Crypto trading for beginners - Complete guide 2021

Last updated: 17.05.2021
Richard Morrish
Author:
Richard Morrish
Adviser
CFD & Trading
Experience
> 30 years

Crypto trading provides you with an exciting opportunity to speculate on the future price of Bitcoin, Ethereum and other digital coins. It has become a very popular pursuit, but it can be a little daunting for beginners.

 That inspired us to create this comprehensive crypto trading for beginners guide. You will learn how cryptocurrencies work, what causes the price to go up or down, and how you can get involved in the action. By the end of this guide, you should be ready to start your crypto trading journey.

❗ Disclaimer: Currently, at nextmarkets you can only trade CFDs on Bitcoin, Ethereum, Litecoin and Bitcoin Cash!

Trade now commission-free

nextmarkets investors

  • What is a cryptocurrency?
  • Blockchain technology
  • The main cryptocurrencies
  • How to buy cryptocurrency
  • What is a CFD?
  • How to trade crypto
  • Fundamental and technical analysis
  • Advantages of trading cryptocurrency
  • Conclusion

What is a cryptocurrency?

A cryptocurrency is a digital token that can be used to pay for goods and services. Individual coin ownership records are stored on a public ledger called a blockchain, which serves as a financial transaction database. This represents a significant step in monetary evolution.

For the majority of human history, trade could only take place via a barter system. That all changed when the Sumerians began using clay tokens as a form of currency around 6,000 years ago. They also invented single-entry bookkeeping, whereby ownership records of crops were stored on clay tablets. This allowed trading to begin at scale, but there was a problem: the scribes in charge of bookkeeping were often corrupt, and they could alter the records to enrich themselves and their friends, while stealing assets from their rightful owners.

That yielded the advent of double-entry bookkeeping, which forms the basis of modern accounting. This involves the creation of two records – credit and debit – with an independent third party such as a bank or a government mediating between the two.

Blockchain technology

Blockchain technology takes it a step further by introducing triple-entry bookkeeping, whereby the public distributed ledger records every transaction that has ever taken place. It essentially implants the role of the intermediary onto a public ledger, thus removing the need for banks and central authorities, while also removing the potential for any doubt as to who owns the coin.

Most cryptocurrencies are decentralized, meaning that they are not issued or governed by a central authority such as a bank, government or company. Some coins, such as Ripple’s XRP, are centralized, and as such some people claim they are not true cryptocurrencies.

The decentralized nature of cryptocurrencies allows them to facilitate peer-to-peer transactions between users, based anywhere in the world. This brings several advantages: it makes crypto quicker, cheaper and more convenient than a fiat currency such as the dollar, euro or pound. There are no middlemen holding up the process and taking a cut, so it streamlines the process of sending money to funds for goods and services.

Transactions are verified and added to the blockchain via a process known as mining. This requires a miner to solve a complex cryptographic equation, hence the name cryptocurrency. Mining was once highly profitable for individual users with basic computers, but it is now run by large companies with huge factories packed full of constantly whirring hardware. When the equation has been solved, newly broadcast transactions are grouped into a block, which is broadcast to the network and verified by a separate node. The block is then considered mined, the record is added to the ledger and the miner receives a reward in the form of crypto.

Miners keep the blockchain complete, consistent and irreversible. This process is known as proof-of-work, and it is used by many cryptocurrencies. Others use proof-of-stake, which is designed to be more scalable and energy efficient, but the concept is the same: disparate third parties group and verify transactions, which are published on a ledger that anyone can access.

The main cryptocurrencies

There are now thousands of different cryptocurrencies in circulation, performing a broad variety of different roles. However, an elite few stand head and shoulders above the rest in terms of trading volume, market cap and general fame. These are the top 10 cryptocurrencies to acquaint yourself with:

Bitcoin

The original cryptocurrency was created by the pseudonymous Satoshi Nakamoto and released in January 2009. It has spawned many imitators, but it continues to dominate the sector, accounting for roughly 60% of the total crypto market cap. Bitcoin can be used at thousands of ecommerce sites, but it is now widely seen as a store of value too. Many people treat it like digital gold. They HODL (hold on for dear life) as it goes through peaks and troughs, confident that it will maintain a long-term uptrend. Yet it is subject to considerable short-term volatility, which excites traders. Check out the what is Bitcoin guide for more information.

Ethereum

The second largest cryptocurrency typically accounts for between 10% and 15% of the total crypto market cap. Ethereum is actually a blockchain that facilitates smart contract exchange and hosts all manner of decentralized finance (DeFi) projects and NFT sales. In 2020, it overtook Bitcoin to become the world’s most widely used blockchain. Ether (ETH) is its native token, but it is widely referred to as Ethereum. It pays the gas fees on the blockchain, and it is also accepted at a wide variety of websites in exchange for goods and services. Our what is Ethereum guide elaborates further on ETH and the Ethereum blockchain.

Binance Coin

This is the native cryptocurrency on the Binance exchange and the Binance Smart Chain. It often vies with Cardano for the title of the third largest cryptocurrency by market capitalization. Binance historically provided discounted fees on the Binance exchange, but those discounts have diminished over the years. Yet Binance Coin continues to go from strength to strength due to its central role in the Binance ecosystem.

Cardano

This smart contract blockchain seeks to rival Ethereum. It was actually created by one of Ethereum’s co-founders, Charles Hoskinson, in order to fix the scalability issues that Ethereum has faced, while serving as a quicker and more flexible blockchain than Bitcoin. The native token on the Cardano network is ADA, but people widely refer to this cryptocurrency as Cardano. It has a supply limit of 45 billion, which is significantly larger than Bitcoin’s 21 million, and follows a proof of stake consensus mechanism.

Polkadot

This heterogeneous multi-chain interchange was created by another Ethereum co-founder, Havin Wood. It is designed to enable customized side-chains that can connect to public blockchains, and it is sometimes referred to as an “Ethereum killer”. Developers are presented with a broad and expansive canvas upon which they can create decentralized applications. The native crypto, DOT, has already proved popular and it is a fixture in the top five coins by market cap, despite its relative infancy compared to Ether and Bitcoin.

Tether

This is a stablecoin designed to track the value of the US dollar. The creators initially claimed that each USDT token was backed by a single US dollar, but they later had to admit that the backing includes loans to affiliate companies. However, it continues to prove very popular, as it allows crypto users to retreat to a stable haven during times of volatility and then exchange USDT for another cryptocurrency further down the line. It is almost always worth $1 too, so it serves its purpose well.

XRP

This controversial cryptocurrency does not follow the usual decentralized model of Bitcoin, Ether et al. It is issued by Ripple Labs, and serves as the native token on the Ripple network, which is a gross settlement system, currency exchange and remittance system. It has fallen foul of the US Securities and Exchanges Commission, which mounted a lawsuit against Ripple Labs and two of its leading executives in December 2020, accusing XRP tokens of amounting to unregistered securities. US exchanges responded by halting XRP sales, but it is still popular around the world.

Litecoin

Charlie Lee created Litecoin to serve as the silver to Bitcoin’s gold in 2011. It aims to process a block every two-and-a-half minutes, which is about four times quicker than Bitcoin. It is not designed to compete with Bitcoin, as Lee hoped it would allow smaller transactions to take place more effectively than Bitcoin. Otherwise it mimics many of Bitcoin’s features, including a limited supply (84 million LTC) and a proof of work consensus mechanism. It gained negative publicity when Lee revealed he had sold most of his LTC, but he later returned to spearhead the project once more.

Bitcoin Cash

This coin was created in a hard fork from Bitcoin back in 2017. The hard fork stemmed from a disagreement about how to scale Bitcoin and speed up the payment process. The two factions could not resolve their differences, so Bitcoin Cash forked off from the main Bitcoin blockchain. For that reason, it carries most of Bitcoin’s features and shares a significant chunk of its history, but it has larger block sizes and is designed to power quicker transactions. Its advocates say it is the pure version of Bitcoin, whereas its detractors are scathing about the project. Bitcoin SV was also forked off from Bitcoin Cash in 2018.

There are many more popular cryptocurrencies, including Uniswap, Monero, TRON, Chainlink, Filecoin, Theta Network, USDC, Stellar Lumens, Dogecoin, VeChain, Solana, EOS, Tezos and NEO, plus thousands of very small cap altcoins. Some burn bright for a brief period of time and then fade away, whereas others manage to gain a foothold in the sector and show great promise for the future. Yet most people focus on Bitcoin and Ethereum when figuring out crypto trading for beginners, as they account for around 75% of the total crypto market cap between them, and they are the most popular coins from a trading perspective.

Now that you know what is cryptocurrency, you will naturally be keen to learn how to buy cryptocurrency. It is certainly possible to buy Bitcoin and a variety of altcoins at a crypto exchange. You will see the current exchange rate, and you can pay for your crypto using a fiat currency once you have created an account and made a deposit. However, this creates a number of security risks and it can lead to high fees.

Crypto CFDs at nextmarkets

How to buy cryptocurrency

You will have to pay a fee to buy your crypto, and then you need to think about moving it off the exchange. Some people leave their coins in their exchange wallets, but this can be risky, as a number of exchanges have been hacked over the years, leading to huge losses for users. The prevailing advice is therefore to transfer your coins to an external wallet, and most people recommend cold, offline storage in a hardware wallet in order to protect your crypto from hackers.

However, hardware wallets are expensive and the entire process is time-consuming, while hardware wallets have been compromised in the past, and they can also be lost or stolen. You also have to pay network fees to transfer your crypto from the exchange wallet to the external wallet, and you will have to pay more transfer fees and exchange fees when you decide to sell it. Many people therefore find the entire process to be time-consuming, inconvenient, expensive and insecure, so they turn to crypto trading instead, which is probably why you are reading this crypto trading for beginners guide.

What is a CFD?

The easiest way to trade crypto is to buy and sell CFDs. Understanding CFDs is fundamental to anyone interested in crypto trading for beginners. A CFD is a contract for difference. It is an agreement between you and your broker whereby one party agrees to pay the other party the difference between the price of the cryptocurrency at the time the trade begins and the price of the cryptocurrency when the trade comes to an end.

You have two options when trading crypto CFDs – to buy or to sell. Buying involves going long on a cryptocurrency. You can buy if you think the price will go up. If it does increase, we will pay you the difference between the price of the cryptocurrency at the time you bought the CFD, and the price at the time you exit the trade. Your payout will be determined by the amount you decided to trade. However, if the price decreases, you will have to pay the difference between the prices.

If you go short on a cryptocurrency, it means you are speculating on the price decreasing. Going short is the same as selling a CFD. If you go short and the price goes down, you will earn a profit. The further the price decreases, the higher the profit you receive. However, if the price of the cryptocurrency increases, you will incur a loss, so you have to make your decisions carefully.

The beauty of a crypto CFD is that you are not required to actually buy, hold and sell cryptocurrency. This removes the network fees, the security risks and the general hassle that comes with buying and holding. It also allows you to speculate on the price going down, whereas you can only hope the price increases if you buy actual crypto and hold it.

Gaining a thorough grasp of CFDs is a vital component in your cryptocurrency learning journey. It can seem a little daunting at first, but by the end of this cryptocurrency trading for beginners guide you will know exactly what to do. Nextmarkets also has experienced customer service representatives that can explain anything you need extra help with.

How to trade crypto

The first step in cryptocurrency trading for beginners is to sign up for an account at Nextmarkets. The process takes just a few minutes and it is very simple. Enter your email address, choose a password and click to register your account. You can then click a link sent to your email address to verify it, and follow the same process by entering your phone number and entering a code sent via SMS. A KYC process is required if you want to trade at the highest possible limits. That stands for know your customer, and it simply requires you to provide us with a copy of a government issued photo ID, such as a passport or driving licence.

You must then make a deposit. You can use a variety of payment methods, including debit card, credit card, wire transfer, PayPal and e-wallets such as Skrill. Deposits should arrive instantly, and you will not be charged a deposit fee. When you have funds in your account balance, the cryptocurrency trading for beginner journey can begin.

You will find a cryptocurrency section on the “Markets” page of the site. You can then click on cryptocurrencies such as Bitcoin, Ethereum and Bitcoin Cash in order to trade CFDs. When you click on a cryptocurrency, you will be taken through to a new page, which displays a chart showing how the coin has performed recently. You will be presented with two clear options: the red button reads “Go Short” and the green button reads “Go Long”. If you go long, you are buying the crypto CFD as you anticipate that the price will increase. If you go short, you expect the price to decrease and you are seeking to profit from that decline.

There will be a slight difference between the sell price (Go Short) and the buy price (Go Long). This is known as the spread. All trading sites feature a spread between the buy and sell prices, and we are renowned for having tight spreads.

When you make your decision as to whether you want to go long or short, you can choose the size of your position. This requires you to select how many contracts you would like to trade.
This determines your potential profit or loss, as the ultimate difference in price at the end of the trade is multiplied by the quantity you choose. The contract size varies per asset, and it can be an amount of money per point of price movement. When you have made your selections, confirm the trade.

CFD trades are often leveraged. This means you just need to put up a small deposit, known as your initial margin, to open a position. Trading with leverage means you are loaned the rest of the money for the trade. Your capital can go further, significantly ramping up your potential profits, but you can lose more than your initial deposit if the market turns against you, so you should always conduct thorough research into a cryptocurrency before trading it.

You can also set a stop-loss order. This instructs us to close your trade at a certain position if the price moves against you, thus ending the possibility of losses beyond a specific amount. This is a free service, and it serves as an insurance policy, making it a valuable tool when crypto trading for beginners. You can also opt for a take profit order. This instructs us to close your trade if the cryptocurrency reaches a certain point, thus locking in profits and protecting you in case the market turns against you after initially moving to your advantage.

You can then monitor your position. All active positions will be displayed in a dedicated tab on your trading platform. You can exit the trade when you are satisfied. Crypto differs from stocks, because trading takes place on a 24/7 basis, so you have flexibility as to when you want to close a trade. You can easily make withdrawals to your bank account at any time.

Fundamental and technical analysis

Crypto traders generally use fundamental or technical analysis – or a combination of both – in order to determine whether the price will increase or decrease. Fundamental analysis requires you to gain a detailed understanding of the authentic and objective value of a particular cryptocurrency, so it can certainly be a worthwhile pursuit for beginners to the world of crypto trading.

You can essentially delve into the external factors and influences that determine the price of the token. Your ultimate goal is to understand its true value, thus informing you if it is currently overvalued or undervalued. Crypto is different to stocks, as you do not have earnings reports and company details to delve into. However, you can look at usability, adoption, government position, regulatory issues, project development and media coverage.

Those factors can have a significant impact upon the short-term price moves of a particular cryptocurrency. For example, positive news coverage, an exciting development in the project or a celebrity endorsement can push the price up. A regulatory clampdown or a prominent politician stating opposition to a cryptocurrency can hurt the price. You can also delve into wider economic trends, and issues affecting the wider crypto market.

Technical analysis follows the premise that history repeats itself. Analysts examine historical trends in a cryptocurrency’s price in a bid to gain an indication as to how it will perform in future. For example, the reward for mining Bitcoin is slashed in half roughly every four years, and this has typically sparked a bull run, with the price increasing substantially – although not in a straight line. Analysts examine past price movement to determine future trends. They are ultimately focusing on supply and demand, which is what causes a cryptocurrency to increase or decrease in value, and then making calculated predictions.

Nextmarkets best CFD broker

Advantages of trading cryptocurrency

 There are a number of key benefits to trading cryptocurrency:

  • It provides you with an opportunity to profit from price movements of a volatile asset without having to go through the hassle of buying and holding it. That saves you time, cuts out fees and removes security risks.
  • You can go short. This means you speculate on the price of a cryptocurrency decreasing. That is not possible when buying crypto and holding – you can only speculate on growth via that method.
  • Cryptocurrency is prone to sharp fluctuations, which makes it exciting for traders compared to more stable assets. It has also followed a number of cyclical trends over the years, which excites technical analysts.
  • Crypto is traded 24/7, every single day of the year, so you do not need to wait until markets open to get involved in the action.
  • Trading crypto CFDs is regulated, and if you use a trusted, reliable broker, your funds will be safe.

Conclusion

Crypto trading is a fascinating pursuit. It offers many advantages over simply buying and holding crypto, because it gives traders access to the market without having to own the underlying asset. Crypto also lends itself to trading due to its sharp price fluctuations, so it is easy to see why so many people are deeply engaged in it. However, it is important to stick to a high-quality, reputable, regulated crypto trading site, and to conduct thorough research before trading.

 

Crypto trading for beginners FAQs

💰How can I trade crypto?

Crypto trading might seem like a daunting prospect for a beginner, but it is actually pretty simple when you get the hang of it. You need to sign up with a reputable crypto trading site and then you can start to open crypto trading positions. Check out this in-depth crypto trading for beginners guide to learn more about it.

🚀Is crypto trading profitable?

Crypto trading can be highly profitable for individuals that successfully predict which way the price of a particular token will move. However, others can lose money by making incorrect predictions, which is why strong fundamental and technical analysis are so important. You can learn more about trading, including stop-loss and take profit orders, by reading this guide.

❓What is crypto?

A cryptocurrency is a digital token underpinned by cryptographic equations. Most cryptocurrencies are decentralized, meaning no central authority issues and controls them. There are plenty of different cryptocurrencies to choose from, and you can learn more about their features and how to trade them by reading our crypto trading for beginners guide.


Smarter Trading
  • Trade with Europe's commission free online broker
  • Receive up to 200 professional analyses per month
  • Trade more then 8000 shares, ETFs and other products
Start trading now
x