Day Trading Cryptocurrency The Best Strategies for Success

It represents an opportunity for those who invest the time and effort to understand the market in which they trade. It is no different with cryptocurrencies. Additionally, this new industry has brought a significant opportunity for day traders to profit from price discrepancies and movements that do not exist in other, more mature markets.

What is day trading?

A quick introduction to day trading

Day trading is speculation on financial products and assets within a single day. Day traders often buy and sell any financial instrument in a matter of hours or less, profiting from speculation on short-term price movements. Day traders are up to date on what is moving the markets in the short term and can place hundreds of orders in a single day to profit in the long term.

Cryptocurrency

For decades, traders have focused on several distinct markets to take advantage of profit-making opportunities. In the past few years, cryptocurrencies have been a growing market with increased liquidity and opportunities for trading profit. A cryptocurrency is a digital asset secured by consensus algorithms such as proof-of-work or proof-of-stake, with transaction information stored in a digital ledger. There are thousands of cryptocurrencies today, creating many opportunities for day traders.

Bitcoin

In the cryptocurrency world, Bitcoin has become the industry standard. The digital asset grew not only in popularity but also in its technology. Bitcoin is designed to be a decentralized digital currency that can be used worldwide without fear of censorship resistance.

Bitcoin has a fixed supply of 21 million that can ever be mined. It remained the largest cryptocurrency with high volatility in the market with a valuation close to $200 billion. Roughly half of all trading activity takes place in Bitcoin, with daily turnover in the billions of dollars. Due to its high liquidity, Bitcoin is one of the most popular options for those looking to trade cryptocurrencies today.

Alt coin

A cryptocurrency outside of Bitcoin is called an altcoin. Cryptocurrencies in this category have various technological differences and uses, from creating decentralized applications (dApps) to creating a world of decentralized finance and beyond.

One of the most famous altcoins is Ethereum, a programmable open-source blockchain. In addition, many other altcoins take the form of ERC-20 tokens, meaning they are built on top of the Ethereum protocol. These include EOS and TRON.

Stablecoins

One category of cryptocurrency is increasingly important to traders and investors. Stablecoins are cryptocurrencies that are relatively stable in price, usually by being pegged to fiat currency. The largest stablecoin is Tether (USDT), whose price is pegged to the US dollar.

For regulatory reasons, many exchanges with high volatility (trading volume) avoid the USD, but listing coins against USDT allows them to list against the world's primary reserve currency without touching it directly. Tether is a great trading pair for bitcoin and altcoin traders because it allows for easy cryptocurrency trading without the need to deposit capital into fiat currency and back into the market.

Exchanges / places of execution

The cryptocurrency market is highly fragmented, with exchanges operating in dozens of legal jurisdictions around the world. In many countries, it is extremely easy to set up an exchange, which has led to the proliferation of trading platforms. In traditional financial markets, traders can only access the exchange through a broker who is a member of the exchange. However, in cryptocurrencies, exchanges act not only as a place of execution, but also as a broker.

Every exchange must attract market makers, also known as liquidity providers, to provide bids and offers to the exchange's order book. These bids and offers affect price and liquidity.

Unlike US stocks, where regulation requires brokers to execute customer trades at the best market price (ie across all exchanges), there is no similar requirement for cryptocurrencies. Therefore, a small exchange with low liquidity will often bring lower prices to customers.

Since exchanges can vary greatly in terms of liquidity or prices, such as supply and demand variations, there are many opportunities and risks for crypto day traders.

Access to markets

Crypto exchanges cater to an international customer base, are based around the world, are generally unregulated, and are therefore open 24/7/365.

Crypto day traders can place orders at any time or night and exchanges operate around the clock to provide easy access to their users. Although practically speaking, exchanges can be down regularly for system maintenance and upgrades.

Fiat vs Stablecoins

Transactions in USD, EUR or other fiat currencies carry a high regulatory burden. Exchanges like Coinbase, Kraken, and Bitstamp, which have large US and European customer bases, are willing to accept this regulatory burden and invest in effective AML/KYC programs. As such, exchanges listing fiat pairs are generally more selective in which cryptocurrencies they offer to their customers.

Many exchanges, including low and high volumes, especially those in Asia and outside the US, such as Binance, Huobi and OKEx, do not transact in USD, but only in stablecoins or other cryptocurrencies. Due to lower regulatory requirements, traders often find a much larger selection of cryptocurrencies compared to stablecoins. Transacting exclusively in cryptocurrencies allows users to completely bypass the traditional financial system.

Other payment methods such as credit cards and PayPal are less common but are also accepted on some exchanges. Some alternative financing options may come with high fees, so read the fine print. Of course, the best option for those already in the game is often to fund your account directly from your crypto wallet.

Lack of leverage / shorting

In general, day traders choose to use leverage to maximize returns. Leverage is the use of a small amount of capital to open positions larger than the capital on hand. This can increase trade returns without risking significant capital up front, although it can also increase losses.