Beginner’s Guide to Various Types of Crypto Trading (Animated)

Understanding Different Types of Crypto Trading

Before going towards trading across any cryptocurrency exchange with your financial assets, there are a lot of trading options that you can work along throughout the system. These trading options have different mechanisms with different percentages of profits. However, being a new investor, you should always be very careful in managing your crypto assets.

Trading as a profession requires carefulness in all aspects. Before going into the details, there are three basic types of trading that users can perform across the crypto space: spot trading, margin trading, and futures trading. A clear detail about each type, along with the important terms associated with trading, have been discussed further, which would surely help you decide the path that needs to be taken while entering the crypto space. Every version of trading is unique and has its own system of operation. However, we recommend users to start their journey from spot trading for a safer option and better risk management.

Spot Trading

Spot trading is equivalent to trading under the actual price of the asset. It is known as one of the safest options in crypto trading. Spot trading protects your portfolio from a complete loss. Investors can always expect a pullback in their investment while staying in spot trading. Spot trading can be performed across a variety of variants along with a very detailed list of crypto coins. There are certain exchanges that provide limited projects across other trading options but are very open in providing excessive projects to invest in while keeping and spot trading. Users can set up limit orders, market orders, and stop limit orders for buying or selling cryptocurrencies across any crypto exchange. Spot trading is known to be a slow option in trading; however, it is one of the most sustainable options of trading in the crypto space.

Margin Trading

The second form of trading that you should look into is margin trading, which features a unique way of using funds provided by a third party for conducting asset transactions. Apart from regular trading accounts, margin trading is quite different and borrows funds either from the exchange or any third party involved. However, these borrowed assets are repaid under an appropriate set of time. Why would anyone consider going for margin trading as compared to regular forms of trading? Users are offered an opportunity to support themselves to take better positions in the market. The process of margin trading is very simple and effective. Exchanges offer a diverse set of options in margin trading for its users, which includes auto borrow, normal trading, and auto repay systems.

Futures Trading

The trading of the future, better known as futures trading, is a form of trading that gives and takes away most of the crypto assets. Futures trading is known to be the most dangerous form of trading across the crypto space. Being a beginner, it is never preferred to move into futures in search of incessant profits in a short span. Futures trading provides users with the options of working across cross or isolated systems of trading with a multiplier that defines the profits the user seeks to get over the bet they have set for a certain crypto project. Users can either short or long any crypto project in accordance with their price. You would have always wondered how a decrease in price would benefit you and even profit you. Shorting any coin is the key to getting the appropriate profit where investors are returned with appropriate profits over a decrease in price. Forming a long position provides crypto investors with profits over the increase in the price of a certain project. There are a few more significant terms that are involved in the process. Futures trading requires users to set up different limits that can actually save them from huge losses. Setting up stop loss or take profits can help you keep your system automated with the help of these options. Futures trading sounds appropriate; regardless, it is never preferred to take your first trading experiences across futures trading.

Different Trading Options While Buying and Selling Crypto

As you trade across cryptocurrency exchanges, they provide you different options to make your trading efficient and effective.

Limit Orders

This form of exchange order allows traders to purchase or sell their cryptocurrencies under a settled value of the coin. This order type promotes automation and guides users into following the process in a better way, restricting human error. Limit orders help crypto traders execute their trades at the perfect time. However, it is advised to keep limit orders to a value that is achievable and executable. Limit orders help traders keep a calculated check over their assets. Thus, it is highly preferred, especially for traders who are new to the system.

Market Order

A market order, on the other hand, is the real-time buying and selling of cryptocurrencies across the exchange. Such types of orders are selected under cases when the user is looking for an immediate buy or sell of the cryptocurrencies. This form is one of the most straightforward options in trading, where it is never problematic to understand and execute a market order.

Stop Limit Order

A stop limit order is one of the most unique forms of trading techniques that can be used across crypto trading. This form of trading is known to be one of the most calculated techniques that can exist among crypto traders. Promoting automated trading, a stop limit order helps users set up the value where they expect to get the most profit out of a trade and set a limit of the value that they are most likely to give away in a trade. In other words, it is something that helps traders decide both the profit and loss out of any trade.

Frequently Asked Questions (FAQs)

1. What is the safest option for a new investor in crypto trading?

The safest option for a new investor in crypto trading is spot trading. It protects your portfolio from a complete loss and allows you to set up limit orders, market orders, and stop limit orders for buying or selling cryptocurrencies.

2. Why should I consider margin trading?

Margin trading allows you to use funds provided by a third party to conduct asset transactions. It offers an opportunity to take better positions in the market and can be more profitable than regular forms of trading.

3. Is futures trading recommended for beginners?

No, futures trading is not recommended for beginners. It is the most dangerous form of trading and requires a deep understanding of the market. It is better to gain experience with spot trading and margin trading before venturing into futures trading.

4. What are the different types of trading options while buying and selling crypto?

There are three main types of trading options while buying and selling crypto: limit orders, market orders, and stop limit orders. Each option has its own advantages and can be used depending on the user’s trading strategy and preferences.

5. How can limit orders help in trading?

Limit orders help traders execute their trades at the perfect time and keep a calculated check over their assets. It promotes automation and reduces the risk of human error. It is especially useful for new traders who want to ensure they buy or sell cryptocurrencies at a specific price.

In conclusion, before entering the world of crypto trading, it is important to understand the different types of trading options available and choose the one that suits your risk tolerance and investment goals. Spot trading, margin trading, and futures trading each have their own unique features and risks. It is recommended for new investors to start with spot trading for a safer option and better risk management. Additionally, using different trading options while buying and selling crypto, such as limit orders, market orders, and stop limit orders, can help traders execute their trades more efficiently and effectively. Remember to always do thorough research and seek professional advice before making any investment decisions in the crypto space.