We will talk about different platforms and ways to work with them efficiently.
Understanding the Basics of Cryptocurrency Trading and Exchanges
What is a cryptocurrency exchange? It is a place where retail traders can swap their digital assets for fiat money or other types of assets. There are three main types of such crypto trading platforms:
- A peer-to-peer trading platform. These have evolved from dedicated forums where people could find a trading partner to buy and sell Bitcoin. Over the last decade, many of these forums turned into profitable businesses by allowing their users to freely trade while enjoying protection services like escrow wallet addresses and reputation trackers.
- A decentralized exchange. DEX platforms are public community-driven decentralized platforms that provide many financial services to their users. You may find interesting exchanges that offer their users direct P2P trading, spot trading, and banking services. The biggest different between DEX platforms and CEX platforms is that DeFi exchanges usually do not have any custodial features.
- A centralized exchange. Many CEX platforms are corporations that focus on providing custodial and brokerage services to their users. Experts believe that centralized marketplaces do not have the same level of safety and reliability as DEX platforms as clients have to give up control of their money. However, the level of convenience and flexibility a centralized exchange provides is usually enough to wave away some concerns attributed to trading with them.
These crypto trading platforms are quite popular. While it seemed that CEX marketplaces will take over the industry just three years ago, the infamous collapse of FTX made it clear that the cryptocurrency market needs some variety and diversity to provide the much needed feeling of safety to millions of retail traders. When some custodial exchanges were found to be insolvent, huge players simply moved to the DEX sector or decided to limit their exposure to the crypto market by participating only in P2P trades.
Using peer-to-peer trading platforms and decentralized exchanges is not as efficient in terms of the speed of money making, but they are noticeably more secure and reliable than centralized entities. Nevertheless, you will have to use marketplaces with larger reach to trade consistently. Thankfully, the industry is mature enough to offer its participants a plethora of options when it comes to exchanges.
Here are just some DEX and CEX platforms that have a proven track record and offer an excellent level of service:
- Binance is probably the most popular choice for the vast majority of crypto enthusiasts. This corporation has offices in dozens of countries and offers OTC, spot, margin, and NFT trading alongside a host of other financial products such as staking, early investments in upcoming DeFi platforms, NFT minting, and more. The exchange holds a massive 17% market share.
- OKEX is a great example of an exchange that focuses heavily on providing a great service on a technologically advanced platform. The exchange allows integrations with many contemporary service providers and works in more than 100 countries across the globe. OKEX recently underwent an independent audit in an effort to prove its solvency. So far, auditors have not had any issues with this CEX platform.
- Bisq is good example of a very efficient decentralized trading environment with a clean user interface and lots of complementary features implemented to simplify the swapping process while not compromising security and safety of users. Bisq has been on the rise since the FTX collapse and received massive boosts from the crypto community as many retail traders moved their business to the decentralized sector of the blockchain ecosystem.
There are many more options to choose from. In fact, there are over 300 different CEX and DEX platforms offering their services with significant marketing campaigns. Many more are simply not visible enough, but can get on your radar.
Choosing the Right Cryptocurrency Exchange Platform for Profitable Trading
The success of your trading operations depends heavily on which exchanges you work with. Some experts believe that you need to focus all your attention on a single platform, but many crypto enthusiasts who run complex trading strategies prefer spreading their portfolios across several exchanges. This approach allows retail traders to engage in crypto arbitrage and protect themselves from collapses of individual exchanges.
Newcomers should look for beginner-friendly exchanges which are always centralized entities capable of providing a convenient service while focusing on simplifying the trading process for inexperienced investors. Binance, Kraken, OKEX, KuCoin, and many other CEX platforms have a very straightforward registration process and guide users directly to their first trade.
Let’s talk about how to pick the best cryptocurrency exchange platform. You should look for several key features:
- UX/UI. For some reason, experts believe that user experience plays a second role to reliability and security, but user interface and its intuitiveness is what helps new users to navigate the complex world of crypto and engage with the market in the first place. Only 5% of all crypto traders encounter issues with insolvency, data leaks, and other common threats. For 95% of people, an excellent user experience is the most important factor.
- Solvency and competence. The recent huge collapses in the crypto industry and the banking system of the US made it clear that investors have to do their due diligence and conduct background checks on platforms they are planning to use. All responsible centralized exchanges list their reserves and regularly publish statistics, but many go even further to undergo independent audits performed by respectable and renowned financial experts.
- Look for a secure crypto exchange. While P2P and DEX platforms have their issues, they do offer a high level of security to their users. Centralized exchanges have suffered from security issues with many losing clients’ funds and failing to protect the personal information of their users. It is imperative to look for CEX platforms that have two-factor authentication, heightened security, and advanced safety measures in place.
- Compatibility with complementary services. It is estimated that over 65% of all retail traders will be using some form of automation by 2025 to boost their trading strategies. As millions of investors flock to automation, analytics, and risk management platforms, CEX companies have to adapt and provide the necessary functionality to integrate with these services. For example, Binance, Kraken, Coinbase, OKX, and many other popular exchanges have APIs allowing automation vendors such as WunderTrading to effortlessly connect.
Many popular trading platforms have a rich selection of various financial products to indulge in. We believe that a modern retail trader should work with an exchange that has many services alongside spot and margin trading. Since staking, lending, and market making are becoming more popular among investors, contemporary exchanges must adapt and offer those services.
Educating Yourself: Learning about Different Types of Cryptocurrencies and Market Trends
The main source of income for professional traders is, unsurprisingly, trading. The cryptocurrency industry features over 4000 different coins with many hitting the necessary level of popularity to be listed on hundreds of platforms. With such variety, understanding the market and its assets can be quite challenging.
Here are some popular cryptocurrencies that are traded with large volumes:
- Bitcoin ($BTC) remains the biggest fish in the tank with a massive 49% market share (Bitcoin Dominance). It has receded recently due to the rise of Ethereum and positive news from other blockchain networks, but it is still the most dominant cryptocurrency in the market. $BTC is featured on literally every CEX and DEX platform with the exclusion of some highly specialized marketplaces for EVM-compatible networks.
- Ethereum ($ETH) is a huge development environment pushing for a bigger web3.0 expansion in the nearest future. This blockchain network is not just about finance. It is a technological ecosystem where other developers can deploy their products built around the EVM (Ethereum Virtual Machine) architecture. Since so many DeFi platforms and NFT minters depend on it, Ethereum is positioned to grow and secure a very important share of the crypto industry.
- Monero ($XMR) is a very controversial token that has been delisted on some exchanges due to its immense popularity among money launderers and criminals. However, it only proves that the token is so independent and secure that even state officials cannot do anything about it and have to complain to centralized exchanges to shut it down. $XMR may have some problems with AML regulations, but many crypto enthusiasts simply don’t care about KYC/AML practices employed by exchanges and banks.
- Tether ($USDT) is a stablecoin pegged by the US dollar and offering a seamless swapping process between fiat and digital assets. $USDT is now used as a standard exchange medium on many centralized platforms with some exchanges minting their own stable coins ($USDC by Coinbase or $BUSD by Binance). Still, Tether remains the number one stable token in the market.
There are also thousands of different altcoins like $DOGE, $SHIB, $XRP, $LTC, $TRN, and more. The true scope of the cryptocurrency industry is quite hard to imagine without actually interacting with it. Such diversity and complexity require contemporary retail traders to focus strongly on learning technical analysis as all crypto assets are speculative in their nature.
Traders employ a vast range of market analysis tools:
- TradingView is a public trading terminal that has been gaining traction since the day of its conception about 10 years ago. The platform offers a wide range of analytical tools and allows users to pull data from various sources to provide the most relevant and informative image of the market at any given moment. Many crypto traders cannot imagine a world without this platform.
- Glassnode is another hugely important tool for many retail traders and analysts. It allows users to see the on-chain information in a clear and readable format to ensure that investors understand what is actually happening within blockchain networks before they commit to investing in it. Glassnode is an expensive tool that only people with large portfolios can afford, but it pays off dearly if you understand how the industry works as a whole. There are many other platforms with similar functionality, namely Nansen, Chainalysis, and Cryptoquant.
- CoinMarketCap is possibly one of the most visited cryptocurrency-related website on the internet. It is a price tracking tool that provides insights into the market such as coin statistics, representation across exchanges, daily trading volumes, and more. It is a tool that many retail traders use to receive a general overview of an asset or an exchange when they are selecting their target coins.
Making a Profitable Trading Strategy: Tips and Tricks for Successful Crypto Trading
The final outcome of your investment endeavors on any exchange depends on the quality of cryptocurrency trading strategies that you employ to figure out the most profitable market positions. There are hundreds of viable trading systems that have been tested by millions of investors. We cannot cover all of them or even a tiny fraction of the ocean formed by various methods of market analysis, but let’s talk about a couple of prominent ones used by many newcomers and veterans.
- Scalping. This approach is concerned with making profits within very short periods of time using leverage to maximize potential gains. Scalpers prefer clean and easily readable tools like technical analysis indicators Relative Strength Index, Stochastic, MACD, and others. Scalping is a dangerous trading method that should be employed by experienced investors.
- Statistical arbitrage. One of the most popular methods of fund managers with large portfolios. The idea behind this approach is to identify correlated assets and put them into groups based on their price action behavior. Assets in these groups are traded simultaneously and the portfolio must be regularly updated to represent the current landscape of the cryptocurrency market. It is a good way of building a balanced portfolio with hundreds of assets analyzed based on their performance.
- DCA buying. Distributed or Dollar Cost Average is a time-tested approach to acquiring resources or making small profits by reducing the average price of acquisition. DCA is strategy that can be easily automated as proven by WunderTrading with its preset DCA bot solution allowing users to quickly deploy fully automated DCA systems.
There are countless trading systems with different advantages and disadvantages. Unfortunately, the only way of selecting a good one is testing and practicing. However, you can preemptively cut potential losses by exercising standard risk management techniques.
Diversify Your Portfolio: Exploring Different Investment Options within the Crypto Market
The best way to protecting your investments is by diversifying the portfolio. There are many methods of diversification that contemporary retail traders can use as cryptocurrency investment opportunities are numerous and wildly different.
Let’s talk about some interesting approaches that you may be interested in using:
- Long-term vs. short-term investments. You don’t have to only buy Bitcoin and hold it until 2040. While such long positions are healthy for your portfolio and provide a visible goal ahead, you need to have other positions that promise meaningful profits in the short- to mid-term. Look for up and coming DeFi tokens, potential bullish movements in the altcoin sector, and other opportunities to make money quickly.
- Treat some instruments as asset types. For example, you may run risky automated strategies and balance them out with something like DCA buying or GRID bots from WunderTrading. You should not treat target assets as targets for your analysis. Instead, focus on evaluating the performance of your bots and strategies used to trigger them.
- Focus on buying different types of coins. For example, Bitcoin is a proof-of-work blockchain network while Ethereum is a proof-of-stake one. The argument between proponents of these two validation mechanisms is still brewing. It is possible that one will take over another within the next five years, so be ready and have investments in both.
- Proactive vs. passive investments. Just a couple of years ago, the cryptocurrency industry lacked interesting financial products aiming at conservative investors. However, the switch of the Ethereum network to the Proof-of-Stake validation mechanism made staking mainstream and introduced this method of investing to millions of people. Staking is a good way of passively receiving rewards for locking your assets in (like a long-term banking deposit).
Tapping into Additional Income Streams: Leveraging Crypto Mining and Staking
The staking sector of the crypto economy is more than just significant. Several huge investment corporations decided to enter the market after the Ethereum merge. These financial institutions allocated billions of US dollars in ETH staking.
Having a validation node in the Ethereum network is quite expensive (you need at least 32 $ETH), but it pays off in the long run. Considering the overall bullish trend in the crypto market and the gradual increase of the price of Ethereum, investors gain more than roughly 5.5% annually as $ETH can grow by more than that within just a month.
Here are some interesting networks with staking:
- Cardano is the main competitor of Ethereum. It uses the proof-of-stake mechanism in a similar way, but offers slightly higher rewards.
- Solana is another Ethereum competitor that has been focusing on rolling out unique DeFi services and products.
- Toncoin has been receiving a lot of attention lately. It is a community-driven project that has been picked up by independent developers after Telegram abandoned it.
While staking rewards may be quite enticing, some people still believe that mining is the way to go if you are interested in receiving some passive income from cryptocurrencies. Just like in case with staking, the switch of the Ethereum network from PoW to PoS had a profound effect on the mining industry as millions of GPU-centered machines became obsolete in just a couple of week flooding the market with ASICs designed to work with algorithms favoring GPU computing.
It seems that the crypto mining profitability at its lowest, but you can still find good applications for your equipment. Check out these blockchain networks:
- Ravencoin is still considered the next best thing after Ethereum. Margins are thin ad you need to have some subsidy for your electricity if you want to run a Ravencoin algorithm, but it is a good way of putting your GPUs to work.
- Ethereum Classic is a fork of the mainnet that decided to stay on the PoW validation mechanism. The algorithm is identical to what was used by the Ethereum network. The switch is seamless for many miners, but profits are tiny.
- Bitcoin is the largest PoW network, but it won’t work with GPU-powered ASICs. However, you can still make money by entering a mining pool or using your CPU-powered equipment to mine $BTC.
Safeguarding Your Investments: Best Practices for Secure Crypto Trading and Storage
If you managed to make money in the crypto market, it is a good idea to ensure that your hard-earned tokens won’t disappear. Here are some tips that you should be using to protect assets:
- Hardware wallets vs. software wallets. There is nothing wrong in keeping everything in a software wallet, but you should consider switching to hardware if you have a large portfolio. It is especially important for investors with long-term market positions. Move your $BTC and $ETH to Ledger or Trezor just in case and consider having a special wallet address dedicated strictly to storing (never send anything from it).
- Use all available cryptocurrency security measures offered by exchanges. Some retail traders do not like using 2FA since it makes authentication slower and may prevent you from entering a market position in time if you have a good signal. Here’s a good advice: run a multiple account trading platform and automate order placement to avoid authenticating if it is such a hassle. Two-factor authentication is hugely important!
And lastly, do not engage in trades with unknown wallet addresses. If you plan on using Bitcoin trading or other tokens on a daily basis, consider having a separate wallet address that will be used to interact with the world. Just move some tokens to it and freely interact with other addresses without fearing of losing everything.