- What kind of obstacles to expect as a newcomer in crypto trading
- Overcoming the challenges and thriving
Trading crypto as a beginner
The cryptocurrency market is a lucrative one. And trading digital currencies are the latest trend in earning profits on a short to medium term. Every day, millions of dollars are exchanged on crypto trading platforms. When the value of Bitcoin skyrocketed, the positive sentiment grew exponentially as well. Newcomers to the crypto trading world might be attracted by the promise of big gains. And this rush created a great speculative buzz. However, this is not the rule of the crypto market. As seasoned traders would know, success stories are the result of a multitude of factors. Mainly, luck and hype. Yet the volatility that drives this bullish market makes for good opportunities up for grabs.
Nonetheless, even traditional forex traders who are used to certain standards still face challenges when trading crypto. Undoubtedly, the industry has adapted and continuously strives to accommodate these limitations. For example, the invention of stablecoins was intended to decrease volatility. Many issues remain, such as liquidity due to the decentralized nature of the digital currencies market.
As a newcomer though, your concern lies in what challenges to expect and how you can overcome them to reap the benefits of crypto trading. Here’s a shortlist of the 5 major things to keep in mind when you get started as a digital currency trader.
What kind of obstacles to expect
The inability to sell short
When you invest in cryptocurrencies, you are effectively buying a coin that represents a value and holing until it pays off. It is a long-term investment. So if you are trading to make profit when the prices fall in the short-term, you will find this strategy has limitations for crypto. The digital currencies trading pairs are: Bitcoin, Ethereum, Litecoin, and a few other ones.
Limited digital currency pairs
The forex market has many currency pairs to trade. However, this is not the case for crypto. You may not find the trading pair even if you know it is a good opportunity. Another issue you may face is having altcoin and being forced to convert it back to bitcoin to buy another. Thus ending up spending double the fee. All this problems link to liquidity. Eventually, the blockchain technology in combination with algorithms and AI will eliminate the need for traditional matchmaking mechanisms. And the technology will replace the middleman.
If you trade major cryptos you may not face challenges with slippage if the market conditions are favourable. Trading altcoins is worse, as the smaller the cap, the higher the slippage. If you are in a hurry to execute, you will have a problem and may lose your entry. Low liquidity is clearly the key issue. Any miscalculation can lead to greater risk on the long term.
The more experienced traders wont fall for this one. They know how to spot it, avoid it, and even profit from it. But newcomers in crypto and to trading in general will fall for it. Price manipulation is the biggest reason for fluctuation. As a beginner you can also take advantage once they understand the difference between legitimate buy/sell and false ones. So, study up, observe, and use the right strategies.
Shilling for coins
Coin shilling is the process of increasing demand for a coin so that its price goes up. You need some experience in order to identify shilled coins. And the fake news used to create a buzz are all over the place online. This is a major problem in the crypto industry. So as a newcomer, always verify news, and avoid being swayed into a rushed decision. This flaw means that many traders buy or sell based on recommendations. Keep your eyes peeled to identify the authenticity of news and check community sentiment, before executing your decision. Play it smart.
Scams, tokens, and greed
As of January 2020, more than 2000 cryptos are in circulation. Including a large number of scam tokens which feed upon greed by promising big rewards. These promises go unfulfilled as their pockets get heavier. Recently, the SEC began actively investigating Initial Coin Offerings (ICOs) as more and more people were being scammed. So as a beginner crypto trader, the first thing to check is a guaranteed return on your investment. Proceed with due diligence, and always check the reviews.
Slow transaction times
Perhaps the most impactful challenge is the slow onboarding process of new traders. While this is being resolved, another slow process is a big issue: the slow transaction speeds on crypto exchanges. Combined with the higher costs for transactions, it makes crypto unappealing to many.
The wrong broker
Once again, due diligence, and verifying the trustworthiness of a broker is essential. As more and more traditional brokers list crypto in their options, they promote their longstanding experience in the business. And many beginners feel these well established brokers in forex are the right choice. More often than not, however, they are not the most suitable ones. They will prioritize forex first and crypto second. Your best bet is a traditional crypto broker dedicated to crypto trades. And do your research, check the reviews, and recommendations.
Overcome the challenges and thrive
Cryptocurrency developers and the industry as a whole is quite aware of the problems. That’s why it is continuously seeking to offer solutions and adapt to the market. Ultimately it is the demand for stability that will bring key players towards implementing those solutions. Surely, cryptocurrencies have come a long way since their creation. It is then up to traders to be aware of the limitations just as they perceive the opportunities and profits. If you manage to sail these muddy waters, rewards can be bountiful. While the road ahead remains bumpy, traders should see a bright future for the digital currency market.