Ethereum Trading For Beginners: Basics, Types, And Strategies

Ethereum is the second most popular cryptocurrency after Bitcoin. The high demand for it is related to the Ethereum blockchain functionality, which includes both working with various dApps and making transactions with its own ETH coin. Since the network’s appearance in 2013, it has attracted a lot of investments aimed at trading. In this article, we will tell you more about Ethereum trading, the strategies and types of this process, and give you a step-by-step algorithm on how to start trading ETH.

What Is ETH Trading And How Does It Work?

ETH trading means buying and selling this digital asset at different periods. It involves monitoring its price changes, which can give you a profit. So, the higher the coin’s value on the market, the more profitable it will be to sell it, and the lower the price is, the more favorable it will be to buy.

As a rule, the process of trading Ethereum occurs on crypto exchanges and is available 24/7, including weekends. Traders use different types of orders to enter transactions, such as market and limited ones. The market type involves buying or selling assets at the current price, and limit orders mean doing it at a set price. To find the optimal moment to make a deal, traders analyze the cryptocurrency market dynamics.

Ethereum Trading Strategies

ETH trading strategies are the approaches traders use when buying or selling coins. These strategies have different risk levels and may suit different market conditions and traders’ preferences. Among them are day trading, swing trading, HODLing, dollar-cost averaging (DCA), and breakout trading. We look at each of them in more detail below.

Day Trading

The day trading strategy involves buying and selling ETH within one day. The approach assumes getting a profit from short-term price fluctuations and avoiding the risks of their strong changes that can occur at night. Day strategy requires careful market monitoring, so traders use charts and indicators for forecasting (e.g., RSI).

Swing Trading

Swing trading involves holding ETH coins for a longer period of days to weeks. In this way, traders can capitalize on middle-term price fluctuations, which are more significant than daily ones. This approach is suitable for those crypto investors who do not have the opportunity to monitor the market constantly but want to profit from ETH price changes.

HODLing

HODLing strategy means holding Ethereum coins for a long period. The method assumes minimal active trading; it assumes focusing on long-term profits instead of considering daily or weekly price fluctuations. It is because approach adherents believe in the Ethereum potential and expect its price to rise as the network expands.

Dollar-Cost Averaging (DCA)

This strategy involves regularly investing a fixed amount of money in Ethereum, regardless of its market price. For example, every month you can invest $500. Such an approach allows you to average the value and avoid volatility; you buy more ETH when its price is low and less when it is higher. Thus, DCA is ideal for traders who want to make money on ETH without the risk of price fluctuations.

Breakout Trading

Breakout trading is about making an investment when the Ethereum price goes beyond support (the minimum price) or resistance (the maximum price). For example, if ETH has been trading between $2,300 and $2,400 for several weeks, a breakout situation occurs when the coin price goes below $2,300 or above $2,400. At these moments, traders buy or sell their ETH to capitalize on sharp price changes.

Ethereum Trading Types

Unlike strategies, Ethereum trading types refer to the specifics of the process of buying or selling digital assets. For example, some traders would like to make a profit as soon as possible, while others hold ETH as long-term investments. Let’s take a closer look at these types.

Spot Trading

Spot trading means buying and selling ETH at the current market price with immediate funds. In other words, it is short-term trading. With this method, you buy ETH directly and own it immediately after the transaction is closed. You can then dispose of your assets as you want, for example, withdraw, sell, or hold them. The spot trading option is available on crypto exchanges such as Binance and Coinbase.

Margin/Leverage Trading

This is a type of leveraged margin trading. It assumes you are borrowing funds from the exchange to make a trade with Ethereum. This method allows you to control more ETH coins with the least amount of initial capital.

For example, you have $2,000 while the coin costs $2,500; in this case, you can use 5x leverage and buy ETH with the value of $10,000. If the coin’s market price rises only by 4%, you will make a 20% profit on your initial investment due to the 5x leverage but if it falls, you will encounter liquidation and lose your funds. Due to such difficulties, the margin type of trading is usually chosen by experienced users who can predict the risks. Bybit and Binance offer this type of trading.

Futures Trading

In futures trading, investors enter into a contract agreeing to buy or sell ETH at a predetermined price at a specific date in the future. The transaction will be profitable if the coin market value on the appointed day is higher than it was before because the trader buys at the agreed value. But there will be a loss if the price of ETH becomes lower. Futures trading is also most often chosen by traders who have a good understanding of market trends. They use such crypto platforms as Bybit, FTX, and Binance.

Options Trading

This type of ETH trading works like futures, assuming the condition of buying or selling coins on an appointed date in the future. However, options give traders the right to make a deal before the selected date. For example, one can use an option and use assets due to an expected rise or fall in the cryptocurrency value. The option trading feature is available on exchanges such as OKX and MEXC.

Short Selling

The Ethereum short selling method means getting a profit from the coin price decrease. In this case, the trader borrows ETH from a broker (crypto exchange) and sells it at the current market price. Then he buys back these coins for a lower cost, returns the borrowed ones to the broker, and takes the balance as profit. Nevertheless, short selling is risky because the price of ETH can rise and lead to losses. The method can be carried out on the Binance or Bybit exchanges.

Arbitrage

The method of arbitrage in Ethereum trading refers to getting profit from the difference in the coin’s price on different exchanges. So, traders buy ETH at a low cost on one platform and sell it at a higher price on another. This method of trading has low risks, but you need to do everything fast because price differences are quickly eliminated. To use this method, you should choose exchanges with a convenient interface, such as Cryptomus or Kraken.

Automated Trading (Bots)

Ethereum automated trading bots use software that allows trades to be executed independently based on set strategies and current market conditions. They monitor market data 24/7, so they make more accurate and faster decisions, unlike the manual method. To successfully use bots, you need to have technical knowledge and choose an optimal strategy. The Pionex or Cryptohopper services help implement the tool.

How To Start Trading Ethereum?

Now, let's take a closer look at how Ethereum is traded on crypto exchanges. The process is similar on all platforms, regardless of the strategy chosen, so the steps will be identical. Here is the process step-by-step:

• Step 1: Choose a trading strategy and type. Decide which Ethereum trading approach and method we've outlined above is best for you.

• Step 2: Choose a crypto exchange. Select the platform where you will trade ETH. It should be an exchange that allows you to trade in your chosen method. It should also be reputable, have an extended working base, and provide robust security measures. For example, Cryptomus P2P exchange protects data and funds with AML and 2FA, so traders can work here with peace of mind. To make sure the site is reliable, study its security policy and read reviews from other users.

• Step 3: Create an account. Register on the chosen platform by providing your name and email address. Pass the verification and KYC procedure; for doing it, have your passport or driver's license ready and be prepared to take selfies to prove your identity.

• Step 4: Fund your account. Top up your exchange account with fiat money or cryptocurrency. Some exchanges also allow you to link credit or debit cards to make trading deals.

• Step 5: Select your trading pair. Then check the currency you have deposited and the amount of ETH that you plan to buy. So, your trading pair will look like “USD/ETH” (if you deposited dollars) or “BTC/ETH” (if you deposited Bitcoins).

• Step 6: Make a deal. Act according to the chosen trading method: go to the page you want, fill in the data (e.g., market or limit order), and confirm the action. Now you can track and manage your trade.

Tips To Trade ETH And Make Profit

To minimize risks when trading Ethereum and make maximum profit, you should approach the process carefully. We have gathered a few recommendations for you about it:

• Select a reliable crypto exchange. Trade on a platform where your ETH will be under reliable protection because the transactions include large sums. Also consider the coin value on the exchange and the size of commissions, which can also affect your profit.

• Monitor the market. Read the cryptocurrency market news regularly to keep up to date with changes, including the Ethereum network. Take market trends into account to understand where the price of the coin is heading.

• Use technical analysis. Learn to read ETH price charts and use technical indicators. It will help you identify market trends.

• Manage risk. Trade only the amount you can afford to lose in case of a sharp fall in price. Try not to use borrowed funds in large amounts to protect your assets from volatility.

Follow these rules to trade ETH safely and profitably. Even over time, when you become a more experienced trader, it is worth remembering the unpredictability of the crypto market, especially as it grows. This way, the strategies and types of Ethereum trading you choose will only bring you stable profits.

We hope this article was useful for you, and now you will be able to make an informed decision about which strategy and type you will use for trading ETH. Perhaps you have already had experience buying or selling this coin? Share it in the comments!