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How to Begin Trading Cryptocurrencies - 360 Degrees Markets Ltd (
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09th Nov 2020

How to Begin Trading Cryptocurrencies

Article Table of Contents:

When cryptocurrencies, as we know them today, were first invented in 2009 they were largely an underground banking phenomenon. But with a global market cap of over $462 billion, as of November 2020, there is no doubting their popularity. Cryptos such as Bitcoin have emerged as an effective way of hedging against volatility, similar to oil and gold, while platforms like Ripple and Ethereum are being extensively used for cross border transactions and data security. 

But trading cryptocurrencies can be a bit confusing for beginners. Firstly, their price movements aren’t affected by the traditional factors that influence other assets, such as geopolitical events or economic data. Also, the market tends to be extremely volatile. So, here’s everything you need to know about how to begin trading cryptocurrencies. 

Choose the Manner of Trading Cryptocurrencies

There are two ways you can trade cryptocurrencies. First, by buying cryptos at a lower price and selling them when their price appreciates, just like most other tradable assets. Here, you will need to buy cryptocurrencies from an exchange. The tokens you own will then be held in a digital wallet. When the value increases, you can sell them to earn a profit. 

The second way to trade cryptos is through price speculation using CFDs. Contracts for Difference (CFDs) are contracts in which you exchange the difference between the price of an asset from the time the contract begins to the time the contract closes. With CFDs, you don’t need to own the underlying crypto to be able to speculate on its price. This means that you also eliminate the risks associated with storing the digital currency on exchange wallets.  

Instead, you enter into a contract where you predict the price movement of the crypto. If the price moves in the direction you predicted, you can earn a profit. Another benefit of CFDs is that you can trade both rising and falling prices, by choosing whether to go long or short on the digital currency.

Choose a Crypto

Before you choose a crypto, be sure to research the factors that govern its price and the underlying technology. For beginners, Bitcoin and Ethereum can be great options. This is because of their large number of use cases in the real world and high liquidity.

Open an Account

For this, choose a broker with whom you wish to open a trading account. You will need to register with them, complete the KYC procedure and activate your trading account. You will also need to deposit an initial amount in your account, known as margin. Consider practicing on a demo account first, before you invest real money in trading cryptocurrencies. This will give you the opportunity to familiarise yourself with the trading platform, the market and various trading tools and strategies. 

You can open a position much quicker when you are trading cryptos with CFDs, rather than buying or selling them directly on an exchange. All you need is a CFD account with a leveraged trading provider or broker. 

Create a Trading Plan

A robust trading plan is the key to long-term trading success, regardless of whether you are a newbie or an experienced trader. This plan becomes even more important when trading cryptocurrencies given the high degree of volatility. Some of the main factors to consider when creating a trading plan are: 

Risk/Reward Profile 

The helps you identify the spreads, leverage ratio, portion size and profit percentage you are comfortable with, to cover potential losses. 

Short- and Long-Term Goals 

Determine your trading goals and make sure that the cryptocurrencies you choose to trade are aligned with them. 

Risk Management Strategies 

It is crucial to manage risk effectively. Tools such as stop loss and take-profit orders and robust technical and fundamental analysis can help minimise losses.  

Price Analysis  

Conduct research on what factors affect the price of your chosen cryptocurrency. These factors could include Bitcoin mining changes, fiat currency volatility, new regulations, or changes to the crypto network. 

Once you have completed all these steps, all you need to do is choose your trading platform, such as MT5. After this, you can open a position and start trading.