What is crypto trading?

Crypto trading is buying and selling cryptocurrencies to try to profit from changes in price. Most of it is spot trading, where coins change hands immediately at the current price. It differs from simply holding a coin for years, and regulators have long warned that frequent traders tend to lose money.

How does spot trading work?

On a crypto exchange, every market is a pair. In BTC/USD, bitcoin is the asset being bought or sold and the US dollar is what it is priced in. Many pairs are priced in another cryptocurrency or in a stablecoin, a token designed to hold a steady value against the dollar.

Each pair has an order book, a live list of offers to buy (bids) and offers to sell (asks). The gap between the best bid and the best ask is the spread. Small coins with few traders have wide spreads, which makes every trade cost more.

What is the difference between a market order and a limit order?

• Market order. An instruction to buy or sell at once at the best prices available. It fills quickly, but the price is not guaranteed. In a thin market a large order can fill at steadily worse prices, an effect called slippage.
• Limit order. An instruction to buy at no more than a set price, or sell at no less. The price is protected, but the order may never fill.
• Stop order. An order that activates only when the price reaches a chosen level, often used to cap a loss. In a fast fall it can fill well below that level.

Exchanges usually charge different fees for orders that fill at once and for orders that wait in the book.

How is trading different from holding?

Holding means buying a coin and keeping it for months or years. Day traders open and close positions within hours. Swing traders hold for days or weeks. Many rely on price charts to pick their moments.

Some traders go beyond spot and use futures and leverage, which means trading with borrowed money. That magnifies both gains and losses.

Do traders make money?

Some do, but the odds are against most. A US Securities and Exchange Commission publication on day trading says day traders typically suffer severe losses in their first months, and that many never reach the point of making a profit. That warning was written about stocks, but the same forces apply in crypto.

Every trade costs a fee and a spread, so a frequent trader starts each one slightly behind. The other side of the trade is often a professional firm or an automated program with faster data. The market never closes, so prices move while a trader sleeps. In small coins, organized groups sometimes inflate prices and then sell, a scheme called a pump and dump.