Investing vs. Trading
Investing and trading are two different methods of attempting to profit in the financial markets. Both investors and traders seek profits through market participation. Investors generally seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits.
Day Trader
A day trader is a type of trader who executes a relatively large volume of short and long trades to capitalize on intraday market price action. The goal is to profit from very short-term price movements. Day traders can also use leverage to amplify returns, which can also amplify losses.
Day traders employ a wide variety of techniques in order to capitalize on market inefficiencies, often making many trades a day and closing positions before the trading day ends.
Swing Trader
Swing trading is a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities.
Margin and Marging Trading
Margin refers to the amount of equity an investor has in their brokerage account. “To buy on margin” means to use the money borrowed from a broker to purchase securities. You must have a margin account to do so, rather than a standard brokerage account. A margin account is a brokerage account in which the broker lends the investor money to buy more securities than what they could otherwise buy with the balance in their account.
Order Types
When it comes to cryptocurrency trading, it’s essential to understand the different order types that are available to traders. Sometimes, the difference between a successful trade and a missed opportunity comes down to choosing the right order type.
Most cryptocurrency exchanges allow traders to choose between Market, Limit, and Stop-Limit Orders. These common order types provide traders with basic control over their trades.
Market Orders
Market Orders are the most straightforward order type, allowing traders to buy or sell a cryptocurrency at the current market price. By executing instantly when placed, Market Orders are great tools for traders looking to seize the moment.
Warning
However, by prioritizing speed over price, the actual price of execution for a Market Order may differ from the displayed market price, especially in highly volatile markets.
Limit Orders
Limit Orders allow traders to set specific price levels at which they want to buy or sell a cryptocurrency. Unlike Market Orders, which trigger instantly when placed and prioritize speed of execution over price, limit orders will only trigger if the market price reaches or exceeds your specified price.
Stop Limit Orders
Stop Limit Orders (e.g. Stop orders) allow traders to manage risk and have greater control over the execution price of a trade. Like the name suggests, Stop Limit orders combine the features of Limit Orders and Stop Orders. When placing a Stop Limit Order, traders must set two specific prices: the stop price and the limit price.
If the market price drops to the stop price, your limit order becomes active. Then, your trade will only be executed if the asset’s price reaches your limit price. Put simply, by placing a Stop Limit Order, you are effectively saying, "If the asset’s price goes down to a certain level, then sell it at this specific price," thereby protecting yourself from potential downside risk.
A stop order is always executed in the direction that the price is moving. For instance, if the market is moving lower, the stop order is set to sell at a pre-set price below the current market price. Alternatively, if the price is moving higher, the stop order will be to buy once the security reaches a pre-set price above the current market price.
Trailing Stop Orders
A Trailing Stop Order allows traders to lock in potential earnings while keeping their positions open to greater upside opportunity, so long as the market moves in their favor. Like the name suggests, Trailing Stop Orders automatically adjust, or “trail”, the current price of a cryptocurrency, at a set percentage that’s determined by the trader.
Example
For example, if a trader places a trailing stop order and the asset’s price goes up, the trailing price will move up as well. If the price falls, the trigger price will stay at its previous level, effectively protecting the trader’s potential gains.
Conditional Order Types
In addition to the common order types, some cryptocurrency exchanges offer more advanced conditional order types, providing traders with an additional level of control and flexibility over their trades. They are designed to trigger specific actions based on certain market conditions or price movements.
OCO (One Cancels the Other)
A One Cancels the Other (OCO) order consists of a pair of orders that are created concurrently, but it is only possible for one of them to be executed. This means that as soon as one of the orders is fully or partially filled, the other is canceled automatically.