What is Crypto Trading?
Cryptocurrency trading is essentially the buying and selling of cryptocurrencies with a view to making a profit. For example, if you conducted analysis and believed the price of Bitcoin was going to increase in the near future, you could buy it at the current price and then sell it if it increases to make a profit.
Previously, you could also trade crypto CFDs in the UK, but these are now banned, which you can read more about further down this crypto trading guide. So, now the only way to trade cryptocurrencies in the UK is to buy and sell the physical assets.
Crypto Trading vs Crypto Investing
Crypto trading refers to short term trading of cryptocurrencies. This includes buying and holding currencies for just a few hours, a day, of a few days. This is made possible due to the frequent price fluctuations that create daily opportunities for trading.
Crypto investing refers to buying cryptocurrencies and holding them for a long time with the intention of eventually selling them. For example, many people invest in Bitcoin with the hope of seeing its value increase significantly over months or even years.
What Cryptocurrencies Can You Trade?
While Bitcoin remains by far the most popular cryptocurrency, you can now trade a wide range of other cryptocurrencies, known as altcoins, online in the UK.
Here’s a list of the most popular cryptocurrencies for trading:
- Bitcoin Cash
It’s also worth mentioning you can pick up a bitcoin credit card — which is well worth checking out.
Why Trade Cryptocurrencies?
Recent years have seen crypto trading explode in popularity to the point that it’s now a highly traded asset just like stocks and forex – to learn more, check out our what is forex guide. But what is it that makes cryptocurrencies so popular among traders?
In this part of our crypto trading guide, let’s take a look at the advantages of cryptocurrency trading.
Cryptocurrencies are known for their volatility, and this volatility is one of the main reasons they are popular among traders. Because cryptocurrencies are prone to extreme price fluctuations, this creates lots of opportunities for savvy traders to profit from these price changes if you carry out the right analysis and speculate correctly.
Traditional assets like stocks, commodities and forex all have set market trading hours, meaning they can’t be traded at all times. In contrast, the crypto market is open 24 hour a day, seven days a week, due to the fact that the market isn’t controlled by a centralized government. This means you can trade crypto whenever you like.
Crypto Trading Risks
Any crypto trading guide worth its salt should let readers know about the risks of trading. The main aspect that makes crypto trading attractive – its volatility – is also what makes it such a risky asset. Because cryptocurrency is so prone to large fluctuations in price, there’s a high risk that you could lose your money. This is part of the reason why the UK has now banned crypto CFDs, which you can read more about below.
If you’re going to trade crypto, it’s vital that you take your time to do lots of research and perfect a strategy. The more time you spend learning the researching the market, the better chance you have of successful crypto trading.
UK Crypto Trading Regulation
This is one of the most important parts of our crypto trading guide. There was a big impact on the UK crypto trading scene in October 2020 when the Financial Conduct Authority (FCA) announced a ban on retail cryptocurrency CFD (contracts for difference) trading.
If you’re not familiar, CFDs are derivatives that allow you to trade assets like stocks and commodities without actually owning the asset. Instead, you’re simply speculating on the price. Read our what is CFD trading guide to learn more.
This meant you could easily trade crypto online without going through the process of actually buying it.
However, now that’s not possible in the UK due to the FCA’s ban. The FCA gave a number of reasons behind the ban, including the extreme volatility of cryptocurrencies and a lack of adequate understanding of crypto by retail traders.
You can still legally trade cryptocurrency in the UK, but now you have to actually buy and sell the coins and keep them stored securely in a cryptocurrency wallet. The ban also means you can no longer trade crypto with leverage.
Up next in our crypto trading guide, we’ll be taking a look at the potential wallets and brokers you can use right here in the UK.
Crypto Trading Guide: Choosing Crypto Wallets
Before the FCA ban, you didn’t need a crypto wallet in order to trade cryptocurrencies, as you could just speculate on CFDs without actually owning the coins. However, now this isn’t the case, you need to have a crypto wallet to safely store your coins, even if you’re holding them for a very short amount of time.
Crypto wallets are essentially secure online electronic wallets that you can use to store your coins. Many crypto brokers and exchanges have their own proprietary wallets that you can easily use when using the service. Crypto wallets are usually available on both web platforms and mobile apps so you can easily keep track of your coins.
Crypto Trading Platforms
Before you begin trading cryptocurrencies online, you need to find a top crypto trading platform to use. The first thing you need to decide is whether you want to use a crypto broker or crypto exchange.
In this part of our guide to crypto trading, let’s take a look at the difference between crypto brokers and crypto exchanges.
Crypto brokers are essentially just regular brokers that offer cryptocurrency in addition to traditional assets like stocks, commodities and forex. Prior to the UK banning crypto CFDs, there were many online brokers that offered cryptocurrency CFD trading.
Now, there is a limited selection of crypto brokers, but there are still some great options. One of the best eToro. This is a globally popular trading platform that is one of the few brokers that allows you to buy and sell cryptocurrencies like Bitcoin, Ethereum and Ripple. eToro even offers its own proprietary cryptocurrency wallet in which you can store your coins. IG is another popular UK broker that offers cryptocurrency trading.
Cryptocurrency exchanges are now much more widely available than crypto brokers in the UK since the crypto CFD ban. Coinbase, Binance, Gemini and Kraken are some of the most popular cryptocurrency exchanges.
They’re in many ways similar to crypto brokers, but when you buy and sell cryptocurrencies on an exchange, you’re exchanging currencies with other traders, rather than a broker. This means there’s a difference in pricing between brokers and exchanges.
On a broker, you can buy and sell crypto at a set-price. Brokers are often made very user-friendly to appeal to beginners looking to buy small amounts of crypto at a time. In contrast, trading prices on crypto exchanges are based on current market prices and are therefore more suited to more experienced traders who want to speculate on price fluctuations.
Crypto brokers are generally more regulated than crypto exchanges. For example, while eToro is a very secure broker that holds numerous regulatory licenses, cryptocurrency exchanges are typically less strictly regulated.
Another major difference is that crypto exchanges allow you to buy cryptocurrencies with fiat currencies as well as other cryptocurrencies, whereas most brokers only accept fiat currencies.
Crypto Trading Guide: Trading Fees
In this part of our crypto trading beginners’ guide, we’re going to look at what you’re charged in order to trade cryptocurrencies online in the UK and how you can find the cheapest broker. The type of fees can vary depending on the broker or crypto exchange you choose.
For example, eToro charges fixed spreads for crypto trading. These spreads vary depending on the cryptocurrency you trade. The spread for Bitcoin is 0.75%, so if you invested £1,000 in Bitcoin on eToro, you’d be charged £7.50.
Cryptocurrency exchanges usually charged maker fees and taker fees. A maker fee is incurred when a trade is not matched immediately with buyer or seller’s order on the order book. These are known as maker fees as they add to the order book, increasing liquidity.
If you’re not familiar, liquidity refers to the trading volume of a particular market. The more liquid the market, the quicker assets can be bought and sold without having a big impact on prices.
On the other hand, a taker fee is incurred if a trade is matched immediately with an order book. Following the same logic, they’re known as take fees as they take away liquidity from the exchange.
Maker and taker fees can vary a lot from exchange to exchange, but they’re usually kept at 0.2% and below.
Although maker and taker fees are the most common crypto exchange fees, some platforms have different fee structures. For example, some have set commission charges on buy and sell orders, while others charged spreads, which are the difference between the buy and sell price of an asset.
Crypto brokers and exchanges can also charge other non-trading fees, such as deposit and withdrawal fees.
Crypto Trading Strategies – Our Crypto Trading Beginners Guide
It’s important to have a fully worked out, practice crypto trading strategy before you put your money on the line. If you go straight in without doing your research and having a sound strategy, you’re much more likely to lose money.
In this part of our crypto trading guide, let’s take a look at a few of the top cryptocurrency trading strategies.
Crypto Day Trading
Day trading refers to buying and selling cryptocurrencies within the same day. This is perhaps the most popular ‘active’ trading strategy, which means it’s a strategy that requires constant monitoring.
Day trading relies on monitoring the minute-by-minute and hourly price movements of cryptocurrencies. As such, day traders look to make lots of smaller gains rather than very large gains. While it can be highly profitable, it’s also very stressful as it requires you to almost constantly monitor the markets. It’s also a high risk strategy that’s usually recommended for advanced traders.
Day trading is based on technical analysis, also known as charting, which aims to predict future price movements based on historical price action and volume data. This is different from fundamental analysis, which seeks to predict market movements based on how factors such as politics affect the intrinsic value of an asset.
To read about day trading in more depth, check out our daytrading guide.
Cryptocurrency Swing Trading
Whereas day traders hold cryptocurrencies for no longer than 24 hours, swing traders hold positions for a few days or weeks, but typically no longer than a month. Swing trading aims to capitalise on waves of volatility that play out over several days of weeks. Swing traders often use a combination of both technical and fundamental analysis to inform their trades.
Swing trading is generally regarded as one of the best crypto trading strategies for beginners. This is because you have a wider time span to carry out your analysis without the stress of day trading, giving you more time to make decisions, without it being so long that you may lose track of your trade.
Crypto Trend Trading
This strategy is like a longer-term version of swing trading where you typically hold positions for at least a few months. Trend trading is also known as positional trading and, as the name suggests, seeks to capitalise on directional trends. This strategy assumes that the asset will keep moving in the direction of the trend.
Trend trading usually mostly relies on fundamental analysis, although it may take charting into account as well. For example, trend traders may use tools like moving averages and trend lines to account for the possibility of a trend reversal.
Trend trading is another crypto trading strategy that’s popular among beginners.
Scalping is an even quicker strategy than day trading that focuses on repeatedly exploiting small market movies. These moves can include things like gaps in liquidity and bid-ask spreads.
Scalpers typically hold their positions for a very short time – a matter of seconds or minutes. The main benefit of scalping is that it can be lucrative if a trader finds a market inefficiency that you can explain over and over again, making smalling profits that add up over time.
On the flip side, scalping is a complex trading strategy that beginners will likely struggle with, as you need a strong understanding of how the markets work. It also requires you to trade larger positions to make up for the smaller percentage profit targets.
Our Crypto Trading Beginners Guide – A Summary
Crypto trading is now hugely popular around the world, and with developments like the recent Bitcoin price boom, more and more people are looking to get into crypto trading. However, before you get started you need to have a strong understanding of how cryptocurrency trading works.
For starters, you need to have a firm grasp of cryptocurrency volatility and how it affects both short term and long term fluctuations. This is the factor which makes crypto trading both attractive yet highly risky to traders.
You also need to have a sound cryptocurrency trading strategy before you jump in. For short term trading, swing trading is one of the best strategies for beginners, while more advanced traders may opt for day trading or scalping strategies.
You also need to find a cryptocurrency trading platform. This may be a broker like eToro or a crypto exchange like Coinbase. Whichever you choose, you should make sure you go for a regulated, secure platform with competitive fees.
So there we have it. Now you’ve read our crypto trading beginners’ guide, you’re ready to get started! Just remember to do your research, understand the risks and trade within your budget. Good luck!
Crypto Trading Beginners Guide FAQ
💰 Can crypto trading make you rich?
Cryptocurrencies are highly volatile assets and there is a high chance that you could lose money when trading crypto. You need to do significant research before you trade or invest. Even then, there is no guarantee you will make any money, let alone get rich, although that is of course possible. To find out how you can get started with crypto trading, be sure to have a read of our crypto trading beginners guide here at TradersBest.com UK.
🔒 Is crypto trading safe?
Provided you’re traded with a secure, licensed crypto broker or exchange, then yes, crypto trading is quite safe. You should beware of smaller, newer exchanges that aren’t strictly regulated and may be more susceptible to hacking. To find out the pros and cons of crypto trading, take a look at our crypto trading beginners guide at TradersBest.com UK.
💲 Can you trade cryptocurrencies with leverage in the UK?
As covered in our crypto day trading guide, In the UK, brokers licensed by the FCA are no longer allowed to offer crypto CFDs to retail traders, so you can’t trade crypto with leverage unless you’re a professional. You can in theory trade crypto CFDs with leverage using overseas platforms, although this isn’t recommended as overseas platforms do not offer the same protection as FCA regulated platforms. To find out the finer details of leverage trading in the UK, consult our in-depth trading guides at TradersBest.com UK
🆔 Do you need to provide ID to trade cryptocurrencies?
Most reputable brokers and crypto exchanges will require you to provide ID to verify your account before you can trade cryptocurrencies. There are platforms that allow you to trade without ID, but you should tread carefully, because these platforms will not have the same regulatory standing and may be less secure. To find out which providers offer a secure trading platform, have a read of our guides here at TradersBest.com UK.
❎ Can you trade cryptocurrencies without fees?
As covered in our crypto trading beginners’ guide, every broker and crypto exchange, even the ones that advertise ‘zero commission’ trades, will charge some kind of fee. The only way to trade crypto without any fees whatsoever if by trading directly with any trader and not going through a broker or exchange.