There are endless reasons why someone would want to learn cryptocurrency trading strategies. These skills are more valuable than ever as the market continues to expand. The ability to produce profits from anywhere using a simple PC is a huge benefit for those currently in the midst of the COVID-19 Pandemic. Here are some crypto trading strategies for beginners to take your skills up a notch.
What is Crypto Trading?
Like stocks and other global assets, cryptocurrencies can be bought, sold, and traded via marketplaces or directly between users. In most scenarios, traders rely on an exchange to facilitate the discovery and executions of these trades. Exchanges serve a vital role in connecting traders and ensuring that the transactions complete securely and in an efficient manner. As such, it’s vital to select an exchange that meets your trading requirements.
Choosing the Right Type of Exchange
Choosing the right type of exchange does require a little research as each platform operates uniquely and in an independent manner. In general, there are two main types of exchanges used by most traders in the market today, CEXs (centralized exchanges) and DEXs (decentralized exchanges). Here’s what makes these platforms different and why one is probably better suited to your trading style than the other.
Centralized exchanges have been a stable in the crypto market ever since it began. These large centralized platforms enables users to met up and trade crypto in a convenient and responsive manner. One of the first CEXs to make an impact in the crypto market was Mt.Gox. At one point in time, Mt.Gox was responsible for the majority of Bitcoin trading volume globally.
There are some advantages of CEXs. For one, they are general more regulatory friendly and they provide a familiar trading experience to users. Most CEX were designed to mimic stock trading platforms. As such, they operate using an orderbook. This book lists all trades available. Users interact with the order book and trade with other users.
Notably, CEXs rely on the orderbook to ensure the proper pricing of assets. Since each platform is different, there is usually some leeway between the prices of each CEX. This price difference leads to arbitrage trading opportunities as savvy users will often transfer digital assets between exchanges to obtain these automatic gains.
The downside of CEXs is their centralized nature. CEXs represent a major choke point in terms of decentralization in the market. If you have a project like Bitcoin, which is meant to remain decentralized but the main way people trade is via a CEX, the entire market becomes more centralized.
This centralization has led to CEXs taking a more aggressive stance in the market. In the past, they have used their positions to help usher in new projects and features that may have otherwise never seen such quick success. Additionally, CEX bring along an entirely new set of dangers.
The main issue with CEXs is their custodial nature. Most CEXs such as Coinbase or Binance, require you to load your cryptocurrency onto a network wallet prior to your trading. This network wallet also holds the crypto for thousands of other traders. As such, it can become a tempting target for hackers.
You don’t have to look very far to find major CEX hacks in history. One of the most devastating was the Mt.Gox hack. In 2014, when cryptocurrency was still in its fledgling state, the Mt.Gox exchange suffered one of the largest crypto thefts in history. In this now-infamous incident, a hacker was able to obtain backend computer credentials which they used to siphon 740,000 Bitcoin from the platform.
The sheer size of the exchange and the losses incurred led to a major price drop in Bitcoin that would last for years. It also helped developers to realize that another type of exchange was needed to better protect against these attacks. The result of their efforts was the creation of a new type of exchange called DEXs.
DEXs operate in a slightly different manner than their centralized counterparts. For example, most DEXs are AMM (automated market makers). This designation means that they lack an orderbook but instead utilize smart contracts to facilitate trading and price discovery. This method is more secure but can result in more slippage.
DEXs do away with the need to load your crypto onto a large wallet. Instead, your digital assets remain safely stored in your wallet until the point of trade. This approach helps to remove the main draw for hackers as there is very little incentive to hack these platforms versus the millions in crypto to be had when hacking a CEX.
While DEXs are more secure because they don’t hold your cryptocurrency, there are still some disadvantages to be aware of. For example, DEXs usually lack many of the most common features found on CEXs. Options such as limit orders are now just making their way to the market.
A limit order is a preset trade that triggers at a certain price point. This option is used by traders regularly to ensure that they buy or sell at the optimal position. These features and others have proven to be a hard addition to DEXs mainly because they don’t rely on an orderbook to facilitate trades.
Another issue to be aware of is the onboarding process of DEXs. Unlike CEXs, many DEXs require you to hold the main network’s tokens as a means to fuel transactions. For example, the popular DEX Uniswap requires users to hold a certain amount of Ethereum to conduct any trades on the exchange. While this isn’t a huge issue, it does require new users to make an adjustment to meet the criteria.
How DEX Developers Combat these Issues
Platforms such as the META Exchange combat these issues in multiple ways. Unlike its predecessors, the META Exchange includes a direct fiat to Crypto onramp. This feature, which was made possible by a recent partnership with Onramper, enables users to convert their fiat to crypto using +50 types of global currencies in over 150 countries. This strategy helps to reduce onboarding issues of the past. META Exchange users can simply use the Onramper portal to effortlessly enter the METANOMICs DeFi ecosystem.
Next-Gen DEXs offer More Features
Another major development in the DEX sector is the addition of more features. DEXs like the META Exchange offers users a more familiar trading experience. The network provides access to trading features such as limit orders and more. In addition to these options, platforms like META operate as a gateway to entire DeFi ecosystems. META Exchange users can trade, HODL, stake, save, and spend their crypto in a secure and safe manner.
Finding the Right Exchange
After reviewing the topic, it’s easy to see that choosing the right exchange for your trading strategy is a critical component. Platforms such as the META DEX provide users with the security and operational capabilities of large CEXs but without all of the risks and headaches. Consequently, there has been a steady migration of traders from CEX to DEXs over the last 3 years. This trend is set to continue as the DeFi revolution is just heating up.