CRYPTO-4-BEGINNERS

Welcome to Crypto-4-Beginners, our topic is "How to profit trading cryptocurrency". 

This section will look at a few beginner concepts and actions that can start you off as a trader. This will be a very basic entry into the world of crypto-trading, and new traders should do much more research before considering trading.  As I won't be covering more advanced topics, it is suggested that you first review other sections on this website before this one.  If you've already covered; An Introduction to Important Concepts, and done the Brave Browser, Created a Digital Wallet, Created an Account on a Crypto Exchange, and learned about Decentralized Finance, then you're ready for this section.  

In this section we'll cover; Longs and Shorting, Swapping, and arbitrage. 

Typically, a person buys a particular token, whether that's Bitcoin, Ethereum or any other Alt-Coin, they want to buy at a lower value, hold (or HODL), and then sell at a future date for a higher value than what they originally purchased. 

Contrary to what many might assume, the best time to buy is when the crypto is in the "red", and the best time to sell is when its in the "green".  What this means is that when you look at the daily, weekly, monthly, yearly charts for a specific token, if its "in the red" that means the price is on a decreasing trend, and if its "in the green", the price is on an increasing trend.  

Double digit percentage gains are usually often followed by a correction to the price, so when the value increases by a lot, you can often expect the price to decrease not long after.  The reason is because traders take profits, and the whole thing is speculation based on game theory mathematics and the psychology of human behaviour.  It's a guessing game, where the odds favour those with the best technical analysis, but that's a little beyond for this section.  

Before we continue, its important that I mention that I am not a financial advisor, and none of this should be taken as financial advice, but rather as an educational tool to help you understand the basics of crypto trading, and frankly, I'm not that great of a trader!

When a trader "longs" a crypto, this means that they bought the cryptocurrency to hold for a duration of time.  They plan to sell in the future (or not), and anticipate the price to increase.  Maybe they've done research on the token - what's it's used for, who's the team that built it, do they have the capability to achieve their goals, etc... 

One good tool for future speculation is market cap.  The number of tokens in circulation multiplied by the price per token is equal to the market cap.  By using this simple formula, you can speculate on possible future prices. 

"Shorting" is the opposite of "longs".  To short you borrow crypto at a high price, cash out, wait for the token to decrease in price, then buy back the token at a reduced rate and pay off the lone.  So for example, lets say you borrow 1 X-Token, which has a value of 100$ per token. You would then sell X-Token on an exchange and get 100$.  Then within a short duration of time X-token's value falls by 50% to a new value of 50$ per token.  You would then buy X-Token at 50$ and repay the loan of 1 X-Token.  By doing this you just made 50$ profit.  This strategy is high risk, but high reward.  However, the downside is, if the price of X-Token goes up to 200$, you now have to pay 200$ on your loan of 1 X-Token and you'd be at a loss of 100$.  It's probably not the best idea to short during a bull market, but maybe not the worst idea to do during a bear market.  

A Bull market, or Bull Run, is when the price of cryptocurrency is generally increasing over time.  A Bear market, or Bear Winter, is when the price is steadily decreasing over time.  

My personal favourite is to long.  I like to read about new idea's in the crypto space, and my goal is to try and pick future winners in the space - companies or tokens I feel have real world usage. However, I also like to swap trade, although, I've had some success, I'm not great at it.  

Swap trading is swapping between cryptocurrencies in order to make a profit.  There's day trading and casual swapping.  

Day traders try to make profit off trades daily.  An example of that could be buying 20,000 tokens of a cryptocurrency worth 0.02$ for 400$, and then waiting for a half penny increase, and selling the 20,000 tokens at 0.025$ for a 100$ profit. (20,000*0.005$ = 100$).  

Of course you'd need to factor in transactional fee's to make it work for you.  

Casual swapping is when your cryptocurrency value has peaked, and now you expect it to drop, so you swap it into a Stable Coin.  A "Stable Coin" is a type of cryptocurrency whose value is pegged to a fiat currency, usually the American dollar.  The value of Stable Coins is stable, unlike most other cryptocurrencies whose value is volatile.  

So one strategy scenario could be, if you had 1 X-Token and the price dramatically rose by 50% from 100$ to 150, and now you expect a correction to the price and anticipate it dropping below 150$.  So you swap your 150$ worth of X-Token (1) for 150$ worth of a Stable Coin.  Then the price of 1 X-Token drops to 125$, but your Stable Coin is still worth 150$.  Now, you feel X-Token has reached its bottom, and will begin to again increase.  So you take your 150$ worth of Stable Coin and swap it back into X-Token.  Only this time 1 X-Token is worth 125$, so you end up with 1 X-Token plus an additional 25$ worth of X-Token.  And that would be like cycle swapping.  The purpose is to increase the amount of crypto that you have, and many traders do this for Bitcoin and/or Ethereum.  The idea is to transfer profits made on trades into having more Bitcoin and/or Ethereum.  

The last one we will cover is arbitrage trading and if this is the first time you're hearing about this, you're going to be ecstatic.  

While typical trading is done for the future, arbitrage trading is trading in the present time. Arbitrage trading is when you buy a token from one exchange at a low price, and then sell it on another exchange for a slightly higher price.  

Cryptocurrencies are extremely volatile, and because of that, exchanges have a difficult time matching prices, and often there are minor differences in prices that traders can take advantage of.  

For example; 

If you bought X-Token for 100$ on exchange-A, and then sold it on exchange-B for 101$, you'd make a 1$ profit per X-Token.  However, with such a small trade, you'd likely pay more in transaction fee's.  

That's where Flash Loans come into play.  And really, this is the big idea of DeFi and arbitrage trading.  Flash loans are loans that are attached to a smart contract.  What Flash Loans and Smart Contracts can do is offer users loans, with zero collateral and zero KYC.  

Yes, with Flash Loans and Smart Contracts anyone, anywhere, can borrow millions of dollars worth of crypto with zero collateral, and without having to issue any identification.  This is done because the Smart Contract locks in a clause that the loan must be repaid within the same contract.  So, essentially, a borrower could borrow a large sum of crypto, use that crypto to do an arbitrage trade, and then repay the loan with interest all within one smart contract that executes it all.  I know, wow right!

Here's an example:

Lets say you use a Flash Loan Smart Contract.  

1. First, you borrow 1,000,000 worth of ETH. 
2. Then you use the 1,000,000 worth of ETH to buy X-Token which cost 100$ on exchange A.
You buy 10,000 X-Token.  
3. Then you go to exchange B, where X-Token is valued at 101$, and you sell it. 
You sell 10,000 X-Token for 101$ each, and make 1,010,000$, a 10,000$ profit.  
4. You repay the 1,000,000$ loan plus interest.  

This is all executed by a single smart contract.  If, however, at some point any part of the parameters of the contract can't be executed, then the entire contract fails, and the loan is never taken.  

So, for example, if at step #3, the price of X-Token changes to 99$ before it can be purchased, then step #4 cannot be completed, and there for the loan cannot be repaid.  Since #4 cannot be executed if the value drops in #3, then one of the parameters cannot be executed and the entir contract fails, and the loan is never granted.  Its a fail safe against making an unprofitable trade.  

Normally, programmers write their own smart contracts for flash loan arbitrage, but there are templates called "Money Legos" and a website called Furucombo that allows a plug and play.  However, please note, all this stuff is very new, its still the wild west, and hackers love to prey on newbies.  Also, should be said, Furucombo was hacked, and the hackers found a way to exploit a smart contract that allowed them to take a loan without repaying.  So, use with caution.