In one of our previous posts, we talked about what tools traders use. Now we are going to talk about trading strategies. One of the most common is spot trading.
The definition of spot trading is “a spot trade, also known as a spot transaction, refers to the purchase or sale of a foreign currency, financial instrument, or commodity for instant delivery on a specified spot date,” according to Investopedia.
In simpler words, spot trading is the process of buying a cryptocurrency at its current price and then selling it later at a higher price—so you can turn a profit. The “later” can be anything from one minute to hours, days, or even weeks.
But this also works in the crypto world, the difference is you will still hold your crypto assets as opposed to other types of assets, like derivatives.
We all know that the crypto market is highly volatile and comes with its fair share of speculation. There were a few instances when a coin increased its price by 3 digits in a matter of minutes. For instance, Dogecoin spiked in a matter of minutes just after Elon Musk tweeted about it. In 2017, Bitcoin, the biggest in market share, saw its value increase by 10,000%, and this can also happen with other crypto currencies.
Steps to Get Started with Spot Trading
The first step is to choose an exchange—we would suggest a centralized exchange. Then you can put money in your crypto wallet. Next, you will have to understand and study what trading pairs are: they are assets or cryptocurrencies that can be traded for each other.
There you can see what cryptocurrencies you can buy and trade on your chosen exchange. Here’s when things require a little more attention. Before buying a cryptocurrency to do spot trading, you need to keep a few things in mind:
- How much has it changed in price in the last 24 hours?
- The overall trend—has its price constantly fallen or increased?
Next is to choose a trading pair.
Many exchanges allow you to buy a variety of cryptocurrencies separately. Others would need you to swap one cryptocurrency for another in order to receive the asset you want.
Most main trading pair are listed the bigger crypto exchanges – and these trading pairings fluctuate. From time to time, new trading pairs are added, while others are removed. Overall, there are countless trading pairs that you can trade on the spot market.
To buy, simply press the purchase button and set a limit or stop limit order to buy. That varies a little from exchange to exchange but overall, it’s how it works.
Due to the quick speed at which prices move, your order may be executed at a slightly higher or lower price than the one you specified if you buy manually at market price.
Let’s say, if there is an upward trend, this isn’t a problem because you’ll still make money if you quit the deal at a better price.
Without getting too technical, you should look out for the points of support and resistance.
Points of resistance are certain price points on trading charts that see a lot of buying and selling activity. “Support” is the price level at which an asset’s price stops decreasing – and “resistance” is the point at which the price of an asset stops increasing.
When to sell your crypto assets through spot trading
Setting your selling price just below a point of resistance is an excellent place to start, especially for beginners. This ensures that your profits are locked in if the asset does not go over its previous high point.
Traders can do this directly by selecting the sell feature and selling at market prices, or they can post a limit or a stop limit order, and the system will sell their assets on their behalf at the price they choose.
This is why CoinPanel designed the Full Trade feature, which uses a specific entry price, which is usually the price at which you buy the crypto asset, as well as an exit price, which includes various sell targets and stop-losses. You can learn more about the “stop-loss” feature on CoinPanel here.