What Is Speculative Crypto Trading

Why Crypto Trading Can Be Extremely Profitable

Cryptocurrencies are unquestionably attractive to speculators. They represent a new asset class and provide great opportunities for short-term traders.

Significant price trends on major cryptocurrencies, measured in thousands of percent, made it possible for astute traders to earn substantial gains.

In addition, the availability of leverage allowed to magnify returns and offered the possibility of high payoffs from small investments.

Here we’d like to share with you the idea of speculative crypto trading. In particular, we’d want to discuss the essence of crypto trading and why it can be extremely profitable to you, as a trader.

 

What Is Speculative Trading

Traders profit from ideas and strategies that allow them to predict future prices. The ability to predict future prices makes it possible to accurately time trading decisions.

Thus, skilled traders buy at low prices and sell at higher prices. The difference between the entry and exit prices represents trader’s profit, also known as capital gains or speculative profit. Generating profits based on price differentials is the essence of speculative trading.

 

Speculative Crypto Trading vs. Investing

Investors are a sub-category of traders, who take a long-term stance on market performance. They adhere to a “buy-and-hold” strategy and expect to earn a normal market return.

Unlike pure investors, traders engage in active short-term trading. They willingly accept excessive risks and expect to earn abnormal returns.

Speculative crypto trading requires more skill and time than investing, but it can provide much higher returns.

 

How To Achieve Success In Crypto Trading

The most profitable traders are those that have the most unique insights into future prices.

To achieve success in trading, traders develop trading strategies, designed to generate profitable trading signals. The strategy development process is continuous, because the characteristics of financial markets, such as volatility and trends, are changing over time.

Every trading strategy is based on a particular forecasting model or a set of rules, suggesting to a trader when to buy or sell a particular cryptocurrency.

Forecasting models can vary from simple combinations of technical indicators to more complex ones, encompassing fundamental indicators, chart patters and significant price levels.

With trading strategy in place, every trade has a reasonable basis, and trading becomes more stable and consistent.

Such trading, supported by a consistent and rules-based strategy, will make you a profitable crypto trader.

 

How Does Crypto Trading Differ From Forex And Stocks

Crypto trading has certain advantages compared to forex and stock trading, which make it more profitable to active traders.

Cryptocurrencies represent a new asset class, whose combined market cap has been growing extremely fast over the past five years.

Cryptos are decentralized monies. Decentralization implies that cryptos are not issued by national monetary authorities, as compared to traditional currencies. Instead, they are issued and operated by the decentralized blockchain networks.

Approximately 2,100 cryptocurrencies are currently in use throughout the world. The most actively traded and liquid cryptos are Bitcoin, Ripple, Ethereum, Bitcoin Cash, EOS, Stellar, Litecoin, and Cardano. These instruments are generally regarded as primary cryptocurrencies.

The major advantages of cryptocurrency markets are high volatility and strong price trends. While forex and stock markets exhibit low volatility and mostly flat trend, making speculation hardly possible, highly volatile cryptos create tremendous opportunities for profitable trades.

 

A Typical Day In A Crypto Trader’s Life

As a crypto trader, you begin a day by analyzing markets. The purpose is to identify cryptos that your analysis indicates are expected to increase or decline in price.

Then, you establish market positions. You buy those cryptos that are expected to appreciate in price and you sell short those that are expected to depreciate.

If successful, you close your positions and realize your profits.

Take a look at our article Leverage in Cryptocurrency Trading, where you will find an extensive example of a life cycle of a speculative trade for BTC/USD contract.

 

How Can I Start Trading Cryptocurrencies

Cryptos trade on crypto exchanges, which can be either spot or derivative markets.

In spot transactions, one currency is immediately exchanged for another.

In derivative transactions, the underlying crypto is not bought or sold. Instead, traders agree to make a cash settlement in the future based on the price changes of the underlying crypto.

Perpetual Bitcoin futures contract is the most popular crypto derivative nowadays. Factors that spurred its popularity include high liquidity, ultra-low spreads and high leverage.

To being trading perpetual futures on Bitcoin and other cryptos, you need to open a margin account.

Open account at Monfex today and get access to the industry-leading cryptocurrency trading platform. It lets you trade the 5 most liquid cryptos, open long and short positions, and magnify potential gains with up to 50:1 leverage.