How to trade cryptocurrency
Learn how to trade BTC, ETH and more as CFDs with our beginner's guide.
* Trading is risky. Your capital is at risk.
Trading cryptocurrency has come a long way since the ‘wild west’ days of unregulated activity and crippling exchange hacks.
Today, under better regulation and having had some time to mature, cryptocurrency is an attractive market for traders recognising the incredible earning potential of this highly volatile market.
Key takeaways
The cryptocurrency market is subject to high volatility
Trading cryptocurrency CFDs offers profit potential from both market rises and falls
You don’t need to own or buy crypto coins to benefit from crypto movement
What is crypto trading?
Cryptocurrency, or crypto for short, is a digital form of money based on cryptography (advanced coding).
Unlike traditional currencies issued by governments, called fiat currencies, crypto runs on decentralised networks called blockchains. Crypto removes the need for banks or financial institutions to be involved in peer-to-peer transactions, even across international borders.
Crypto trading can take place in two ways.
The first is buying the digital coins on an exchange, taking ownership of the token. The second is to speculate on the price movements of cryptocurrency using financial derivatives through a broker.
At FXTM, we offer derivative trading of cryptocurrency via Contract for Difference (CFD). CFD trading allows you trade based on your predicted price changes, either an increase or decrease, without taking ownership of the cryptocurrency.
Why trade crypto?
At FXTM, we cater for the short-term cryptocurrency trader. These traders are more inclined to trade the cryptocurrency market with the objective of short-term gains using derivatives such as CFDs.
There are a number of reasons why speculating on crypto market movements is appealing:
Volatility
Crypto is a highly volatile market. Market fluctuations are fast and frequent, offering ample opportunities for traders looking to take advantage of market movements.
As always, the potential of high rewards comes with high risk, and you’re encouraged to do your own research and implement efficient risk management strategies before trading cryptocurrency.
Types of crypto trading
As mentioned, there are two primary forms of cryptocurrency trading popular with traders: Buying coins and speculative trading using CFD.
Buying cryptocurrency coins
Buying coins may be considered more investing than trading as the underlying objective is to accumulate coins and hold open positions for an extended period.
Long-term traders will be more concerned with the fundamentals of the cryptocurrency project and utility, looking at the potential increase in value over the long term. Price decreases are seen as an opportunity to buy more coins at a lower price.
Trading with cryptocurrency CFDs
Cryptocurrency CFDs, on the other hand, are ideal for short-term traders aiming to maximise profit in the short-term. CFDs allow for leveraged trading, meaning traders can enter the market with a low capital percentage compared to exposure.
As CFDs are based on price movements, traders are spared the technical requirements of owning and securely storing the cryptocurrency, while benefiting from a more liquid market.
Using leverage in crypto CFD trade:
Let’s look at a quick example of using leverage to trade crypto CFDs. By using the 1:100 leverage offered by FXTM, trading a 0.01 lot of bitcoin valued at $25,000, means you’d be able to open the position with only $250 capital as a deposit.
Furthermore, the estimated trading fees on such a trade are around $0.80, which includes the spread and commission costs.
How cryptocurrency CFDs work
To trade a crypto CFD, a trader agrees to buy or sell a certain amount of cryptocurrency at a specified time with a CFD trading broker, like FXTM. At the end of the contract, the trader will either make a profit or loss based on the difference between the opening and closing prices less applicable fees.
Key differences between trading cryptocurrency CFDs and buying crypto coins
Cryptocurrency CFDs | Cryptocurrency coins | ||
|---|---|---|---|
Goal | Short-term profits | Long-term value gains | |
Initial capital | CFDs need less capital due to leverage | Need substantial initial capital to buy certain cryptocurrencies | |
Ownership | You don’t own the cryptocurrency, you speculate on its price movement | You own the cryptocurrency | |
Storage and security | No need to manage crypto storage or security | You’re responsible for wallet security and crypto custody | |
Leverage | Leverage available, allowing for larger positions for less capital | No leverage | |
Shorting | CFDs allow you to trade based on both a price increase and a decrease. You may potentially profit from a downward price trend | No potential profit in a downward price trend | |
Risk management | Various risk management tools available, like stop loss and take profit orders. | Limited risk management tools | |
Liquidity | Greater liquidity compared to coin trading. Fewer currency conversions allow for faster execution. | Limited liquidity may affect the ability to buy or sell, especially when price is climbing or falling quickly. | |
Transaction costs | Spreads as low as zero, but overnight financing fees may apply. | You may incur fees like exchange fees, deposit or withdrawal fees, as well as higher spreads. |
Cryptocurrency CFD trading strategies
Each of the below trading strategies has its own advantages, risk tolerance, and suitability for different market conditions. You should carefully choose a strategy that aligns with your risk tolerance, availability in terms of time and your experience.
No matter which strategy you prefer, you should understand and implement effective risk management techniques to protect your capital.
Scalping
Timeframe: Seconds to minutes
Risk: High
Best market conditions: Highly liquid markets with low spreads and minimal slippage
How it works
Scalping involves making many rapid trades to profit from very small price movements. Traders rely heavily on technical indicators, fast execution, and tight risk management.
Day trading
Timeframe: Within a single trading day
Risk: Moderate to High
Best market conditions: Volatile markets with strong intraday movement
How it works
Day traders open and close positions within the same day, aiming to capture short-term price swings using technical analysis, chart patterns, and real-time market data.
Swing trading
Timeframe: Several days to weeks
Risk: Moderate
Best market conditions: Trending markets or defined trading ranges
How it works
Swing traders hold positions longer to capture larger market moves. They combine technical and fundamental analysis to identify strong entry and exit opportunities.
Range trading
Timeframe: Short to medium term
Risk: Low to moderate
Best market conditions: Sideways or consolidating markets
How it works
Range traders buy near support and sell near resistance, aiming to profit from repeated price movement within an established range.
Event trading
Timeframe: Short term around key events
Risk: Moderate to High
Best market conditions: Periods surrounding major news or announcements
How it works
Event traders look to profit from price movements caused by news, economic events, or regulatory announcements. Success depends on anticipating market reaction and managing volatility.
Managing risk for cryptocurrency CFD trading
While CFD trading for cryptocurrency may be highly rewarding and profitable, the opportunity to trade on margin, i.e., with leverage and exponential exposure or positions compared to capital outlay, the potential for loss is also that much greater. Effective risk management is crucial to minimise any losses.
Stop loss orders
Set Stop loss Levels: Always use stop loss orders to limit potential losses. Determine a specific price level at which you will exit the trade if it goes against you. Stop loss levels are based on technical analysis, support and resistance levels, or other indicators.
Trailing Stop loss: Consider using a trailing stop loss, which automatically adjusts as the price moves in your favour. This can lock in profits while still protecting against significant losses.
Understand Leverage: Be aware of the leverage offered. While leverage can amplify profits, it also magnifies losses. Use leverage cautiously to reduce risk.
Margin Calls: Be prepared for margin calls where further deposits may be required. Make sure you have enough funds in your trading account to cover potential losses and avoid liquidation.
Risk per Trade: Decide the amount of capital you are willing to risk on each trade. This is typically a percentage of your total trading capital. For example, if your trading capital is $10,000 and you risk 2% per trade, your maximum risk per trade would be $200.
Take profit orders
Set Take profit Levels: Define a specific price level at which you will take profits. Take profit orders help you secure gains before the market reverses.
Partial Profits: Consider taking partial profits at predefined levels and trailing the rest with a stop order. This strategy allows you to lock in some profits while giving the remaining portion the opportunity to grow.
Lot Size: Calculate the appropriate lot size based on your risk per trade and the distance to your stop loss level. Smaller lot sizes reduce the potential loss on a trade. Our profit calculator can help.
Stay Informed: Stay updated on cryptocurrency news and events that can impact the market. Be prepared for unexpected price movements and adjust your risk management accordingly.
Emotional Discipline: Follow your trading plan and risk management rules consistently, regardless of emotions. Avoid impulsive decisions based on fear or greed.
The bottom line
Trading cryptocurrencies with CFDs presents an exciting opportunity in a market with enormous potential. It’s a market is known for its price swings, which can result in substantial gains, but also significant losses. Therefore, it's paramount to approach CFD trading in crypto with a well-thought-out strategy, diligent risk management, and a commitment to ongoing education.
By doing so, traders can harness the opportunities presented by this dynamic and ever-expanding industry while safeguarding their capital in the face of market volatility.
Frequently asked questions
To trade cryptocurrency, you’ll need access to a trading account on FXTM.
Before you place your first cryptocurrency trade, you should be sure you understand all the benefits and risks and have a clear, defined strategy.
Cryptocurrency is an extremely volatile market, so it does come with some challenges. Experienced traders will find trading crypto to be easier than some beginner or new traders, as they’ve already honed their skills. That said, we aim to make trading easy for all, and if you commit to educating yourself on trading, we believe you’ll be up and trading in no time at all.
A crypto CFD is a financial derivative that allows traders to speculate on the price movements of cryptocurrencies, without actually owning the underlying digital assets. In a CFD trade, the trader enters into a contract with a broker to exchange the difference in the price of a cryptocurrency between the time the contract is opened and when it is closed.
The profit potential in crypto is limitless and the amount a crypto trader makes is going to be determined by a number of personal factors including trading experience, market knowledge, available capital and individual risk profile, amongst others.
With FXTM, you can go long or short on the most popular cryptocurrencies as CFDs. You can trade:
Bitcoin | Trump | Injective |
Bitcoin Cash | Polkadot | SUI |
Ethereum | Avalanche | Hedera |
Solana | Uniswap | Stellar |
Ripple | PYTH | Near |
Dogecoin | AXS | Aptos |
Cardano | BNB | Arbitrum |
Polygon | Cosmos | Aave |
Chainlink | Render | Toncoin |
Litecoin | Illuvium | Tron |