A comprehensive introduction to Bitcoin and cryptocurrency trading.
With 24-hour trading volumes averaging around $50 billion this year, and often crossing $100 billion, cryptocurrency markets have grown significantly since their early years. Today, crypto market participants include a mix of retail and institutional traders, and digital assets — led by Bitcoin (BTC) — are widely considered to be an alternative investment class.
If you’re new to cryptocurrency markets, this guide will introduce you to the basics of crypto trading and will help you navigate a trading dashboard if you ultimately choose to start trading cryptocurrency.
Intro to trading: buy low, sell high
While the fundamental principle of buying low and selling high remains the bedrock of trading, today's landscape has evolved to encompass a variety of instruments, such as futures, options, and swaps, as well as a diverse range of strategies like hedging, shorting, and arbitraging.
A trader's primary goal is to identify favorable opportunities to purchase an asset at a particular price and sell it at a higher price, commonly referred to as a long trade. The intention is to capture the price difference and realize growth. Conversely, a short trade involves selling an asset at a higher price first and then repurchasing it at a lower price, aiming to earn from a declining market.
However, the process of trading is more complex. It demands a meticulous assessment of an asset's market price to decide whether it's undervalued or overvalued at any given time. The ability to sell an asset at a higher price relies on finding willing buyers who recognize its intrinsic value and are ready to pay accordingly.
Aspiring traders must recognize that value assessments and valuations are complex topics requiring in-depth exploration. Gaining expertise in understanding market indicators, analyzing financial data, and interpreting complex economic factors are essential to successful trading.
Keep in mind, maintaining discipline, managing risks, and strictly following a well-defined trading plan are crucial elements that usually separate prosperous traders from the rest. Emotions can often cloud judgment, leading to impulsive decisions and unfavorable outcomes. Developing a rational and systematic approach to trading is paramount to long-term success.
In your journey as a trader, continuous learning, staying updated on market trends, and seeking insights from experienced professionals will play an instrumental role in honing your skills. Dedicating time and effort to grasp the intricacies of trading will undoubtedly yield rewards and enhance your potential for success in this dynamic and challenging domain.
While this introduction provides a glimpse into the exciting trading world, we encourage you to delve deeper into the subject through comprehensive resources, courses, and expert guidance. A good starting point would be our other trading articles on our Learn platform. Successful trading requires knowledge, discipline, resilience, and adaptability to navigate the ever-changing financial markets.
Realized and unrealized gains and losses
Entering a trade — whether you're going long or short — is also known as taking a position, and it can be exciting to see your position grow as the market moves in your favor. However, any gains you see against your position are “unrealized” (also known as “paper gains”) until you actually exit the position. Exiting the position means either selling the instrument you’re holding (against a long trade) or buying it back (against a short trade).
For instance, if you bought 1 BTC at $5,000 during the March 2020 crash in anticipation of future appreciation, you effectively went long. If you are still holding that coin, currently valued at around $18,250, you have an unrealized gain of $13,250 (i.e., $18,250 – $5,000).
However, if the price of Bitcoin drops to $17,000 in the next hour, your potential gain will also be reduced to $12,000. This example demonstrates that your actual gain will only be realized when you sell that coin and exit your long position. Until then, you can only look at potential, or unrealized, gains.
Similarly, unfavorable price movements result in “paper losses” that are also only realized when you exit the position. In either case, as a trader, it is important to mind the distinction between unrealized and realized gains and losses. Gains and losses are only real when they are realized.
Trading or investing
Despite the two distinct activities, trading and investing can coexist, each with its approach, mindset, and time horizon. Though their ultimate goal is to seek portfolio growth, they differ significantly in their strategies and commitments. Understanding these differences is crucial for anyone venturing into the exciting yet volatile crypto market.
Investing in a cryptocurrency like Bitcoin (BTC) goes beyond merely buying the asset; it involves embracing the underlying idea and culture driving it. This long-term commitment often involves the popular term "hodling," where investors hold onto their BTC for years or even decades.
This approach is akin to expressing faith in the technology and the potential growth of the entire cryptocurrency ecosystem over time. Investors believe that the asset's value will appreciate in the long run, and they're willing to endure market fluctuations to realize potential gains in the future.
In contrast, trading BTC involves exploiting short-term market movements and events influencing prices. Traders do not share the same long-term commitment as investors; they focus on capitalizing on immediate price fluctuations. Their primary goal is to buy low and sell high within specific timeframes, such as day trading or scalping.
Day traders operate within target-specific, shorter time frames, typically holding positions for several hours during a single trading day. On the other hand, scalpers, a subset of day traders, execute rapid trades, entering and exiting positions in minutes or even seconds. Their strategy relies on quick decision-making and seizing opportunities in highly volatile markets.
While no strict rules dictate the duration that distinguishes a trade from an investment, traders generally engage in short-term moves, while investors take a long-term outlook. The choice between trading and investing ultimately depends on an individual's financial goals, risk tolerance, and assessment of the selected cryptocurrency's potential value and prospects in both the short and long term.
Investors tend to believe in the long-term growth potential of a cryptocurrency and are willing to weather short-term market fluctuations to achieve their desired returns. They may prioritize fundamental analysis, considering the cryptocurrency's technology, adoption, and potential use cases.
On the other hand, traders are more concerned with technical analysis, chart patterns, and short-term market sentiment to capitalize on price movements. Their objective is to identify short-term opportunities and execute well-timed trades to maximize gains in the near future.
Deciding whether to engage in trading or investing hinges on combining your individual financial objectives and thoroughly evaluating your chosen asset's price, value, and future potential, spanning both short-term and long-term horizons.
Understanding crypto markets
While trading does not strictly require a marketplace, having one has significant benefits. Even though, in theory, you can trade anything by simply buying it directly from a seller and selling it to someone else (let’s say from your neighbor and then to someone you know), this scenario is not scalable.
Marketplaces like cryptocurrency exchanges have many advantages, but perhaps fundamentally is the ability to provide liquidity, which means traders can quickly complete simultaneous transactions in minutes without searching for or waiting on buyers and sellers. Market liquidity is a term for how easily and quickly you can buy or sell an asset against orders available on the market, without your trade drastically affecting the asset’s market price.
Generally, a liquid asset is one that many people are interested in trading — meaning that the trading volume for that asset is high and the price of the asset doesn’t vary drastically from trade to trade. Marketplaces such as exchanges pool demand for a given asset in a centralized place so that buyers and sellers can be more easily and quickly matched.
Given the need for liquidity, reliable price indexes, secure transactions and other features, nearly all cryptocurrency trading today is performed on dedicated exchanges like OKX, or via specialized brokers.
With OKX, for example, you can buy or sell BTC and a slew of other supported cryptocurrencies almost instantly, 24 hours a day and seven days a week, for a very small fee per trade.
Spot or derivatives
Crypto markets largely follow the same formats as their traditional counterparts and are divided into spot and derivatives. A spot market is where you can buy or sell a cryptocurrency instantly and receive the actual coins/tokens that you’re trading. A derivatives market deals with contracts — such as futures, options and swaps — that track, or derive, their value from an underlying cryptocurrency. Trades involving derivatives contracts don’t always deliver actual coins/tokens to the trader.
By nature, derivatives are more sophisticated trading products and often involve higher risk as compared to spot trading. While this guide will primarily focus on spot trading basics, most of the broader principles are also applicable to derivatives trading. You can refer to our guide to crypto derivatives to learn more about each type and how it works.
Trading pairs
Cryptocurrency markets, like traditional markets, have various pairs listed for trading (each representing a market), which are denoted by the combination of asset tickers, such as BTC/USDT, ETH/BTC or LTC/BTC. Each market pair fittingly refers to two currencies. These are not always cryptocurrencies, as some exchanges support fiat trading pairs — meaning the trade is between a crypto and a fiat, or government-issued, currency — such as BTC/USD, BTC/EUR or BTC/GBP. These pairs reflect quotes or exchange rates. The first currency in the pair is the “base” currency, and the second is the “quote” currency.
Trading pairs are how cryptocurrency prices are often reflected, especially on exchanges. For example, a BTC/USDT pair trading at 18,250 USDT means 1 BTC equals 18,250 USDT, or roughly $18,250.
Crypto-denominated
As discussed above, trading pairs include base and quote currencies. While base currencies can be any of the listed cryptocurrencies on an exchange, quote currencies are usually more limited.
In the crypto space, BTC is the leading digital currency and is also the predominant quote currency in crypto-denominated trading pairs. The stablecoin Tether (USDT) and the leading altcoin, Ether (ETH), are other common quote currencies. OKX has its own platform token, OKB, which is also used as a quote cryptocurrency on the exchange.
Fiat-denominated
Fiat-denominated pairs are, in comparison to crypto-denominated pairs, more intuitive for traders who balance their accounts in their respective fiat currencies. For instance, a trader operating in USD may prefer to trade BTC/USD or equivalent pairs in order to see the price of BTC quoted in USD.
However, most crypto exchanges (including OKX) use stablecoins instead of actual fiat currencies to represent fiat-denominated pairs. USDT is, by far, the most commonly used USD-price-pegged stablecoin on the market, but others include TrueUSD (TUSD), USD Coin (USDC), USDK and others.
Choice of trading pair
Both crypto-denominated and fiat-denominated trading pairs have their pros and cons, and your choice depends on your trading goals and targets.
For example, traders who want to maintain and potentially increase their BTC holdings (regardless of how Bitcoin’s own fiat-denominated price fluctuates) favor BTC-denominated pairs. However, those who are ultimately trading for fiat growth and want their gains to not change with quote currency price movements will opt for fiat-denominated pairs.
Understanding market price and activity
Now that we’ve covered trading pairs and quotes, we will discuss how these quotes — which are, theoretically, market prices — come about.
If the BTC/USDT pair is quoted at 18,000 USDT, it means the market’s going rate for 1 BTC is 18,000 USDT. However, in reality — and especially with volatile crypto markets — this is a very over-simplified description of the price of 1 BTC, since the exact quoted price is subject to change and doesn’t necessarily apply both ways (you can’t always buy and sell at the same price).
This figure (18,000 USDT) is merely the last price at which a trade, no matter how small, was executed on the market. While that does technically make it the market price, it's very unlikely to be the price you will actually get on the market for your buy or sell orders.
Instead, the actual quotes available on the market are represented by “asks” and “bids,” where asks are sell orders (i.e., I want to sell BTC at a given price) and bids are buy orders (i.e., I want to buy BTC at a given price).
Asks and bids, makers and takers
As discussed above, there's a difference between the last traded price and the actual market price. The latter depends on various factors such as the spread between asks and bids and their depth.
Defined simply, asks are sell orders and bids are buy offers that are currently listed on a given marketplace (for example, on OKX). Each ask and bid comprises a price and an amount. For example, an ask can demand to buy 0.5 BTC at the price of $18,000 per BTC — this means that the total order price would be $18,000 x 0.5 BTC = $9,000. Similarly, a bid can be for 0.25 BTC at $17,500 per BTC, which means the bidder is willing to buy 0.25 BTC for $4,375 (i.e., the total order price would be $17,500 x 0.25 BTC = $4,375).
Both asks and bids are available to be taken or filled by anyone on the exchange (unless the ask or bid is canceled by the trader before being filled). However, in both cases, you don’t need to fill the entire ask or bid amount. You can choose any amount less than and up to the amount quoted. Looking at the ask and bid examples above, that would mean you would have a range of 0.001 BTC (the minimum tradable BTC amount on OKX) to 0.5 BTC for the ask example and 0.001 BTC to 0.25 BTC for the bid example.
When trading in any market, you have two choices. Either you can fill, or “take,” any of the existing asks and bids (as explained above) or “make” your own. In doing so, you also choose to either become a “maker” or a “taker,” and your orders are subject to different fees in each case. Makers are encouraged with lower fees, as they add liquidity to markets by actively proposing trades, whereas takers pay slightly higher fees because they remove liquidity by filling and consuming existing orders (i.e., those proposed by makers).
For example, hypothetically, if you take a look at the BTC/USDT market on OKX and see that it has its lowest ask at 18,050 USDT and its highest bid at 17,800 USDT, that means the lowest price anyone on OKX is willing to sell 1 BTC at that moment is 18,050 USDT and the highest price anyone is willing to buy 1 BTC for is 17,800 USDT. You can choose to either take one of these orders or make your own.
Let’s say you choose to make your own ask (i.e., sell order): You are prepared to sell your BTC (any amount) at the price of 17,000 USDT per BTC. In that case, your sell order would be shown on the market as the top ask, since it is even lower than the previously prevailing ask, which wanted 17,050 USDT per BTC.
As long as no one else is selling BTC at a rate lower than yours (17,000 USDT per BTC), your ask will be the first in line to be filled on the market.
Given how free markets involve buyers and sellers quoting their desired prices — no matter how high or low — the market balances itself by selecting the lowest asks (i.e., sellers with the lowest price quotes) and the highest bids (i.e., buyers with the highest offers), since they represent the most favorable prices.
Market depth and spread
While asks and bids play a crucial role in market activity, they don't provide a complete picture on their own. As previously mentioned, both asks and bids can be placed for any desired amount, even as low as 0.001 BTC.
Consider a scenario where someone is selling only 0.001 BTC, and this ask is positioned at the top of the market, offering the lowest price for 1 BTC at that moment. If you attempt to buy more than 0.001 BTC, your order will automatically match the top ask. However, the remaining amount of your order (above 0.001 BTC) will be queued to be filled by the next best ask, proceeding in this manner until your entire order is fulfilled.
It's important here to mention that there will always be a difference in price between the lowest ask and highest bid — as we saw in the example above, where it was 17,000 USDT for the lowest ask and 17,800 for the highest bid. This price difference is known as the market or bid-ask spread.
Without this spread, there would be no incentive for market makers to provide liquidity by asking or bidding since they, too, want to buy low and sell high. In highly liquid markets, however, this spread is very tight — meaning there’s a slight difference between the buying and selling prices — while markets with low liquidity often have wider spreads.
Having understood the bid-ask spread, imagine if most asks or bids in a market are for tiny amounts, let’s say roughly 0.002 BTC each. Given how the asks, and bids are lined up in ascending and descending orders, respectively, your buying or selling price becomes less favorable as you move your way through either column (of asks or bids), as the bid-ask spread widens significantly.
If you wanted to sell 1 BTC in such a market, you would have to go through 500 bids (of 0.002 BTC each) at varying quoted prices before your order would be filled. This would inevitably result in your final order price being less favorable than the best price on the market when you made the ask, because the spread (or difference in price) across those 500 bids was wide.
This is, however, a simplified example of what happens in a market that doesn’t have adequate depth. Market depth is a measure of the market’s ability to handle large orders without a major shift in the bid-ask spread.Understanding these concepts is crucial to executing your trading strategies and getting your orders filled at desired prices.
OKX, one of the world’s largest cryptocurrency exchanges for trading volumes, has industry-leading market liquidity and depth — and, consequently, very tight spreads, resulting in favorable trading prices, even for large orders.
Order books
On every exchange, all active bids and asks on the market are listed on what is known as the order book, which is updated in real-time and is reflective of market depth and liquidity. Order books are also accompanied by transaction history charts that list the most recent successfully executed trades.
However, it should be noted that the bids and asks that appear on an order book are all revocable by the traders that posted them, and they are not guaranteed until they are actually filled.
OKX allows users to customize their order book displays by batching orders falling in specific price ranges of the quote currency.
Trade order types and their uses
Having covered a lot of the key concepts above, we can now focus on submitting trading orders. Every time you want to execute a trade, you have to post an order on the market. Again, you can either take existing asks and bids or make your own.
Depending on your trading goals and strategies, you can make use of a variety of trade order types available on exchanges like OKX. In this guide, we'll go over the most commonly used order types and what they mean for traders.
Limit orders
A limit order is the most common type of trade order and is suitable for both beginners and experienced traders. As the name suggests, a limit order allows you to define a specific price limit for your buy or sell order, and the market will only match it with your exact quote or better.
For instance, if you place a limit buy order for 1 BTC at $17,123, it will only be filled if the market has a seller asking for $17,123 or less for 1 BTC. Similarly, a limit sell order with the same details will only be filled when the market has a buyer willing to pay $17,123 or more for your 1 BTC.
OKX also features a more advanced limit order option, fittingly called the “Advanced Limit Order,” that allows you to define further parameters or conditions — including “Post Only,” “Fill or Kill” and “Immediate or Cancel.”
These additional conditions give more control to traders with specific strategies, letting them post orders only as market makers (i.e., not takers), ensuring their orders are either filled completely or killed (as opposed to partial filling), or are filled immediately or canceled (as opposed to waiting on takers).
Given how limit orders allow traders to set their acceptable minimums and are essentially “take it or leave it” offers, they are easy to manage and allow simpler earnings and loss calculations.
Market orders
Where limit orders allow traders to set their own prices, even if that means waiting for orders to be filled, market orders are filled immediately at whatever rates the market is willing to offer.
For example, if you want to sell 1 BTC with a market order, the exchange will fill your order immediately at the best available price.
Market orders give up control over price specifics in exchange for immediate execution and are favored by traders looking for instant exchanges, regardless of deviations in price.
It is important to note here that trading with market orders is extremely unlikely to provide growth in shorter time frames due to the bid-ask spread. If you keep buying and selling consecutively at market prices, you will essentially be buying high and selling low, and consequently losing money.
Stop orders
Stop orders, an advanced order type, empower traders to establish specific conditions, such as the "Trigger Price" and "Order Price." Once these conditions are met, the system automatically places buy or sell orders on the market. OKX supports two types of stop orders: "Conditional" and "One-Cancels-the-Other" or OCO stop orders.
For beginners, stop orders might seem complex at first glance. However, once you grasp their functionality, you'll find them highly valuable and logical tools in navigating the market.
For example, when posting a conditional stop order, you start by defining a trigger price. As the name suggests, the trigger price is the price threshold that triggers or activates your order. However, the trigger price is not the price at which your order will be executed. For that, you must define a second parameter, the order price, which is the actual price at which your buy or sell order will be posted. Alternatively, to ensure immediate execution, you can also opt to execute your order at the market price once the trigger price condition is met.
An OCO stop order works in the same way but with two sets of conditions (two trigger and order-price conditions) as opposed to just one. This order type is useful if you want to place orders covering both market surges and drops.
For example, if Bitcoin is trading at $18,000 and your trading strategy involves selling 1 BTC at $19,000 in the event of a rally, or selling it at $17,500 in the case of a drop, you can use the OCO order type to execute these trades. You define one set of trigger and order prices for the upside and the other set for the downside. In an OCO trade, whichever set of conditions is met first will be executed, while the other will automatically be canceled.
Considering some of the concepts discussed earlier in this guide, we can relate the use of conditional and OCO stop orders with the timely realization of gains and the mitigation of risk by realizing losses early, at acceptable levels defined by you.
While a few more advanced order types are available to users on OKX, the ones discussed above should suffice for most beginners and intermediate traders.
Next steps — game on!
This guide should have given you a solid introduction to cryptocurrency trading. With what you’ve learned, you’ll better understand the markets and their movements. If you do decide to start trading crypto, the above tools, tips and strategies will no doubt come in very handy.
It’s also important to be aware of the risks associated with cryptocurrency trading. The markets are highly volatile compared to traditional stocks or shares — and with that comes a heightened chance of loss. As any successful trader will tell you that proper risk management and exit strategies are crucial.
OKX provides loads of additional educational resources to continue your learning. With our Demo trading feature, you can apply the knowledge gleaned from this beginner-friendly crypto trading guide without risking losing real money.
