Understanding Types of Cryptocurrency Trading

types of cryptocurrency trading

Trading is an activity of exchange, services for goods, and services for services or goods for goods, and goods for services. Trading cuts so much across the various activities of man that we have the names of these activities attached to trading; Forex trading, stocks trading, cryptocurrency trading, etc. The similarity that binds all the different types of trading together is the fact that “exchange” always takes place any time these activities happen.

This article will be covering all you need to know as regards all types of cryptocurrency trading. The first step will be to understand what this topic entails.

What Is Crypto Currency Trading?

The act of buying and selling cryptocurrencies of all sorts is seen as cryptocurrency trading. The act of monitoring a particular decentralized asset (cryptocurrency) and making speculations for the price (be it rise or fall) is classified under the analysis category of crypto trading.

From the above-laid foundation, we can see that these actions are similar to the actions normal traders carry out daily. The difference this time is that it is a decentralized system that is responsible for these actions, unlike traditional financial institutions that need physical verifications and all.

In a more direct sense, anything that has to do with gaining or losing cryptocurrency assets is categorized as trading. This includes the constant monitoring of market movements and fluctuations.

Crypto Trading Available On Exchanges

Spot trading

Spot trading involves the buying and selling of cryptocurrencies at a particular crypto market rate. This market rate at which the cryptocurrencies are gotten is called the spot price.

This trading type is very popular among crypto traders who make their trades daily. Spot trading involves speculating the price of a coin on the spot and getting daily returns from it. It involves daily trading. On spot trading, you can set your buy price as well as sell prices. You can also set your stop loss. This helps you trade cautiously and avoid great losses should the market swing out of your favor.

Margin trading

Margin trading is said to be the riskiest type of trading in the crypto market and at the same time one of the best trading options. Margin trading involves the use of funds provided by a third party for trading purposes.

This trading option gives you access to funds so if you want to trade and you don’t have funds, you can easily borrow and pay up after you gain profit from your transaction, trading. Even though this trading option is seen as risky, it allows margin traders to gain more profit than normal as they have access to more funds than they originally had. The risk associated with this trading method is that you risk losing all your funds should negative price fluctuations break your margin.

Leveraged trading

Leveraged trading is seen to be the same as margin trading. Leveraged trading allows traders to carry out trading activities ( buying and selling) with the help of borrowed funds. This means a trader whose operating leveraged trading can carry out transactions involving amounts bigger than his or her current account balance.

For traditional financial institutions, this type of trading is seen as an overdraft. Just like in margin trading, the traders operating leveraged trading can look forward to more profit and gains as funds are made available for them to trade with.

Once markets start to swing in your favor, you make exponential profits, if the markets go against your predictions you make exponential losses to the extent that you can get liquidated.

Futures trading

Futures trading is seen as the best option for investors especially those who are looking to make long-term investments. Futures’ trading involves the agreement between two parties to sell a particular cryptocurrency at an agreed period.

Cryptocurrency futures permit you to enhance your returns through the use of leverage. Futures are used to speculate the fluctuating direction of a digital coin or to hedge the price risk in the future. These trading types are well established on cryptocurrency exchanges most of the time.

Unlike spot trading, this particular trading option is kept for a date away from the day the agreement is made. In essence futures trading is trading done in the future.

Derivatives Trading

Derivatives trade is just like futures trading. With the derivatives gaining value from what are called underlying assets, these assets are cryptocurrencies. Derivative trading is an agreement between two parties (the buying and selling parties) on the speculations of the price of a certain cryptocurrency on a future date.

CFD Trading

CFD trading is otherwise known as a contract for detailed trading. This trading type involves the investment in assets by direct contracts between the person who places the trade and a broker. This is done as an alternative to opening a position on a particular market directly. In this trading type, there is usually an agreement between both contracting parties to replicate the market conditions as well as settle any arising difference should the market close.

1.       Traders select their desired asset which is offered as a CFD on the brokers’ platform. These assets could be a stock, a currency, an index, cryptocurrency, or any other asset being offered by the broker.

2.       Traders can now open a position as well as set parameters (either long or short), then leverage the desired amount to invest. Traders can also decide to go for other parameters if the broker has made them available.

3.       Afterwhich, the trader and broker enter a contract and agree what the opening price for the selected position is. In this process, if there are extra fees to be paid (like overnight fees) communications are made clear.

4.       Once the position is opened, only the trader can close trades. Trades can automatically close if it reaches the automatic commanded stop loss or takes profit zone. It can also close once the contract expires.

5.       If the position closes in profit/gains, the broker gets to pay the trader while if it closes on a loss, the trader pays the broker the difference.

Options tradings

Options trading has to do with the buying and selling of options contracts on available public exchanges; this is quite similar to stock trading. In stock trading, while profits are made through the purchase of stocks to sell at appreciated prices, options traders purchase option contracts to sell for profits at a future date.

Again just the same way traders can take desired positions (short and long) on stocks they feel might appreciate or depreciate, options traders can do the same on options contracts based on personal speculations. Options traders are provided with technical tools which can be used to speculate price movements of indices, stocks, commodities, and foreign/digital currencies. All these portray options trading as a lucrative affair.

Types of trading

There are various types of trading when it comes to cryptocurrencies. While some people consider these various cryptocurrency trading types as strategies, others consider them as a method. These however are the practices used by various traders to generate profit. Some of these types include;

Long Term Crypto Trading

This type of trading has to do with the purchase of digital assets for a long period. In this trading type, investors are not eager to sell their bags no matter the circumstance. When the markets go down they are still there and the same stays the same when the markets go up.

Long-term trading reflects from 2 years till Infinitum, until you are satisfied with the profits you’ve made.

Short Term Crypto Trading

Short-term crypto trading is the opposite of long-term trading. Here traders are most concerned about short-term gains over long-term gains. These traders buy coins in the hope of checking out once profits are made. Usually, they are categorized into hourly, daily, and monthly traders.


This is a trading style that is bent on profiting from every small market change. The idea of scalping is simply buying, selling, rebuying, and reselling for short-term gains. Every scalp trader is required to have a strict exit strategy. The reason for this is because scalp traders bank on small profits and a large fluctuation in an opposite direction can cause huge loss from accumulated funds. One important requirement for every scalp trader is the stamina to monitor as well as place so many orders in a reoccurring manner.

Day Trading

Day trading shares great similarities with scalping and short-term trading. This is considered a short-term trading strategy based on the buying and selling of various digital assets (cryptocurrency) within 24 hours. It is a risky venture that is made available by the uncontrolled volatility and liquidity in the cryptocurrency markets.

Day trading traditionally originated from the normal markets. In this light, crypto day trading is not child play as it requires greater insights on blockchain technology and cryptocurrency to achieve a reoccurring success.

Read Also : Lump-sum Trading Strategy

Swing Trading

Swing trading is the most used trading strategy. It is said to be the best for newbie traders. Swing trading is a tactic that requires trying to show price fluctuations that occur in a short to medium period. The purpose of supporting swing trading is to express market ‘’swings’’ that play out over a few days to diverse weeks.

Swing trading tactics work best in trending markets. Presuming there’s a vigorous trend on a higher time interval, swing trading chances can be abundant, and swing traders can make good use of the larger price swings. Although in disparity, swing trading can be strenuous in a consolidating market. Moreover, assuming the market is going badly, it’s difficult to capture large price changes.


This is slang that means holding. Hodling is a long-term trading strategy where investors hold onto their investments despite the very volatile nature of the coins. Individuals who HODL are mostly called diamond hands since they are not affected by panic. The opposite of diamond hands is paper hands who panic and sell their bags at any tiny market swing. HODL is a short form for “hold on for dear life”

Position trading

Position trading is a well-known long-term strategy that permits individual traders to occupy a position for a long time and period, which is normally months and years. This is the type of trading that is most associated with buy-and-hold investing, with one consequential difference; which is, buy and hold investors are only entitled to take long positions, while position traders are entitled to both long and short positions.

Position traders neglect short-term price movements and would more likely rely on more accurate fundamental analysis and long-term trends.   

READ ALSO: Dollar Cost Averaging Trading Strategy

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