In less than a decade, cryptocurrency trading has emerged as one of the most captivating and widely discussed investment activities, holding a fascination akin to El Dorado's trove of gold artifacts. However, trading cryptocurrencies turned out to be a non-trivial task even for professional traders.
Over the past half-decade, cryptocurrency exchanges have diligently worked to master trading tools that are familiar in traditional financial markets, reimagining them and implementing new solutions to enhance the profitability of crypto trading.
Spot trading
In the world of cryptocurrency, spot trading reigns supreme as the king of all exchange functionalities. The earliest crypto exchanges offered spot trading as their primary feature, allowing users to buy and sell assets through the order book system.
Spot trading means buying and selling an asset at its current market price for immediate delivery. The internal system of trading platforms matches bid and ask prices, making the market more liquid as more orders are placed.
“Spot trading is where the first step in crypto trading begins. Most individual investors start crypto trading with simple steps - buy one cryptocurrency, sell it when it rises in price, and so on,” says Gracy Chen, Managing Director at Bitget, one of the largest crypto exchanges in the world, ranking 3rd in terms of liquidity.
According to her, if you're new to trading, it's crucial to become familiar with your chosen platform's functionalities before diving in. One recommended way to gain experience is by practicing spot trading in a simulated environment, such as TradingView Paper Trading, to get a real feel for the market. It's also essential to pay attention to the available order types, including limit and stop orders, as well as the number of trading pairs available when selecting a platform.
Derivatives
Derivatives are financial instruments that are intrinsically linked to the value of underlying assets. In the realm of crypto, derivatives are assets that are closely tied to the value of popular cryptocurrencies such as Bitcoin or ETH. In contrast to spot trading, where one directly holds a Bitcoin or ETH, derivatives trading offers significantly lower transaction fees, making it a more cost-effective and efficient way to trade.
But the main reason to dig inside the crypto derivatives ocean is that these tools help better manage risks and engage in speculative activities. This makes crypto derivatives a popular investment tool for traders from traditional financial markets.
"Derivatives are already a tool for more advanced traders. Beginners rarely use them, and that’s not a good solution. It is crypto derivatives that help manage risks more effectively. They enable traders to gain exposure to a wide range of digital assets without owning them. Derivatives help hedge against volatility and speculate on the future value of a particular cryptocurrency", says Gracy.
According to her, interest in derivatives trading continues to grow at an unprecedented rate. However, the crypto derivatives market faced a severe blow in 2022 with the collapse of FTX. As a result, the top 10 derivatives exchanges' 24-hour Open Interest plummeted by approximately 40% in December 2022 from its peak.
Nevertheless, several trading platforms managed to increase their market share in the crypto derivatives trading market. In this regard, Bitget emerged as the only exchange that achieved a remarkable increase in Open Interest, from approximately $800 million to $3.74 billion, and its share of the derivatives market soared from 3% to 11%.
Copy trading
Copy trading is the latest innovative investment practice that involves following the trading positions of other investors, commonly referred to as professional traders or experts. By utilizing copy trading, users duplicate elite traders' orders in corresponding markets. Users agree to mirror elite traders' trades, following their every move.
Copy trading provides value to both the elite traders who share their strategies and the beginner traders who emulate their moves. Of course, choosing a professional trader whose trades should be copied will also take time.
Followers should review elite traders' detailed portfolios and historical performance, including total profit & loss (PnL), win rate, and asset under management (AUM). With this information, they can make informed decisions about which trader's strategy aligns with their expectations on returns and risks.
In 2020, copy trading functionality made its debut, with Bitget being the first crypto exchange to introduce this innovative feature in May of that year. Today, Bitget's platform supports copy trading in the spot market, futures market, and copy a strategist. With over 80,000 traders and more than 380,000 copy traders, Bitget has cemented its position as a market leader in the crypto copy trading space.
"Copy trading is the solution to many of the major pains of crypto trading," says Gracy Chen, Managing Director at Bitget. Although crypto trading is becoming more popular every year, a large proportion of traders are amateurs who try their hand at hoping for quick Xes, but take emotional steps in real trading and are quickly crushed by losses. There are also traders who physically do not have time to actively monitor the trading and keep their finger on the pulse 24/7. Copy trading helps not to abandon cryptocurrency trading if there is not enough knowledge or time."
In essence, choosing the right exchange is pivotal to a trader's success in the market. The importance of a reliable and efficient platform cannot be overstated, as it is the bedrock upon which profitable trades are made.
Therefore, conducting thorough research on potential exchanges to determine their strengths and weaknesses is a crucial step in ensuring a trader's success. Among these considerations are the trading tools offered.
It is imperative to weigh the exchange's security, liquidity, fees, history, markets, and user experience to make an informed decision. The arduous task of identifying the optimal cryptocurrency exchange demands patience and diligence, but it is a worthwhile endeavor in the end.
