You Can Day Trade Crypto Even Though It's a High-Risk Investment

If you want to day trade cryptocurrency, you should have a firm understanding of the coins you'll be trading and the strategies that can be used to execute a trade.

Jennifer Farrington - Author

Jan. 24 2022, Published 2:50 p.m. ET

A person day trading using a laptop and cellphone.
Source: Unsplash

Day trading is the practice of buying and selling securities on a day-to-day basis. Instead of following the traditional buy-and-hold method many investors rely on for a return, day traders follow a financial instrument’s daily behavior, sometimes up to the minute, to decide when to buy and sell. This is all executed before the close of the trading day.

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Traditionally, day traders would focus their efforts on buying and selling stocks. However, with cryptocurrency being viewed as the currency of the future, many people have shifted their practices to day trading crypto. If you’re considering stepping into the market, here’s what you need to know about day trading cryptocurrency.

If you understand how volatile markets work, day trading cryptocurrency might be for you.

Can you day trade crypto?
Source: Unsplash

A volatile market is one where you’ll find frequent fluctuations in a stock or crypto’s price. Prices can change by the second, minute, or hour. To be able to successfully buy and sell cryptocurrency on a volatile market, you need to be able to identify the signs that signal when it's time to buy and when it’s time to sell.

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If you aren’t able to distinguish when a cryptocurrency’s price will yield a decent return, you might lose your chance. Essentially, what this means is that in order to day trade cryptocurrency, you need to have a firm understanding of the crypto that you will be working with. You will want to have a strategy in place for how you plan to buy and sell your crypto.

It’s also important that you understand how crypto markets work and the platforms that are available to trade on.

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Can you day trade crypto?
Source: Binance (Twitter)

What platforms can be used to day trade crypto?

In order to trade cryptocurrency, you will need a platform that supports it. While there are plenty of platforms to trade on, each has its own guidelines and stipulations. One of the most important things you will need to consider when choosing a platform is the fees associated with using it.

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The purpose of day trading is to get a return on your investment and not have to use your return to cover the fees associated with using the platform. Therefore, it’s recommended that you compare platform fees first. You will also want to consider the following:

  • What cryptocurrencies does each platform support?
  • Is the platform reputable?
  • How's the liquidity?
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Liquidity refers to a coin’s ability to convert into another form of currency. A cryptocurrency that's highly liquid can be converted without its initial price being affected, according to Business Insider. Converting one coin to another can cause a major reduction in price, so you need to understand which coins are highly liquid before you start day trading.

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Some of the more popular platforms that can be utilized to day trade cryptocurrency include:

How to choose a strategy to day trade cryptocurrency.

If you want to be successful at day trading cryptocurrency, you will need a solid strategy and an understanding of how to properly execute it. SoFi (NASDAQ: SOFI), an online personal finance company, provides an overview of several strategies that can be used to day trade cryptocurrency.

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Some of the strategies include:

  • Bot Trading
  • Scalping
  • Range Trading
  • New and Sentiment Analysis
  • Technical Analysis

Other strategies include the long straddle and arbitrage.

What are some takeaways on day trading cryptocurrency?

Day trading, in general, is a risky business and you need to be prepared to lose. If you aren’t comfortable with losing your investment, don’t take the risk. Remember, day trading is only one method of investing in the stock or cryptocurrency market and it's meant to deliver short-term results.

If you’re looking to make a long-term investment, a financial adviser and a bit of research could help you decide which stock or cryptocurrency to invest in. You won’t have to monitor its daily behavior on the market, but instead, can let it sit until the company or crypto you’ve invested in delivers you a suitable return.


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