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<sub>*Image made from canva*</sub>
I am very delighted to be a part of this week's class presented by professor @reminiscence on **Trading Cryptocurrencies**. So, I want to welcome all of you fellow steemians to this blog. Let's get to the question of the task.
<center>*Question 1. Explain the following stating its advantages and disadvantages:
**Spot trading**
**Margin trading**
**Futures trading***</center>
<center>***Spot Trading***</center>
This is a fundamental type of trading a trader can make. It's implication is buying an asset at a current price and holding it in the wallet, waiting for the appreciation of value before making subsequent trade to maximize profit.
It can be referred to as the acquisition of currency, commodity or financial asset that takes place in a spot market which is due for instantaneous delivery on a specific spot date. Spot trade is depicted by timely or near-immediate commodity delivery. A trader buying a currency, assets or commodity on some specified date is referred to as spot trade. Trading involves transactions which plies that spot trade involves spot transaction which suggests the real exchange of currency, assets or commodity with immediate delivery. Trade involves transaction and takes place in a market thus spot trade which involves spot transactions takes place in spot market. Therefore, spot market refers to a place in which spot ytading takes place wherein assets, commodities, currencies or financial instruments are traded for instant delivery.
A spot market is also referred to as cash or physical market, hence, there is no hesitation in processing cash payments. Spot transaction is done or carried out on a price — stock price. Stock price refers to the price at which assets, commodities, currencies, financial instruments or securities can be immediately purchased. Buyers and sellers makes spot price after their post of buy or sell order. Since orders are immediately filled as soon as new once arrive the market, spot price constantly fluctuates in the liquid market.
<center>***Advantages & Disadvantages of Spot Trading***</center>
***Advantages*** | ***Disadvantages***
- | -
Promotes trading in an open environment in which transactions take place at widespread prices that are common information known to all parties | Supposing a party discovers nonuniformity in the trade subsequently to the conclusion of the spot market transaction, there may be resources
Spot trading is pliable and transactions on the spot market are capable of running for lower volumes | The spot market is rigid in respect to time, as parties are faced with dealing with physical delivery on the spot
If the traders in the spot markets are displeased with the present price and term, they can bottle their item until a better deal is found | The counterparty default risk can influence the spot market interest rates and with the spot market, there is most of the time, an absence of planning
Trades and delivery are done and completed on the spot hence investors can shortly acquire bought commodities after making payments. By this, uncertainty is reduced as well as a probable failure of counterpart delivery | The volatile nature of most financial instruments can prompt investors to purchase on the spot increased prices the true assets' price is known, as a result, a considerable risk posed by trading on the spot primarily for volatile assets
Required capital is often less | As a result of how solvent the spot market is, trading is liable to the risk of the counterparty
<center>***Margin Trading***</center>
This is a kinda trading that provides traders with a means to have considerable capital, allowing them to utilize funds attainable through intermediary and to leverage their positions. Margin trading increases the amplitude of trading results so that investors may have the capacity of making enormous gains on a successful trade. This capability of enlarging trading results is the reason for the popularity of margin trading, particularly in markets with low volatility.
Margin trading is commonly used in cryptocurrency, stock, and commodity markets also funds used in cryptocurrency trading are most of the time provided by traders who gain interest as a result of the market demand for margin funds. On the commencement of margin trading, it is required of the traders to deposit a fraction of the total value of the order. The opening investment referred to as the margin is nearly connected to the concept of leverage. This implies that the margin trading accounts can be used in creating leveraged trading also, the ratio of borrowed funds to the margin is described by the leverage.
<center>***Advantages & Disadvantages of Margin Trading***</center>
***Advantages*** | ***Disadvantages***
- | -
Can result in larger profits as a result of the considerable relative value of the trading positions | Increases losses in the same way that it can increase gains
Can be beneficial for diversification | Presents the likelihood of losses that surpass a trader's initial investment
Traders can open various positions with somewhat small amounts of investment capital | Considered a high-risk method of trading
Facilitates traders in fastly opening positions without having to divert big sums of money to their accounts | A small decline in the market price may result in significant losses for traders
Enables traders to open several positions with just a small amount of investment capital | May not be used without engaging good risk management techniques and use of risk alleviation tools
<center>***Future Trading***</center>
This type of trade is for the advanced or professional traders that have to do with the buying and selling of assets at a stipulated future time and values determined in advance.
As implied by the name, futures contract trading occurs in the future between buyers and sellers. The trade is mostly organized by brokers and the parties involved are usually clueless of one another's existence. A major significance of futures trading is that currency, assets, interest rate or commodity is bartered in the future at price determined in advance which is decided in the present.
<center>***Advantages & Disadvantages of Future Trading***</center>
***Advantages*** | ***Disadvantages***
- | -
Offers a low margin norm which a great number of investors can be afforded | Has increased level of uncertainty
Safe trading practice having legal provisions deployed | High degree of uncertainty of assets' is a key impediment of the futures contract
Traders can enter into treaties according to their desires | Liable to probable fluctuation in the future which leads to financial risks.
Allows the trade of high liquidity assets | Complicated in practice as such requires a comprehensive understanding
<center>*Question 2. a) Explain the different types of orders in trading.
b) How can a trader manage risk using an OCO order? (technical example needed).*</center>
There are numerous types of orders, below are some of them:
**Market Orders**
This is an instruction to purchase or sell assets given to a brokerage firm by an investor. Committing a deal is the resultant effect of executing this type of order. Most times, for some investors, it is a default choice for buying and selling. There will a good number of ready buyers and sellers if the assets is a large-stock or a famous ETF (Exchange-traded fund). This implies that a market order will be completed almost happening within an imperceptibly brief period of time at a price close to the most recent posted price that the investor can see.
**Pending Orders**
This is the instruction of an investor give to a brokerage company to purchase or sell a n asset in future under a previously established conditions. Pending order includes:
Buy Limit, Buy Stop, Sell Limit, Sell Stop, Buy Stop Limit, Sell Stop Limit and OCO
**Take Profit Order**
The ain of this order is to make profits especially when the price of assets gets to a certain level. The implementation of this order result in to closure of the position. Take profit order is often associated with an open position or pending order. This type of order can only be placed along with market or pending order. In addition, the condition for long position of the profit order can be checked with the use of the Bid price while the short position may be checked utilizing the Ask price.
**Stop Loss**
This type of order is basically for reducing losses if assets price begins to trend in a direction that is not profitable. The position is automatically closes if the assets' price gets to this level.
b) How can a trader manage risk using an OCO order? (technical example needed).*</center>
The sell order as well as the stop-limit order are open at the same time hence, fulfilling the standard of the sell order results in the execution of the trade and termination of the stop-limit order. On the other hand, meeting the standard of the stop-limit order will result in the termination of sell order. To this end, risk can be managed by a trader by putting in place stop loss to make loss rate as small as possible if their forecast trends against their plan.
From the above screenshot, I placed an OCO order using binance exchange. A limit order to sell TRX as 4500USDT was placed at a stop-limit order to sell 4000TRX at 3900 USDT supposing price strikes 3800USDT.
<center>*3 a). Open a limit order on any crypto asset with a minimum of 5USDT and explain the steps followed. (Screenshots needed from any cryptocurrency exchange).*</center>
- Navigate to [binance.com](https://www.binance.com/en) and log in or open the the binance mobile app and click **trade**
- Click on the coin pair cell, on the next interface in the search area, type in and select you preferred coin pair
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- Click on the cell showing **limit** to select your preferred order. I will be choosing **limit**
- Set your orders and click **buy**
<center>*Question 4. Using a demo account of any trading platform, carry out a technical analysis using any indicator and open a buy/sell position on any crypto asset. The following are expected.
i)Why you chose the crypto asset
ii)Why you chose the indicator and how it suits your trading style.
iii)Indicate the exit orders. (Screenshots required).*</center>
I will be answering this question using my TradingView demo account and choosing **ETH/BTC** for my trade pair reason being that the both coins are know to be at the forefront in terms of coun volume, and there is probable profit making as soon as an investor, with good forecast enters buy or sell position. In addition, dissimilar to other coins, **ETH** and **BTC** doesn't totally downgrade.
For the indicator, I choose **EMA** reason being the way it reveals signal, and it's rapid responds to current price action as compared to simple moving averages.
The screenshot above indicates a bearish trend as the cross of the longer period line is observed to be above the shorter, consequently signifying that the sellers are controlling the price trend.
<center>*Conclusion*</center>
From the study, is clear that a beginner is limited to the kind of trade or transaction he/she can enter, the required tools for analysis as well as the capital required for such a trade. However, cryptocurrency trading is open to all but requires explicit knowledge for one to deal with the technicalities involved. Once the knowledge is there, right tools used and good analysis carried out, profit is inevitable.
Thank you professor @reminiscence01 for such wonderful and lesson.
Cc:.
@xkool24
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