Crypto Trading 101

When trading cryptocurrencies, you are either buying or selling a coin. The object of trading it to buy a coin when it is low, and selling it when it is high – buy low, sell high. But if you visit forums around crypto space, you will often see the meme buy high, sell low – a kind of stab at traders who have no idea what to do! Lucky you have come to the right place to educate yourself.

Straight up, the easiest way to look at trading Bitcoin against the USD is the following;

YOUR TRADE BTC USD
You purchase 1 Bitcoin at the BTC/USD exchange rate of $6000.00  

+1

 

– $6000.00
Two days later, you exchange your 1 Bitcoin back into USD at the exchange rate of $7000.00  

-1

 

+ $7000.00

You earn a profit of $1000 0 + $1000

 

An exchange rate is simply the ratio of one currency valued against another currency. Because Bitcoin was the first crypto-currency, most trades are pegged to Bitcoin. Some exchanges have other markets available to, where you can trade against Ethereum, Monero, USDT, which are examples from Poloniex.

Crypto-currencies are always quoted in pairs, and as mentioned above, most of the time this is based against Bitcoin. So you may see ETH/BTC, LTC/BTC, DOGE/BTC. The reasoning behind this is you are simultaneously buying one coin, whilst selling another.

To understand this in an exchange format, here is an example;

So from above you can see that to purchase 1 ETH in BTC, it is going to cost you 0.07439999 of a Bitcoin. You thought that price was a dollar amount didn’t you? This is not the case. When trading with crypto, you will hear the term Satoshi. One Satoshi is equal to 0.00000001 of a Bitcoin, and is the smallest fraction that can be sent over the network. Satoshi was derived from the infamous creator of Bitcoin, Satoshi Nakamoto – still yet to reveal his/her identity – and is the basis of what you are buying and selling.

For example;

I just bought DGB(DigiByte) at 632 Satoshi. Meaning you just paid 0.00000632 of a Bitcoin per coin.

But I don’t want just one coin, I want to buy 1 Bitcoin worth, so how many coins will I get?

1 BTC/ 0.00000632 DGB = 158227.84810126 DGB

The base currency is the “basis” for the buy or the sell. If you buy ETH/BTC this simply means that you are buying the base currency and simultaneously selling the quote currency. In caveman talk, “buy ETH, sell BTC.”

  • You would buy the ETH if you believe the base currency will appreciate (gain value) relative to the quote currency.
  • You would sell the ETH if you think the base currency will depreciate (lose value) relative to the quote currency.

To get into crypto trading, the quickest and easiest way is to buy into Bitcoin first, then trade against other coins. Then you must decide what you want to buy. If you have traded Forex or Stocks etc, you may have already heard of shorting/longing. This kind of holds the same meaning here, although it moreso holds true when you are margin trading – but we will get to that later on. For the purpose of you newbies, basically is to sell and to go long is to buy.

SHORT = SELL

LONG = BUY

So let’s now have a look at an exchange to buy and sell, and get a better understanding of the mechanics;

Starting from the left you have the following;

  • BUY ETH: So you want to buy ETH with your BTC
  • Deposit: This will take you to your wallet to deposit more BTC
  • You have: this is your amount of BTC in your exchange wallet
  • Lowest Ask: This is the lowest sell order in the book
  • Price: The default price is the lowest sell order in the book. You can select type in any amount here in which you feel comfortable buying at.
  • Amount: The amount of Ethereum or any other coin you would like to purchase
  • Total: This will auto fill and tell you how much it will cost to purchase your amount of ETH in BTC.
  • Fee: all exchanges have a trading fee that is taken from your purchase amount.
  • Buy: To confirm the order and buy your ETH

 

We will pop over to the right, and then go more in-depth with the middle of Stop-Limits;

  • SELL ETH: So you want to sell your ETH back into BTC
  • Deposit: Maybe you already have ETH from another exchange, payment or mining, so you can send here to sell
  • You have: this is your amount of BTC in your exchange wallet
  • Highest Bid: This is the highest buy order in the book
  • Price: The default price is the highest buy order in the book. You can type in any amount here in which you feel comfortable selling at.
  • Amount: The amount of Ethereum or any other coin you would like to sell
  • Total: This will auto fill and tell you how much you will get back from your sell order in the amount of BTC
  • Fee: all exchanges have a trading fee that is taken from your purchase amount.
  • Sell: To confirm the order and sell your ETH

 

STOP-LIMIT

A stop-limit order is an order to place a regular buy or sell order (also known as a “limit order”) when the highest bid or lowest ask reaches a specified price, known as the “stop.” This can be helpful for protecting profits or minimizing losses.

The stop-limit box has three inputs:

  • Stop – think of this as the “trigger price.” If you place a stop-limit order to sell, it will turn into a regular limit order when the highest bid drops to or below the stop. If you place a stop-limit order to buy, it will turn into a regular limit order when the lowest ask rises to or exceeds the stop.
  • Limit – this is the same thing as the “Price” on a regular buy or sell order. Once your stop-limit order has been triggered by the highest bid or lowest ask reaching your stop price, it turns into a buy or sell order for the price you enter in the limit field.
  • Amount – this is the same as the “Amount” on a regular buy or sells order. It indicates the amount of coins you wish to buy or sell should your stop-limit order be triggered.

Let’s go over some examples.

Selling

Suppose you bought 100 LTC at a price of 0.023 BTC. It’s now at 0.026 BTC. You’ve made some profit, but you’re feeling good about LTC and think it has nowhere to go but up. At the same time, you’re aware that crypto is volatile, and that tomorrow’s headline (“Mt. Gox Loses 750 Million LTC”) could cause the price to crash. How can you hold your LTC, but make sure you get out if a crash comes? Place a stop-limit order with these parameters:

Stop: 0.024 BTC
Limit: 0.023 BTC
Amount: 100 LTC

Then click “Sell” in the stop-limit box. A confirmation box will come up telling you what will happen: “If the highest bid drops to or below 0.024 BTC, an order to sell 100 LTC at a price of 0.023 BTC will be placed.”

You now have some protection. You’re holding your LTC, but if the price crashes to 0.024BTC, your LTC will automatically be sold (as long as there are enough buy orders at or above 0.023 BTC). As with a regular sell order, your coins will be sold at the best possible price; so, if you want to be sure your coins get sold, set the limit price even lower.

Your limit price does not have to be lower than your stop. If you anticipate a dead cat bounce to 0.025 BTC after the crash to 0.024 BTC, you can set your stop at 0.024 BTC and your limit at 0.025 BTC. This will cause a sell order at 0.025 BTC to be placed should the highest bid drop to 0.024 BTC.

Buying

Suppose XPM has crashed to 0.002 BTC. It’s low, and it’s a good time to buy those 300 XPM you’ve been wanting. But you think it isn’t done crashing, and would like to wait for it to go even lower before buying. Still, you could be wrong, and want to be sure you don’t miss out on buying if a whale comes along and pumps the price to the moons of Neptune. Place a stop-limit order with these parameters:

Stop: 0.0022 BTC
Limit: 0.0025 BTC
Amount: 300 XPM

Then click “Buy” in the stop-limit box. A confirmation box will come up telling you what will happen: “If the lowest ask rises to or above 0.0022 BTC, an order to buy 300 XPM at a price of 0.0025 BTC will be placed.”

Now, you can watch the price plummet as bagholders wail in despair. But if you’re wrong and the price skyrockets, you’ll automatically buy in when the lowest ask reaches 0.0022 BTC (as long as there are enough sell orders at or below 0.0025 BTC to cover your purchase).

As with the sell-type stop-limit order, you can place your limit anywhere you want. If you want to bet on a downtick after the price hits 0.0022 BTC, you can set your stop at 0.0022 BTC and your limit at 0.0021 BTC. This will cause a buy order at 0.0021 BTC to be placed when the lowest ask reaches 0.0022 BTC.

If this is all too much to remember, just try entering some numbers in the stop-limit box and clicking “Buy” or “Sell.” The confirmation box will come up and tell you exactly what will happen, and the order won’t actually be placed unless you approve it.

This was a pretty quick crash course! So let it settle in, have a coffee, and when you’re done we shall move onto Trading Analysis.