Cryptocurrencies market is surging right now. Many investors are holding their coins in order to make profit. But more and more investors are taking their capital at risk and start day trading. Day trading crypto could be super profitable and dangerous as well. Let us take a look at how one could start trading money in crypto market besides holding it.
What is day trading?
Day trading is a common practice in today’s world, taken up by millions of retail traders. It involves making small trades throughout the day in an attempt to turn a profit. A day trader may make one trade or multiple within a day. Even though it can be done in any marketplace, the phenomenon is more widely seen in the stock exchange, Forex, and now cryptos.
The principle of day trading is to make a healthy profit by using leverage to capitalize big on small movements of price in a single day. The art of day trading requires traders to be attuned to events that may cause small shifts in the market. Day traders are usually well versed about the market and the other things that affect the market. They are people who are into taking high risks for a high reward.
Is crypto day trading different from stock day trading?
In principle day trading crypto and stock are similar. Day traders make small bets throughout the day to maximize their return. However, both these areas are a completely different experience for trading. The biggest difference is the volatility, day trading thrives on volatility. With volatile markets, it is easier to make a bigger one by buying a stock at a low price and then resell it at a higher price. Bitcoin over the years has even shown a 5-10% price change in a single day. It is a big return for a day trader. Compared to this volatility of the stock market is low, which means fewer chances of making a profit.
Another key difference between them is regulations. Stock markets around the world are heavily regulated which can restrict the number of trades a person can make in a day. Which is not the case with cryptocurrency trading as it is very loosely regulated. Trading hours are also more for cryptocurrency which trades twenty-four hours a day seven days a week. This makes it easier for people to trade anytime they want.
How to Choose the Right Strategy?
Just like any other trading practice trading cryptocurrency requires a set strategy that minimizes risks and gives the maximum return. There are multiple strategies to choose from when it comes to cryptocurrency day trading. However, there are a few things that you need to keep in mind before deciding on what your strategy is going to be.
Mitigate the risk as much as you can
To make a healthy investment it is important to have a strategy that helps in mitigating the risk as much as possible. While choosing the strategy it is important to check the risk management part of the strategy. While developing a strategy take into account the amount of risk that you can take and plan accordingly.
Keep the return in mind
It is important before making a strategy to visualize the result that you are expecting. If you are expecting a gigantic return on your investment you will have a different strategy. One that involves more risk and if you want a humbler return, you’ll take less risk. So, overall, the strategy needs to be defined by the return you expect. You won’t utilize a low-risk strategy If you are looking for a high return this doesn’t work.
Don’t put all your eggs in one basket
It is a common English phrase that urges people to diversify their options and it has been used in investment strategy a lot. Day trading is a risky business. So, to effectively save one’s self from a bad situation it is important to have multiple positions. Then even if one fails the other can make up for it. Your day trading strategy should also keep some cash-free. So that in an event that all investments fail you still have some capital left to work with.
Setting Exit Rules
It is more important to have an exciting strategy than having a strategy while going in the trade. Every trading strategy should have some basic rules for exiting the general trade. For example, a rule might be to close the trade if it goes down more than 20%. Or to automatically close the trade when some huge event happens which might just tank the whole market. Taking out every oozing bit of profit should not be the strategy. The strategy should be to get as much as you can while staying within limits and surviving long enough to work another day.
What broker to choose for the crypto day trading?
Choosing the best crypto exchange for day trading is one of the most daunting and yet most important parts of the process. The broker helps you execute and manage your trades. So the broker you choose should be in line with your investment goals. The choice of broker that is a good fit can mean the difference between piles of cash, and mountains of debt.
There’s no easy answer to the question of which is the best crypto exchange for day trading. It all depends upon what suits you.
The key factors while choosing a crypto broker are:
- High Liquidity
- Ease of Use
- Exchange platform
To be really workable a broker should be really good at these things. Here are the top four cryptocurrency brokers that may be a good fit for your day trading needs:
Based out of Hong Kong, Binance is probably considered the best crypto-to-crypto exchange. Considering trading volume, it is one of the largest brokers in the world. Binance has the lowest trading and transaction fees amongst all the big-name exchanges. It also has a robust online platform and a mobile app, with a very simple and sleek user interface which makes it easier for beginners to trade.
Binance is also one of the most liquid exchanges in the world. This makes it easier for you to get in and cash out of your positions anytime you want. Binance is also big on security, they have a proprietary AI system that detects malicious activity and freezes users accounts. If ease of use is your concern Binance is the best exchange for that.
Stormgain is another broker in the cryptocurrency business that specializes in leverage trading. It has tons of tools built-in for more technical analysis of the prices. The user interface is easy to use and allows for a completely customizable experience. The users can use different charting tools to track the prices on the Stormgain dashboard. Stormgain’s fees are relatively low, the broker charges anywhere from 0.095% to 0.25% commission on their exchange services.
The exchange also offers high liquidity in the form of Tether a stable coin backed by the US dollar. The key feature that Stormgain offers is leverage of almost 200 times which is higher than almost all of the competitors. If you are working with less capital Stormgain is the best crypto exchange for day trading for you then.
Robinhood is the only broker on this list that dabbles into both the cryptocurrency market as well as the stock market. It is the easiest to set up, it requires 0$ minimum account balance as well as charges no commissions on trade. It also has one of the best designed online exchange platforms amongst all the brokers.
The platform is very similar to stock trading, so it is very familiar for people shifting from day trading stocks to day-trading crypto. Robinhood is also the most liquid broker on the list. So, you can really safely get out of your positions anytime you want.
Bitmex is another broker famed for its leverage. It offers up to 100 times leverage and the option is enabled right from the get-go. The broker only takes Bitcoin deposits and cash out is also only possible in Bitcoin. Bitmex offers low trading fees as well, and enables traders to close positions instantaneously, no matter how big the position is.
The platform unrestrictedly allows you to clear your funds. The broker offers state of the art security to its customers and takes care of all its customers. No matter what the size of their investment.
What are the risks of day trading?
The concept behind day trading is easy, you jump in and out of trades so many times that the small returns add up to give you a bigger return. Unfortunately, practically it is not easy to do. Almost 95% of day traders lose their investment while day trading. This is not due to a flaw in the technique, but rather novice traders are unaware of these dangers when walking into the world of day trading.
In day trading it is said, the higher the return the larger the risk. In day trading crypto this is especially true. So, traders need to be aware of the risks involved with day trading before investing.
In day trading crypto volatility fuels the returns. The more volatile market would mean that the return would be bigger if the trade works out. However, if it does not work out, the loss would be as big. Volatility is a two-edged sword, and if it is working for you, it might sometimes in the future work against you as well. This all boils down to the strategy you are using. You need to be aware of the market before making a trade. Migrate the risk by thinking of all the possible outcomes. In order to make a profitable return and don’t lose your investment in the process.
In a space where you are making such big returns you are surely going to make a few losses as well. The losses can be small, or they can bankrupt you. The magnitude of the loss depends upon the risk you took and the strategy you employed. Crypto day trading is not risk-averse and if you are afraid of some losses it is not the right type of investing strategy for you. However, there are many ways through which these risky situations can be mitigated, and a person can get a phenomenal return on their day-to-day investments.
What is Margin Trading?
Margin trading refers to a process in which traders trade more than what they can afford. The process is common in both stock and crypto trading. In margin trading, the broker loans you the money that you then use to buy an asset combined with your money. As a result, the gains from the investment are amplified many folds and so are the losses. Margin trading can be a very good strategy in cases where the trader is completely sure about making a great return.
The process is simple, a trader signs up for a margin account, with their broker and once the account is opened, the trader can borrow money from the broker to invest further. At the end of every session which in day trading scenarios lasts for a day, the trader needs to square off the position and return the principle and more back to the broker.
Should I use Margin for Trading?
Margin trading is not for everyone it has its ups and downs and is suitable for traders that have a certain amount of experience in the field of crypto day trading and are ready to take on big risks with ease. Margin trading requires strong emotional control, as the volatile crypto market tests you at every twist and turn. If you have been successfully day trading cryptocurrencies for a long-time margin trading can bring you significantly more profit at an increased risk. Margin trading allows you to scale up your portfolio considerably which can be a big moneymaker for smaller traders.
What are the most common mistakes of day trading crypto?
The returns you get from day trading crypto makes it a very lucrative profession. People dive into the field without thinking much, but, as simple as it may sound it requires a good strategy and careful research to succeed. Here are a few common mistakes that traders do while day trading:
Trading without a strategy
The difference between day trading and gambling is that in gambling you are totally dependent on chance, which is not the case in day trading. Day trading is about making quick decisions about the crypto market based on a clear strategy and proper research. The key to making good money in this field is to draft a strategy and then sticking to it, researching about it, and educating yourself as much as possible.
Falling Deeper and deeper into the hole
Day trading is different from value investing and the amalgamation of the two really takes a turn for the bad. The goal is to enter and exit the trade with a clear goal and as swiftly as possible. The bad trades should be exited as soon as possible, and not hold on to in hopes of a return. Holding your position for a long time means your cash that can be used for other profitable trades is tied up and cannot be used which. It is a bad strategy.
Going all in
Going all in is a common phrase in the trading world, however, it is a big mistake. When day trading it is important to hedge your risks and not put all your money into one trade. This is a problem seen with novice day traders that right off the bat put in all they have and are then faced with a loss that winds up their day trading career. It is important to hedge your risk and keep the risk profile as minimum as possible.
Not accounting for the overheads
Another common mistake is that the day traders don’t really account for the overheads:
- Commission fees
- Other deductions
Traders in a hurry to close the deal without accounting for the deductibles, and while they think they may have turned in a profit. The profit gets eaten up in those deductibles. So, it is the wise choice to account for everything before the trade is closed so that these problems do not occur.
What is the best cryptocurrency to day trade?
The best crypto to day trade needs to be the one that gets you the most return in one trading session and has enough trading volume so that you can easily get out of the trade. Liquidity and high volatility are the two factors that are essential in determining the best crypto to day trade.
Bitcoin is highly volatile, with its price seeing up to 10% or more change within a day, historically Bitcoin has shown jumps as high as 35% within a single day. Which makes it volatile and thus a good choice for day trading. The trade volume of Bitcoin is also healthy with almost $90 billion worth of Bitcoin being traded every day.
Ethereum is another contender for the crown of the best crypto for day trading. Like Bitcoin, Ethereum is also quite volatile and historically shown almost 50% jumps in a single day. However, the trading volume of Ethereum is almost half of that of Bitcoin.
Ripple is considered by many as the best crypto to day trade, because of the high volatility. Ripple has recorded an almost 100% rise in one day which is astronomical for day trading. However, the trading volume is around $9 billion. Which is considerably less than Bitcoin and ETH.
Considering all the factors, it is up to the trader to decide which cryptocurrency they would like to go with. A risk-averse high-volume trader should go for Bitcoin as it would be easier for him to close the position. ETH should be considered for high risk; high volume situation and Ripple would be the best crypto for day trading under a high-risk low volume scenario.
How much money can you make?
There is no cap to the amount of money you can earn through day trading crypto. The amount of money really depends upon the amount of money you put in. For an initial investment of $1000, a trader can expect returns of up to $100-$500 each day depending upon the crypto they trade and the risk profile of the day. Weekly, 20-30% returns are not unheard of and are being done by crypto day traders across the world.
Within a year you can make your investment 10-100 times if you make the right trades. The amount of money can also vary if you use margins to trade, which can send the amount to astronomical heights with these returns. However, going in traders should understand there is a big learning curve involved with the whole idea of day trading crypto. So it is extremely important to learn first, before worrying about making a profit. It is a long and arduous process. But once you have gone through it you can really make the kind of money that we have talked about here.
Day trading crypto is a lucrative option for someone looking to make good money off of the cryptocurrency market. A trader who puts in the work to understand the dynamic of the market as well as equip themselves with enough information to judge trends and forecast pricing can make a consistent income through the technique. Due to the high volatility nature of the crypto market, it makes more sense to day trade rather than holding it for a long time.
The article has tried hard to equip you with preliminary knowledge about how to do day trading with crypto. The article has laid down the facts for your consideration so that you can make a better decision with the proper information.