Day trading with cryptocurrencies — coins and tokens

Not everyone has money they'd like to put into cryptocurrencies as a long-term investment. Many people prefer to invest over a shorter period of time. However, this necessitates a willingness to take risks. It would entail quick buying and selling, as well as a profound understanding of how and why the value of various cryptocurrencies fluctuates.

Only persons who are confident in their ability to timing the coin markets and who understand the fundamentals well enough to regularly buy at a lower price and sell at a higher one should use this strategy, according to experts. Some people may even use dollar cost averaging to buy the same coin at several price points if they are confident in their ability to sell enough at a profit.

As envisioned, this technique would result in a large number of trades, necessitating the consideration of per-transaction fees and tax (GST). In addition to exchange costs for depositing and withdrawing cryptocurrency investments, large gains would be subject to income tax, resulting in actual profits in hand being lower than what appears at face value.

This approach does not always result in the highest profits, but it is frequently the one in which people lose the most money.

Arbitrage between crypto assets

Arbitrage is the process of exchanging one cryptocurrency for another, or exchanging the same coin on multiple exchanges. This strategy is favoured by those who are used to day trading and have a bigger risk appetite than those who are only day traders.

Being a hands-on trader shows various market imbalances and thus profit chances every day.

Let's say XYZ coin is priced at ten dollars on one exchange and eleven dollars on the other. A user may then acquire ten XYZ coins for $100 on the first exchange, move the coins to the second exchange, and sell the cryptocurrency for $110 on the third exchange.

The absolute benefit appears to be around ten percent. However, transaction expenses might eat up to 8% of the profit, leaving investors with only a 2.

This is similar to how investors in traditional currency markets play fiat currencies against each other.

More complicated approaches, such as transferring value across three currencies on the same exchange to obtain a larger quantity of the first currency, may be available. When the value of newer cryptocurrencies rises or falls dramatically in a matter of minutes, this is frequently done.

In other cases,'stablecoins' whose value is 'tethered' to certain national currencies – such as Tether (USDT), which will remain at $1 USD – may be effective for profiting from price imbalances.

Staking — earning interest on crypto owned

Those who can afford to store a significant number of cryptocurrencies — known as "locked up liquidity" — desire to earn interest and fees even if their value fluctuates. They are paid a very modest ‘interest' in exchange for incurring the risk of not being able to sell their coin for a long time, even if it becomes worthless.

Staking is one method of earning fees. To demonstrate investor trust in a ‘proof of stake' (PoS) based coin, this entails locking up a large ‘stake' for a long time. The Ethereum coin, known as Ether, is presently experiencing such a transformation, in which investors can stake their holdings to authenticate transactions completed by others, collecting fees in the process.

Lending platforms and cryptocurrency exchanges are two other ways to make money. Coins can be loaned out for a nominal interest rate of roughly 6% per year.

Experimental approaches

Other, riskier strategies exist as well, some of which are based on activities that aren't permitted in standard markets.

Some cryptocurrency exchanges provide extremely high leverage, up to a 100x multiplier. This allows someone starting with one to trade as if they had a hundred, multiplying both gains and losses.

Some people may form cartels that communicate online in order to control the price of a cryptocurrency. This is typically done with new coins or ones with low trading volumes, where cartels can buy up a significant quantity to ‘pump' up the price. When the price rises to the point where other investors want to buy, they sell — or ‘dump' — before the price falls again. This is referred to as a "pump and dump" strategy.

Influencers are increasingly being called out for exploiting their fans and followers to ‘pump' the price of cryptocurrencies before cashing out, thanks to the famed strategy.

Earnings in cryptocurrency directly

Those who do not have the financial means to invest in cryptocurrencies or purchase costly mining equipment might earn bitcoin directly.

Signing up for a crypto exchange is one way to achieve this. Some crypto exchanges, such as Coinbase and BuyUcoin, provide new users a small amount of free coin when they sign up.

Due to currency fees, some niche firms with remote workers across borders prefer to pay salary in cryptocurrencies rather than fiat money.

Participants on specialised social media sites, such as Reddit, are encouraged to tip or donate cash to those who publish vital information. Non-franchise establishments are also beginning to accept cryptocurrency payments.

Such small profits on trade may not be significant, but they show how cryptocurrencies are utilised as a medium of exchange for goods and services, similar to fiat currencies like the Rupee or the Dollar.

Disclaimer

This is just a brief observation of the crypto market and does not constitute financial advice. Before investing in any coin, token, or crypto asset, do your own research (DYOR).