.
- Arbitrage: In this, you basically take advantage of price differences by executing different trades on different selling points.
- Margin trading: This involves borrowing cash from a broker using collateral to trade. This allows you to gain more buying power.
How to Start Investing in Crypto?
Is Crypto Trading Safe?
As explained before, Cryptocurrencies are built using blockchain technology, and it records all the transactions into “blocks.”
This process is quite complex, but the end result looks somewhat like a digital ledger of cryptocurrency transactions that is not easy to tamper with.
Also, transactions require two-factor authentication. So to start a transaction, you will be asked for a username and password, followed by entering the two-factor authentication code.
Although the security is in place, it does not guarantee 100% safety. In fact, hackers attached BitGrail and Coincheck, costing them $195 million and $534 million, respectively, which made them the biggest Cryptocurrency hacks of 2018.
Additionally, because of a lack of regulations, the prices of cryptocurrencies are influenced highly by the demand and supply chain creating wild swings for potential profits and losses.
So, to sum up, cryptocurrencies are not entirely safe.
What Are the Best Platforms For Crypto Trading?
In case you are interested in trying out crypto trading, then here are some of the best options to consider:
- Coinbase: This is a US-based cryptocurrency exchange platform that is known for its security and ease of use. Coinbase offers only a limited type of cryptocurrency, though, and is suitable for beginners.
- Binance: Binance is a more extensive & centralized platform that offers exclusive features and a wide range of cryptocurrencies. Binance is suitable for both beginners and experienced crypto traders.
- Gemini: Gemini is known for its security as it offers robust security protocols, is SOC 2-certified, and is even user-friendly.
- BitMEX: This platform is more focused on experienced users who trade in high volumes. It also offers high leverage and features, including futures and options.
- Kraken: This one is ideal for both beginners and experienced crypto traders. Kraken offers a wide range of cryptocurrency options and is best known for its low cost.
Useful Tips For Trading Cryptocurrencies
In case you are new to trading in cryptocurrencies, then here are some effective tips that will be useful for you:
- Educate yourself before entering the crypto world, and always keep yourself updated about the latest technologies and trends in the crypto world once you are in.
- Make sure you do not put all your eggs in one basket and focus on diversification of your portfolio.
- The desire for short-term gains entails more risk, so try to stay in the game on a long-term basis.
- Keep a record of all your tradings so that you can use it to make better trading decisions in the future.
- Adjust your strategy according to the cycle of the market.
- Do not make emotional decisions, and be clear with your strategy for maximum gains.
Cryptocurrencies are the new age investment option that allows you to earn an even higher profit compared to the stock market.
However, it is a volatile market, and without knowledge, it can as easily make you lose.
So to answer, is trading crypto profitable? Yes, it can be very profitable and it can even make you filthy rich over time but only if you are willing to bear the kind of risk it entails.
I hope this guide was useful to you.
How much does crypto traders make in the U.S.?
So before entering the crypto market, you might be wondering how much crypto traders make. Crypto traders in the U.S. earn $113,304 a year on average.
Which is the most profitable cryptocurrency to trade in?
BTC has been one of the most profitable cryptocurrencies achieving a record high of $68,000 right from a few cents in the year 2021.
Is crypto trading a good way to earn money?
Yes, crypto trading can earn you a good regular income if you have the right strategy in place and have gained good knowledge and expertise in it.
What is the difference between swing trading and day trading of cryptocurrencies?
In swing trading, you hold the cryptocurrencies for a few days or a few weeks before selling them out to make potential profits. And in day trading, you buy and sell the cryptocurrency within a single day.
Amit Gupta is an experienced expert in digital marketing and co-founder of DrFranchises. With more than 11 years of knowledge in franchise digital marketing, SEO, email marketing, and social media marketing, Amit has helped many brands achieve incredible success online. As a passionate entrepreneur and owner of 7 franchises, he continues to study franchise models, looking at costs, revenue, and profitability to guide brands toward profitable growth. When he’s not working on digital marketing, Amit enjoys spending time playing with his beloved dog.