Ethereum is a decentralized platform that runs on a smart contract. Entities transacting with cryptocurrency can program a set of conditions to be met for the transaction to be done. This is what makes the cryptocurrency different from other altcoins.
For example, if you want to send digital currency to a friend, you can set a particular date for the transaction to be processed. This transaction will not be processed until that day arrives. Also, the currency is built on blockchain technology and uses a highly secure public/private key pair for data transfer.
Ethereum use has grown since its release in 2015. As a result of massive acceptance and high demand, investors can trade the cryptocurrency on the foreign exchange market. Trading Ethereum is a lot like other instruments and is usually paired with USD on different broker platforms.
Every Ethereum contract uses Elliptic Curve Digital Signature Algorithm for its public-key cryptography. This makes it impossible to access or modify the channel of data transfer by unauthorized entities. With this, Ethereum stands to be one of the safest symbols to trade on the market.
Regulations aimed at Ethereum trading vary in different regions. Japan is said to have the most tolerable law. This has encouraged a widespread integration of payment using cryptocurrencies in different industries in the country. Before you trade Ethereum, you should research the laws that cater to cryptocurrency trading in your country.
If there are no restrictions, you can proceed to register with a broker that has a recognised license in your country. The broker will provide an Ethereum trading platform for you to get easy access to market price and make trading decisions.
If you are a beginner to Ethereum online trading, one of the problems you might face is identifying licensed brokers. You can start by checking through the official website of the broker and read through the “About” section to see any mention of licensing.
You can confirm the licensing claim by searching through review sites and forums to read about what other users have to say about the broker. Once you confirm the licensing details, you can go ahead to register an account.
In the following section, you will learn how to trade.
There are various platforms available to perform trades on Ethereum. For starters, find and register at a well-known exchange platform. Do not forget that you need to ensure that the platform is recognised and licensed. The best Ethereum trading platform has a track record of a smooth user experience for trading and minimally manipulated market charts.
Also, the process of opening a crypto trading account should be as intuitive as possible. Usually, you only need to provide a few details about yourself with a government-issued certificate to confirm your identity.
There are usually two ways of buying Ethereum in USA for trading. The first is by exchanging some euros for the amount of Ethereum you need on the platform you have registered at. This exchange can be between two users and regulated by the platform. In this case, the seller determines the exchange rate while you agree to the set rate by choice.
You can also buy directly from the platform. The process usually involves making a deposit into a wallet assigned to you and buying cryptocurrencies from the amount in your wallet.
The process involved in trading is quite straightforward. Every platform provides software where you can trade. The most popular application for trading is MetaTrader, which is available for mobile and desktop devices. However, you may decide to opt for more sophisticated trading software.
The next step is to select a trading instrument like, for example, ETHUSD. Check through the chart to see the direction of the market. If from your analysis, you feel the market will go up, you simply go long. If you feel it will go down, you go short.
To profit from trading Ethereum pairs, you must have correctly analysed the chart, guessed the direction of the market and placed a buy or sell order depending on the market direction. For instance, if you place a sell order on ETHUSD at 460.85 and after a while, the market price drops to 380.54, your trade will be in profit.
However, this profit is not tangible as you can only claim the profit when you close that trade. Also, your total profit is calculated based on the lot size you use on the trade.
There are usually two stages to trading and these include opening the trade and closing the trade. A trade is not complete until these two are done. If you are at a loss during a trade, you may decide to wait until the market turns the opposite direction and goes into profit.
The final result of the trade will only be computed when you close the trade or when you get a margin call. This is the reason trading requires patience and a rock-solid strategy, which will be discussed later in the article.
The trading platform has a feature where you can close the trade manually. However, you can also take advantage of the stop loss and take profit feature if you do not have the time to watch your chart. To use this feature, you need to specify an amount to take profit and stop loss when placing your trade order. If you are going long, the stop loss will be set at a lower price. The take profit can only be set at a price higher than the current market price and vice-versa.
Taking trades is the easiest part of trading Ethereum; however, to actually make a profit, you need more than that. You need to have a strategy to understand why prices move in a certain way. One of the major determinants of Ethereum prices is the currency it is paired with.
When you trade ETHUSD, prices are likely to move in relation to what happens to USD. Usually, this can be news about the US economy or a public announcement from government officials. Another factor to consider is the trade volume of cryptocurrencies like Bitcoin.
There are different trading styles to learn and each has a different psychology. If you have an impatient mentality and like to go for quick wins, you might find Scalping interesting. This type of trade lasts for a few minutes with small gains. However, this adds up over time.
Another type of trading style is Day trade. This trade runs for hours but trades are not held overnight. If you have a more patient temperament, you can focus on Swing trades, which usually run for days or even weeks. The longest is Position trade.
The trading style you choose determines the strategy you employ to trade the market. If you choose short term trading, it is always easier using technical analysis to form a strategy. This form of analysis involves the use of indicators to determine the direction of the market.
If your approach to the market is more long term, you can go for fundamental analysis to create a strategy. In this case, you rely on economic activities and international news to make decisions. But, you can combine technical and fundamental analysis to form a trading strategy.
As established earlier, you become profitable when you go long and the market price goes up before you close the trade. This also applies to going short. If the market price goes low in a short trade before closing, you make profit.
However, if you take a short trade and the market price goes higher, you would be at a loss. If the trade is not closed in time and the price skyrockets, you risk getting a margin call. A margin call occurs when the floating loss is higher than the minimum margin level.
A good practice to implement is the habit of setting stops and limits. Stops and limits are a form of scheduled order that is based on market price and not time. When you have a solid strategy, you might project a marked reversal at a certain price.
Setting stops or limits depending on the case allows you to maximise every opportunity to take a winning trade. When the price gets to your set limit or stop, the trade automatically gets triggered, even if you are not available to watch the screen and trade manually.
As you must know, there is no investment or trade that comes without risk. There are some risks involved with trading. For a start, you risk losing your money if you are not trained properly to take or manage trades.
This can also affect you psychologically if not properly managed, which may lead to gambling if you have made too many losses in a short period of time. Traders have been seen trying to recoup their losses by putting in more trades and eventually losing more money in the process.