Crypto trading strategies for beginners and pros

Which one is the best for you?

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The crypto market is the epitome of volatility – it’s not uncommon for the digital asset to fluctuate 10% up and down within a single trading day. And it’s also totally normal since it isn’t backed by anything tangible, and its price is determined solely by supply and demand. But with great risks often come great rewards, and cryptocurrencies open many opportunities for speculative trading. Here’s how you can start making money on the crypto market, with trading strategies ranked from most beginner-friendly to advanced.

#1 Staking. Pledge your coins to the validators and get rewards

Strictly speaking, staking is not a trading strategy since there’s no “trading” – you just earn interest on your crypto. Blockchains that run on the proof-of-stake algorithm rely on cryptocurrency owners who confirm transactions and get rewarded for it. Although a substantial sum is often needed to become a validator yourself, you can pledge your small amount of coins to another validator and get your piece of the pie.

Staking rewards can vary greatly, depending on the network, the number of participants, and the percentage of reward validator is willing to share. For popular coins like Ethereum, Cardano, and Polkadot, you can expect to earn between 5% to 20% annually. However, keep in mind that many validators require you to lock up your cryptocurrency and you'll be unable to sell it if the price drops significantly. Plus, despite high yields, you can still lose your money due to high volatility.

#2 Arbitrage. Earn your “kimchi premium”

Arbitrage trading is based on buying crypto on one exchange and immediately selling it on another for a higher price. The term “kimchi premium” originates from the historical gap in cryptocurrency prices between global and South Korean exchanges. For some time, Bitcoin traded even 40% higher in South Korea than in the US. However, it’s not just Korean exchanges – the prices on global platforms may vary as well depending on different pricing methods and supply-demand balance.

What makes crypto arbitrage an attractive strategy for beginners is that you don’t need to analyze the market. All you have to do is to spot the difference between asset prices and execute the transaction. However, low risks imply low rewards, so you’ll need to put in a large sum of money for substantial gains.

#3 Spot market. Buy low, sell high

Spot market on the crypto exchanges is a platform where trades are taken and settled instantly. Basically, you buy some cryptocurrency for the current price and sell it later with profit (hopefully). It may sound easy, but don’t kid yourself that you’ll make a fortune from the first day. To spot a perfect time to buy or sell crypto, you should have at least a basic understanding of technical analysis and market sentiment.

The potential return on investment for the spot trading is unlimited, and so are potential losses. That’s why you should set targets for yourself. Determine how much you intend to earn and what level of losses you can tolerate.

#4 Scalping. A good old day trading

Scalping is a popular strategy where an investor makes many trades and profits from small price changes. Sure, the ROI of every trade is small, but these small gains add up. And the more trades you make, the bigger the returns, so many scalpers use trading bots to maximize the frequency. The successful scalper must stay calm amid a market craze and make reasonable decisions. Moreover, to take full advantage of this strategy, you’d need to invest a significant sum of money

#5 Options and futures. The pleasure is to play!

Options and futures are pretty similar. Both are financial contracts that allow holders to buy or sell a certain asset on a specified date for the set price. The main difference is that futures require you to buy an asset, while options give you the right but not an obligation.

Let’s take a closer look at how it works. Imagine that another investor, John, sells you a futures contract that obliges you to buy 1 BTC for $40,00 in a week. By selling you a contract, John takes a short position, believing that on the expiry date Bitcoin will trade lower than $40,000. On the other hand, you are going long in hopes that the price will rise. Often futures traders don’t even need to own the cryptocurrency. If in a week 1 BTC trades for $41,000, John will just send your $1000 premium to your account.

Options are less risky than futures because holders can choose whether or not to execute the contract. There are two types of options: call, which gives you the right to buy a certain asset, and put, which allows you to sell it. Assume that instead of the futures, John sold you a call option, taking the bearish position. If on the expiry date BTC trades below a strike price of $40,000, you can choose not to exercise the contract, although you’d still lose the money you paid for it. The same rules apply to the put options, with the only difference being that it has a bearish buyer and a bullish seller.

Remember that futures and options are a zero-sum game because there will be only one winner. The investor who sells you a contract wants you to lose and believes that they’re better informed about the market situation.

#6 Bot trading. A union between man and machine

Bot trading is an advanced strategy for veteran investors since it requires a careful analysis of the market and a knowledge of specialized software. With the help of algorithms, the trader can execute many transactions in a split second. But don’t think the program will do all the job for you – after you come up with a sophisticated strategy, you’d still have to supervise the algorithm and update it to keep up with the market.

Ready-to-go trading bots are available for purchase but finding a good one may be challenging. But when you finally get your hands on one, you’ll be able to implement all the strategies mentioned above with maximum efficiency.

What’s next?

After reading this article, you learned about different crypto trading strategies. Some of them are less risky and more suited for beginners, while others require more experience and a higher tolerance for risk. But no matter which one you choose, remember to invest the sum you can afford to lose. Don’t be too greedy, and take your gain often. Diversify your trades, analyze market sentiment and make profits. And don’t forget to follow Coinpaper for more quality content on crypto!