Cryptocurrencies are more popular now than ever, with over 21,844 crypto coins and over 300 million crypto users. Due to cryptos tendency toward price volatility day trading crypto has seen passionate interest from aspiring traders. The rise in the prices of cryptocurrencies has made them a desirable investment option and an alternative to traditional investments such as stocks, bonds, and commodities. For example, when Bitcoin was first launched, it traded at less than $1 in 2009. However, in 2021, Bitcoin hit an all-time high of over $64,000, making it the highest-returning asset of that period.

In spite of this, trading cryptocurrencies is more challenging than it looks, and beginners can easily make costly mistakes if they need help understanding its basics. There are many terminologies involved, technical analysis, market trends, and much more that you need to know before you start making money as a trader. This article discusses how you can make money trading cryptocurrencies.

What Is Crypto Trading?

Crypto trading involves buying and selling cryptocurrencies such as Bitcoin, Ethereum, Litecoin, and others. It consists of predicting these digital assets’ price movements to make a profit. The basic idea behind crypto trading is to buy low and sell high. Crypto trading allows you to take advantage of the volatile market and the price fluctuations when large amounts of cryptos are moved around.

Day Trading Crypto

Regarding crypto investments, you have two options: Day Trading and long-term investment. With day trading crypto, you open and close positions as the markets fluctuate to make a profit. Long-term investment involves taking positions for extended periods and holding them until the asset increases in value or reaches your target price. Some of the key differences between short-term trading and long-term investment include the following:

Tax Liability

Short-term traders will typically pay more taxes due to the frequency of their trades and greater capital gains tax liability. Usually, the gains from short-term trading are taxed at normal income tax rates, whereas long-term investments are taxed at a lower rate. Long-term investors may benefit from lower taxes due to the long-term capital gains rate.

Note: We do not offer tax advise. Please consult your tax advisor!

Risk vs. Reward

The risk of crypto trading is much higher than that of long-term investment. With crypto trading, you need to pay close attention to the market and stay up-to-date on your research to maximize profits. However, if you get it right, the rewards can be significantly higher than a long-term investment.

Fees and Commission

When trading cryptocurrencies, you will incur fees and commissions. Crypto exchanges charge a fee for every trade, which varies from exchange to exchange. Long-term investors may not pay any fees as they typically hold their position for an extended period.

How To Make Money Trading Cryptocurrencies

You can employ numerous trading strategies to trade cryptocurrencies and make money. Here is a detailed view of some of them and what benefits they have:

Paper Trading Crypto

Paper trading is the practice of trading without using real money. It is an excellent way to gain experience and familiarize yourself with the markets. Paper trading allows you to practice your strategies in a risk-free environment, which can benefit beginners.

Pros of paper trading

• Low risk – You are not required to use real money, so you can practice without taking any losses.
• Learn the markets – Paper trading will teach you how crypto markets work and how to implement your strategies in a live environment.
• Test strategies – You can test various trading strategies without risking your assets.

Cons of paper trading

• No real money – Although this benefits many, some traders may find it difficult to motivate themselves without the potential of making actual profits.
• No emotions – Trading with virtual currency does not involve emotions, and getting an accurate representation of live trading can be challenging.
• Might not reflect the actual market- Paper trading only sometimes accurately reflects the actual markets, so it is important to use various sources for market analysis.

Day Trading Crypto

Day trading is a popular strategy for crypto traders, as the markets are highly volatile and offer ample profit opportunities. Taking positions that last from minutes to hours before taking profit from small price movements is what is known as Day Trading. Day traders enter and exit positions within the same day. Therefore, it requires you to stay up-to-date with the markets, as they can be very unpredictable.

Types of Day Trading Crypto

Various day trading strategies can be used to make money in the crypto markets. Here are some of the most popular:

• Scalping – Scalping is a strategy that involves taking small profits from minor price movements. It requires quick decision-making and close monitoring of the markets.
• High-frequency trading– High-frequency trading is a strategy that involves making numerous trades in a short period, usually within seconds. This strategy requires sophisticated technology and algorithmic analysis to be successful.
• Arbitrage- Arbitrage is the simultaneous purchase and sale of an asset to profit from the price difference between two markets. This can be done across different exchanges or even within the same exchange.
• Momentum trading: Momentum trading is based on the idea that prices trend in a certain direction, and you can capitalize on this by taking positions when there is strong momentum. This requires monitoring the markets and entering trades at the right time to maximize profits.
• News-based trading: This strategy involves taking positions based on news and upcoming events. This requires keeping up with the latest crypto news and understanding how it could affect the markets.

Pros of Day Trading Crypto

• High profits – You can make significant profits quickly if you get your trades right.
• Low risk – Unlike long-term investing, day trading involves small price movements and carries a low risk.
• Compounding interest- If you are successful in day trading, you can reinvest your profits and compound them over time.

Cons of Day Trading Crypto

• High stress -Day trading involves quick decision-making and can be very stressful.
• Time-consuming – You will need to monitor the markets and enter trades, which can take up a lot of your time.
• Market uncertainty – The crypto markets are unpredictable, and there is always a risk of losing money if you do not get your trades right.

Leverage Trading Crypto

Leverage trading is a popular strategy in the crypto markets, as it allows traders to increase their potential profits using leverage. Trading with leverage involves borrowing capital from another party to improve your position size. When done correctly, leverage trading can be very profitable, but there is also a high risk of losses. Most crypto exchanges offer leverage trading, where you can borrow money and increase your position size.

Pros of Leverage Trading Crypto

• High profits – You can amplify your profits by using leverage to increase your position size.
• Low capital – You can trade with a small amount as you are only required to put up a fraction of the total position size.
• Magnified profits- Your profits can be magnified if the markets move in your favor.
• Interest-free loans- Leverage trading involves taking out interest-free loans from an exchange.
• Trade premium markets- Leverage trading allows you to trade markets that require high capital.

Cons of Leverage Trading Crypto

• High risk – By using leverage, you are increasing your risk and potential rewards.
• Unpredictable markets – Crypto markets are highly unpredictable, and losses can quickly add up if you do not get your trades right.
• Liquidity issues- Leverage trading can cause liquidity issues as you take out loans from the exchange. This could limit your ability to close positions and take profits.
• Margin call risk- A margin call is when an exchange automatically closes your positions due to insufficient funds in your account. This can lead to significant losses if the markets move against you. When leveraging, you risk going into a margin call.

Margin Crypto Trading

Margin trading involves taking out a loan from an exchange to increase your position size. This allows you to trade with more capital than you have in your account, which can increase your profits if the markets move in your favor. Margin trading is popular among experienced traders as it allows them to leverage their capital and potentially make more significant profits.

For example, if you have $1000 in a crypto trading account, then margin trading allows you to borrow money and increase your position size two, three, or even five times to $2000. This will effectively double your profits if the markets move in your favor.

The $1000 that you deposited in the account is what is referred to as the margin. A crypto exchange requires you to maintain the minimum amount of money in your account to keep the position open.

Pros of Margin Trading Crypto

• High profits – Margin trading allows you to increase your profit probability by getting up to five times more capital.
• Low capital – You can trade with a small amount as you are only required to put up a fraction of the total position size.
• Take positions in multiple currencies – Margin trading allows you to simultaneously take positions in various currencies. You must only put up a fraction of the total position size.

Cons of Margin Trading

• High risk – By using margin trading, you increase your risk and potential rewards.
• Amplified losses- If the markets move against you, your losses will be amplified due to the leverage.
• Liquidity issues- Margin trading can cause liquidity issues as you take out loans from the exchange. This could limit your ability to close positions and take profits.
• Margin Call Risk – A margin call is when an exchange automatically closes your positions due to insufficient funds in your account. This can lead to large losses if the markets move against you.
• Interest in margin loans – Margin trading involves taking out interest-bearing loans from an exchange which can add additional costs to your trades.

Differences Between Margin And Leverage Crypto Trading

Margin and Leverage crypto trading often need clarification as they tend to give traders the same benefits and also have the same risks. However, the two are different because margin trading allows you to take out loans from an exchange while leveraging involves taking out interest-free loans from the same exchange.

Margin gives you more buying power, while leverage trading allows you to trade bigger positions than your capital. The two have an inverse relationship: you’ll have a smaller leverage ratio if you have a higher margin requirement. Margin loans are also charged interest, while leverage positions are interest-free.

What Is A Crypto Technical Analysis Software?

Crypto technical analysis software is tool traders use to analyze and interpret price data to make better trading decisions. These tools are used by novice and experienced traders as they help you identify patterns, trends, and potential market opportunities.

The software can generate signals that tell the user when it is an excellent time to buy or sell a particular cryptocurrency.

How Technical Analysis Software Helps In Crypto Trading

There are many benefits to using crypto technical analysis software for crypto trading.

• Helps identify patterns and trends – The software can be used to identify patterns and trends in the markets, which help traders get a better understanding of where prices may be heading.
• Automates Analysis- Technical analysis software can automate many tasks of analyzing price data. This allows traders to focus on other aspects of their trading.
• Generates Signals – The software can create signals to alert a trader when it may be an excellent time to buy or sell a particular cryptocurrency. This can help traders stay ahead of the markets and maximize their profits.
• Identify entry and exit points – Technical analysis software can also help traders identify when to enter or exit a trade to maximize their profits.

Conclusion

Crypto day trading is a powerful way for traders to make money while managing risks. As cryptocurrencies continue to grow and get more use cases, the prices will likely soar in the next decade. As such, investing in them is an excellent decision. What’s more, you can take advantage of the volatile cryptocurrency market to make money by trading them.

However, it is essential to note that crypto trading involves risks, and you should manage those risks appropriately. This can include using margin or leverage trades and technical analysis software to get better market insight. By doing this, you can maximize your profits while managing the risks.