Trading on the stock exchange is generating income on the difference in the exchange rates of various assets (cryptocurrencies, gold, fiat currencies, shares). Any user can trade cryptocurrencies on the exchange — all that is needed is Internet access. But to start trading other assets on the exchange, you need to confirm the status of an accredited investor or pay a broker.
The capitalization of the cryptocurrency market is extremely small compared to the stock market, but despite this, you can earn much faster on the cryptocurrency exchange. This is due to the volatility of cryptocurrencies, which is much higher than that of securities.
Cryptocurrency exchange exchanges are suitable for both professional traders who came here from the stock markets, and ordinary users, investors and miners. You can use these platforms both for trading and for the purchase of tokens for investment purposes.
- How to trade on the stock exchange
- How to start trading on the stock exchange
- How to trade on the stock exchange: what you need to know
- Trading on the stock market
- Trading on the cryptocurrency exchange
- Cryptocurrency trading on the stock exchange: types of platforms
- Centralized exchanges
- Decentralized exchanges
- A short Trader's Dictionary
- Types of orders on the exchange
- How to read graphs
- Order book
- Japanese candles
- Trading Volume Indicator
- Tradingview for a novice trader
- The importance of technical analysis
- Trading rules on the exchange
- Treat trading as a business
- Make a trading plan
- And risk what you can afford to lose
- Analyze the market yourself
- Know when to stop
- Trading on the stock exchange: which platform to choose
- Trading on the cryptocurrency exchange
- Trading on the stock market
How to start trading on the stock exchange
If we approach the question purely technically, the answer is simple - trading is carried out using orders (which ones, the trader decides himself).
To start trading on the stock exchange:
- Top up the deposit.
- Open an order to buy the desired asset at the desired price.
- Get an asset.
- Open an order to sell it at the right price.
- Get the money.
Next, we will analyze each step in more detail in stages.
How to trade on the stock exchange: what you need to know
Trading on the stock exchange, like any other financial activity, requires systematization and a certain strategy. It is the strategy that determines when to buy, when to sell, which assets to trade and which orders to use.
Experienced traders, as a rule, form their own strategy, and beginners can use the established patterns:
- Scalping is a super-fast trading, in which transactions are concluded several times an hour, and the main profit is provided by short-term and insignificant fluctuations in the exchange rate. The risks are minimal, because you do not need to calculate the trend for several months (and even days), but you can earn only with high volumes;
- Hold - "buy and hold". The strategy is based on long-term forecasts and is designed more for investors than for traders. In the crypto market, it has not taken root too much, but private purchases of shares often occur precisely on the principle of "buy and hold";
- Positional strategy - a trader conducts a transaction only in a certain position, for example, buys an asset as soon as the trend turns from bearish to bullish. The main thing is to correctly determine the position. On average, transactions with a positional strategy are concluded once a day/several days;
- Using cycles and corrections - any asset, especially cryptocurrencies, has a market cycle that includes price growth, reaching a peak, correction, reaching a local minimum. The cycle, as a rule, takes place within the framework of a trend and lasts from several days to several weeks, while the price difference is formed at its various stages, which allows you to earn money.
These are common strategies of traders that are used both in the stock and crypto markets. Below we will talk about some of the features of working on each of them.
Trading on the stock market
The stock market has a long history and a corresponding accumulated database, it is a "mature" market.
Therefore, events that can reverse the general trend and make assets volatile happen very rarely (the last time it ended badly in 2008).
When forming a strategy for the stock market, you need to take into account that:
- Technical analysis for the long-term period is more accurate than when working with cryptocurrencies;
- The profitability of trading largely depends on the selected financial instruments, that is, assets, and there are several thousand of them;
- The Central Bank's liquidity on the stock market is higher than that of most cryptocurrencies;
- The volatility of assets is lower, there are practically no "x" in profit, and the main income is formed due to trading volumes.
In addition, unlike the cryptocurrency, the stock market is regulated in all countries where it exists and it is often impossible to access it directly.
Trading on the cryptocurrency exchange
It is believed that the cryptocurrency market is still at the stage of formation, so it is more susceptible to the influence of third-party, non-economic factors. Crypto trading has its own peculiarities:
- High scalping efficiency - relative volatility allows you to get more income on short-term transactions than on the stock market;
- Small statistical base - since the market is young and different from other segments, it is not yet possible to study all the situations on it and technical analysis works only in the short term (very short);
- The dependence of trading not only on the asset, but also on the exchange - this is caused by low liquidity on some platforms and artificial inflating of trading;
- Lower entry standards and, accordingly, a large number of unreliable, and sometimes scam coins.
But the crypto market also creates an additional earnings strategy - arbitration.
Arbitrage is the purchase of a coin on one exchange for sale on another at a more favorable price. It is possible due to the autonomous formation of prices on each exchange, and although the cost difference is not as big now as it was 2-3 years ago, arbitration can bring up to 10% profit with the right strategy.
However, to get at least a little significant income, you need investments of several thousand dollars and preferably an algorithm for automating the process.
Cryptocurrency trading on the stock exchange: types of platforms
In essence, all cryptocurrency exchanges are divided into two types – centralized and decentralized, respectively, CEX and DEX. Both types have both their advantages and disadvantages.
At the same time, the second ones are currently ten times less than the first ones, and by 2020 they are just beginning to develop and catch up with CEX in terms of functionality.
This type of trading platforms is a platform, all internal processes of which are managed by a company acting as an intermediary between the seller and the buyer.
For this service, the exchange charges a commission – for creating an order, for canceling it, for conducting a transaction and withdrawing funds. That is, for almost every operation, except for entering money.
At the same time, centralized platforms are well suited for beginners who are just beginning their acquaintance with trading on the cryptocurrency exchange.
At one time, they gave a good boost to the liquidity of top coins, such as Bitcoin, Ethereum, Litecoin and other cryptocurrencies, to enter the masses.
But there are also disadvantages of centralized exchanges:
- An attempt to control the authorities of different countries. To date, not all governments welcome cryptocurrencies, and some apply or try to apply a policy of strict regulation of both trading and mining, and in general all operations with virtual coins;
- High probability of hacking and subsequent loss of all funds. Centralized exchanges are not the most secure in terms of storing cryptocurrencies, which attracts hackers, since it is CEX that manages all passwords, not the user. Over the past 9 years, at least 30 sites have been hacked, and in most cases, customers are not reimbursed for the loss;
- Mandatory verification on the exchange, especially in the case of trading with fiat. Of course, not all exchanges ask for documents. However, in case of hacking and loss of funds, it is almost impossible for the user to return the money back without verification.
The list of the 10 most popular centralized cryptocurrency exchanges includes: Binance, Bittrex, Bitfinex, Coinbase, OKEx, Huobi Global, Poloniex, BitMEX, Exmo and HitBTC.
The main difference between DEX and CEX is the absence of an intermediary when conducting a transaction between a seller and a buyer.
On a decentralized exchange, trading takes place exclusively between traders who place orders to buy and sell cryptocurrencies. Due to this, transactions on DEX have a lower commission for conducting transactions.
Decentralized exchanges, unlike centralized ones, do not have a single control center. They are created on the basis of a distributed registry. At the same time, decentralized platforms have greater confidentiality, since they do not require verification from users.
In addition, they have an increased level of security, since the funds are stored in the client's wallet, and not on the exchange's account. Hacking such exchanges does not make any sense.
Despite all these advantages, decentralized exchanges do not have the popularity that centralized ones have.
This implies one of the main disadvantages when trading cryptocurrency on an exchange of this type – low liquidity and trading volume. That is, the transaction will take longer to complete than on CEX.
It is also worth mentioning about the functionality. Compared to centralized platforms, there are no advanced trading options on DEX, such as stop losses, margin trading and other necessary things for a professional trader.
And the disadvantages of decentralized exchanges can also be distinguished:
- Limited trading pairs. Since DEX, at least most of them, are based on smart contracts, it will not be possible to trade cryptocurrencies that do not support them;
- There is no support service.
Among the most popular decentralized platforms are: Binance DEX, Waves DEX, Bancor Protocol, Bisq, Kyber Network and 0x.
At the same time, Binance, creating its DEX, tried to combine the advantages of centralized and decentralized exchanges. This can be called a kind of hybrid. The developers of Binance DEX took all the best aspects of their centralized platform and added positive qualities and security of decentralized platforms to it.
It is assumed that, in this way, Binance will be able to overcome one of the main problems of DEX – liquidity. However, many users are wondering whether Binance DEX is really decentralized, because all the nodes of the blockchain are mostly controlled by Binance itself.
Read more: Overview of the Huobi Global Exchange
A short Trader's dictionary
Before you start trading on the exchange, you need to know some important terms:
- Ask – the selling price of the purchased asset;
- Bid – the purchase price. It is usually lower than the ask;
- Order – a request to buy or sell a certain number of assets on the exchange at a specified price;
- Spread – the difference between the cost of selling and buying an asset;
- Dump – an artificial decrease in the exchange rate value in the short term. It is carried out by selling assets;
- Pump - an artificial increase in the exchange rate value created by buying a large amount of an asset in a short period of time.
- Rekt – loss of funds as a result of an extremely unprofitable transaction;
- FOMO (Fear of missing out) – the fear of missing out on benefits, which most often causes rash actions;
- Flat – the sideways movement of the asset rate when it neither rises nor falls;
- To the moon – the rapid growth of the cryptocurrency exchange rate;
- Hold - a strategy based on buying and holding cryptocurrency, despite its fall. It requires a lot of patience and faith in the asset.
Read more: What is a spread and its types
Types of orders on the exchange
As mentioned above, an order is a trader's order to buy or sell a specific asset. To create it, the user must specify five parameters:
- The type of the order.
- An asset that a trader wants to buy or sell.
- The currency that he wants to get in return.
- The transaction amount.
- The value of the asset that you want to buy or sell.
In total, there are eight types of orders:
- Market order is the most common and frequently used type of orders, suitable for quick purchase or sale of an asset. The order is made at the current market price. In this case, it is enough to specify only the amount of the asset that you want to buy or sell.
- Limit order is also one of the most common types. However, in this case, in addition to the desired purchase/sale volume, the trader also indicates the desired price. Suppose we buy bitcoin and at the moment its rate is $9500, but you have information that it will grow to $13,000 at night. In this case, you simply create a limited sell order at the price you need, and as soon as the exchange rate reaches it, your asset will be sold.
- Stop loss is an order created to minimize losses if the asset rate has started to move against the trader's position. This order is always associated with an already open position and is usually closed at a loss.
- Take profit – like a stop loss, this order is also associated with an open position. But its purpose is to fix profits when a certain level of the asset's exchange rate is reached. Such an order is closed with a profit.
- A stop limit order is a combination of two orders – a stop and a limit order. It is most often used during sharp price jumps, for example, during a pump and dump. For example, you have revealed that an asset that was worth $1 has started to grow sharply in price, that is, there is a pump. You place a buy order that is obviously higher, for example, by $1.5-2 and wait until it reaches a peak. Let's assume that it has soared to $10, and in the meantime the trader places sell orders at $8-9, which allows him not to miss the opportunity and profitably close the deal before the price falls to the previous levels.
- Trigger order - designed to trigger after the execution of the previous order. The trader sets the first one for the purchase of an asset, and the second one is a trigger for the sale of the same stock, but with a profit.
- Iceberg order – it is also called a hidden order. It is most often used by professional traders who do not want to publicly show their buy or sell contracts. Also, hidden orders are used by large players who do not want to create panic in the market.
- Trailing stop is a more advanced version of the stop loss. It is set at the desired distance from the current price of the asset. In the event that the rate goes up, increasing the profit, this order automatically changes the stop loss level, keeping at a distance. If the asset price goes down, it remains at the specified level and closes the transaction with profit-taking.
Read more: What is a Trailing stop and how to use it?
How to read graphs
As for the charts, the cryptocurrency exchanges are, in fact, identical to the classic stock platforms. The main difference is the types of assets offered for trading cryptocurrency on the exchange. Accordingly, most of the tools used are the same. In total, there are three types of graphs:
This chart is shown in the form of two diverging waves showing the ratio of orders to buy and sell an asset. In the screenshot above, the orange line is responsible for the number of buy orders, and the blue line is responsible for selling. The green one shows the change in the history of the asset price and is read from top to bottom.
Most of the time, both lines are approximately the same, which indicates the stability of the market. However, if there are distortions in one direction or another, it shows that a certain trend may appear in the near future.
The most visual graphs, which are divided into two components – the body and the shadow. The first one is colored green or red, depending on the ratio of the opening and closing prices of the position. The second one shows the current trend, representing a line coming out of the body.
Trading Volume Indicator
These charts show trading volumes and allow you to evaluate the behavior of a particular asset on the market. They display price fluctuations and changes in the trading volume.
Traders use them to determine changes in trends. For example, if the value of an asset falls, and the market does not respond to this in any way, then we should expect a subsequent increase and vice versa.
Tradingview for a novice trader
Regardless of the market in which trading is conducted, a trader always needs access to up-to-date data on an asset or trading pair. One of the most popular services for trading is Traidingview, it provides:
- The value of the asset on the largest exchanges;
- The possibility of quick trades through the account;
- Tools for technical analysis (and quick conclusions for decision-making);
- Tools for communication and interaction of traders.
At first glance, it is frightening, but if you deal with everything in order, you can quickly master the basic tools for working with the schedule and technical analysis.
Editorial advice: First try the tools on the left and top panel (do not be afraid, you can always delete an extra line), and then proceed to studying the information on a specific asset.
Very soon, you will be able to quickly analyze any Traidingview chart.
The importance of technical analysis
Technical analysis is a set of tools for predicting the movement of value based on previous fluctuations in value. Technical analysis is used in both the stock and cryptocurrency markets, usually based on a price chart.
A professional trader conducts a technical analysis of each asset in the portfolio and the market as a whole, analyzing their correlation.
During technical analysis, the following methods are used:
- Support and resistance lines - the first is a straight line drawn through the points of the minimum cost, the second is through the points of the maximum. The lines allow you to predict the change in value within the current trend. If the price chart goes beyond them, then this indicates a change in the trend.
- Figures - fluctuations in value when applied to a graph often form simple and complex geometric shapes (triangles, rectangles, trapezoids, etc.). Figures also allow you to predict the movement of value and are applied both to short-term charts and to charts with a long period.
- Indicator - indicators are lines that are displayed together with the price chart and may or may not coincide with it. In fact, the indicator line is the result of calculating a certain indicator (for example, the average cost or trading volume), which can be compared with the current price chart and output a certain correlation. There are ready-made indicators of several types, a trader can also create his own indicator by including the necessary indicators on his own.
- Statistical analysis - includes monitoring of the trading volume, order glass, spread and other data on a specific asset and their further use to predict the value.
In general, technical analysis is used for short-term forecasts, and since its accuracy depends on the already accumulated market data, it is less effective when working with cryptocurrencies. The crypto market still depends on many non-economic factors, which makes it poorly predictable against the background of relatively small volumes.
For example, a technical analysis will show the growth of the bitcoin exchange rate for the next month, and the European Parliament will issue a directive on banning cryptocurrencies tomorrow and the cost will collapse sharply. Therefore, the technical analysis should be supplemented with a fundamental one, which takes into account the economic, political, psychological and other reasons for the change in value.
Trading rules on the exchange
Trading on the stock exchange can not be called a hobby, because without constant analysis, monitoring and obtaining new knowledge, you will not be able to accumulate the necessary experience.
The result depends on hard work, market research, trade planning, the ability to adapt and, most importantly, discipline.
Treat trading as a business
Trading on the stock exchange implies risks, costs, losses and uncertainty. And the main reason for successful trading is a competent strategy.
Make a trading plan
As mentioned above, discipline is one of the most important things in trading on the stock exchange, and you need to follow your plan without hesitation. To conclude deals contrary to it means to show your unprofessionalism.
Often, when due to deviations from the plan, not profitable deals are concluded, made on emotions or just greed.
Risk what you can afford to lose
Since trading is a rather risky way of earning money, investing the last money in it is not the smartest decision.
That is why you need to invest what you can lose without serious consequences. If you put everything on the line, then emotions cannot be avoided, and they are followed by the opportunity to make the wrong decision.
At the same time, it is important to assess your own risk tolerance, as well as to develop the right attitude to losses. Not all traders are able to close every trade in a plus, which means that there will be losses. And the correct attitude to them and the analysis of the situation that has arisen will help in the future not to make a mistake or close a deal on time.
Analyze the market yourself
At the moment, you can find a huge amount of information and trading developments on the web. But using them is not quite right. Not all of them really work.
Therefore, when trading on the stock exchange, you should independently analyze the market. Of course, you can use someone else's experience when drawing up your plan, but you should not copy it completely.
Important in the analysis of the situation is the entry and exit strategy, which must be worked out in advance. The technical analysis of the asset will help in this well.
At the same time, professional traders agree that the most important is the exit point, which is the cornerstone of the success of the transaction.
Know when to stop
There are only two significant reasons to suspend trading. The first is a large loss of total capital due to the inefficiency of the chosen strategy. In this case, it is worth reviewing the approach to trading, making adjustments, and analyzing the market again.
The second is the inefficiency of the trader. There can be many reasons for this – excessive emotions, stress, poor health, but most often – indiscipline.
Even an ideal strategy will not bring the proper result if you do not adhere to the plan.
In this case, it is worth completely revising the concept of your own approach to trading, and if you can't cope with yourself, it is better to either finish or automate trading.
Trading on the stock exchange: which platform to choose
It's time to choose a platform for trading. The convenience, pace and profitability of trading depends on it, so the choice of an exchange for trading should be approached comprehensively.
However, the mechanism for allowing traders to conduct transactions on the cryptocurrency and stock markets is different, as we will discuss below.
Trading on the cryptocurrency exchange
Cryptocurrency exchanges are characterized by open access, that is, anyone who accepts the trading conditions and rules of the platform can trade on them. As a rule, the requirements for traders are reduced to identity verification.
The difficulty arises when choosing a platform for trading — many have inflated volumes, not everywhere a convenient interface, some require too high a commission.
We recommend that you focus on the rating of CoinMarketCap exchanges, as well as ratings and reviews of various crypto publications.
Pay attention to such cryptocurrency exchanges that have already established themselves in the crypto market:
- Binance - transparent statistics, functional interface;
- Bitfinex - strict security rules, high liquidity and trading volumes;
- Exmo - to deposit and withdraw fiat, verification is required.
When choosing an exchange, consider whether it works with citizens of your country, because in some jurisdictions, sites prefer not to conduct activities so as not to face law enforcement agencies and regulators. Also make sure that the documents of your country are suitable for verification.
Trading on the stock market
The situation with the stock market is somewhat different. Large stock exchanges have formed all over the world, which are much smaller than cryptocurrency platforms, and they all work according to the same standards.
The problem is that stock exchanges allow transactions only to registered participants - brokers and institutional investors. Therefore, an ordinary trader needs the mediation of a broker to access the exchange.
At the moment, you can use the following services:
- "Live" brokers - who communicate directly with clients;
- Telephone agents - personal meetings are not provided, but the details of the service can be agreed by phone;
- Internet services - as a rule, such services provide only the possibility of access to the exchange, without consultations, transaction support, etc.
By choosing a broker, you can write a separate article, but the criteria are about the same as when choosing a lawyer for a business - the cost and volume of services, reliability, competence, etc.