How to Trade Litecoin: Step-by-Step for Beginners
As one of the oldest cryptocurrencies, Litecoin is considered a reliable trading choice, especially for beginners.
This article provides a guide for first-time traders on the best tips, key trading terms, and step-by-step procedure for trading Litecoin.
What Does It Mean to Trade Litecoin?
Litecoin trading means buying and selling Litecoin to make a profit. It involves monitoring price changes and trends to make informed trading decisions and achieve a desired profit margin.
Litecoin may be bought or sold at the current market price, known as spot trading. It may also be traded at a speculative price on a predetermined date and time, known as futures trading.
Spot trading bears less risk and is not recommended for beginners. In contrast, experts with a higher risk tolerance may engage in futures trading, which is typically more profitable.
Key Trading Terms Every Beginner Should Know
Specific terms are often used in crypto trading that every trader should understand to make informed trading decisions and have a seamless trading experience.
Some of these terms are:
- Altcoins: Alternative Coins (Altcoins) refer to all cryptocurrencies other than Bitcoin.
- Arbitrage Trading: The practice of taking advantage of varying price rates in different exchanges to make a profit
- Bear Market: Where there is a general and continuous fall of prices of tokens in the market.
- Bull Market: Where the prices of tokens in the market are on the rise.
- Candlestick Chart: This is a graphical representation on exchanges and other cryptocurrency platforms of the price movement of a cryptocurrency over a specific period, in the form of candles.
- Day Trading: A trading technique that involves buying and selling a particular cryptocurrency within a day to profit from short-term price movements
- Exchange: A platform where crypto tokens are traded.
- FUD: Fear, Uncertainty, and Doubt (FUD) is a term used to describe rumours or untrue information disseminated to create fear and doubt.
- FOMO: Fear of Missing Out (FOMO) is a term commonly used in cryptocurrency to describe an irrational fear of missing out on a profitable trade, often leading to impulsive and poor financial decisions.
- HODL: Hold on For Dear Life (HODL) is a popular slang term used in cryptocurrency, which means holding onto one's cryptocurrency for the long term.
- Gas Fees: The amount paid for carrying out a transaction on a blockchain
- Limit Order: An order to buy or sell any cryptocurrency at a specific set price.
- Long Position: Where a trader opens a position on a trading platform by buying a particular cryptocurrency with the expectation that its value will increase.
- Market Order: An order to buy or sell any cryptocurrency at the current market price.
- Order Book: A record of buy and sell orders of a particular cryptocurrency that displays the specific quantity and price at which the traders are willing to buy or sell.
- Scalping: A trading technique that involves making numerous and frequent trades within a short period to profit from small price fluctuations.
- Short Position: Where a trader opens a position on a trading platform by selling a particular cryptocurrency with the expectation that its value will decline and the intention to buy such cryptocurrency at a lower price.
- Stop Loss: An order placed by a trader to automatically sell a particular cryptocurrency once it reaches a certain price.
- Swing Trading: A trading technique that involves holding a cryptocurrency for a period of days to weeks to make profits from medium-term price movements.
- Take Profit: Where a trader places an order to automatically close a position and sell cryptocurrency when a set price target is met.
- Volatility: This refers to fluctuations in the market price of cryptocurrencies.
- Wallet: A tool used to store and manage cryptocurrencies.
Step-by-Step: How to Trade Litecoin
Here is a step-by-step guide to easily trade Litecoin as a beginner.
1. Choose a Crypto Exchange Platform
Litecoin is available for trading on crypto exchanges 24/7. As a beginner, consider factors such as security, reliability, and relatively low fees when selecting an exchange. Use exchanges like Switchere, which supports Litecoin trading and satisfies all the above conditions.
2. Create an account
The next step is to create an account on the exchange by inputting all necessary details. After the authenticity of the submitted information is confirmed, you will be verified and are free to deposit and trade LTC.
3. Fund your account
Fund your account by depositing any cryptocurrency of your choice. You may also fund your account by buying any cryptocurrency of your choice with credit or debit cards. Switchere allows traders to buy and sell any cryptocurrency securely and instantly with credit or debit cards.
4. Select Trading Pairs
If the currency deposited is not LTC, you can buy LTC by selecting a trading pair. For example, LTC/USDT, LTC/BTC, and LTC/USDC, depending on the currency deposited in the account. After selecting the relevant trading pair, you can proceed to exchange a certain amount of the other currency for LTC, and you will get its value equivalent in LTC.
5. Make an Order
Go to the order page/tab of the exchange and make an order. It could be a market or limit order, depending on your trading strategy and desired profit goal.
6. Set up a Litecoin-compatible wallet.
It is essential to set up a Litecoin wallet, especially if you plan to buy and hold LTC long term. There are various types of wallets, including paper wallets, hardware wallets, mobile wallets, and web wallets, each catering to distinct needs. Check out our guide on how to select the best Litecoin wallet for you.
Trading Examples for Beginners
The trading of Litecoin can be on a crypto exchange platform or through an online broker. Below is an example of how Litecoin trading occurs through both means.
Litecoin Trading Example on Crypto Exchange
After funding your exchange account, you may proceed to buy LTC, which is currently trading at $96.
Let's say you buy 2 LTC, which are worth $192, and hold for some time, during which the price of LTC rises to $100.
Your LTC portfolio is now worth $200, and you have made a profit of $8. You can sell on the spot by executing a market order, making a profit of $8. This is called spot trading.
On the other hand, if during the period you are holding LTC, the price drops to $90. Your portfolio of 2 LTC will now be worth $180, which is a loss of $8. You may choose to sell at market price to mitigate further losses or hold in the conviction of a future price increase.
Additionally, Litecoin can be traded through a limit order by setting a buy limit or a sell limit order.
A buy limit order allows for automatic purchase of LTC when the price reaches or falls below the set price. If you place a buy limit order for when Litecoin is at $80, the order is executed immediately when Litecoin reaches or falls below $80. The LTC is bought at the set price and deposited into your exchange account.
A sell limit order allows for the automatic sale of LTC when the price reaches or rises above the set price. If you put a sell limit order for Litecoin at $120, the order is executed immediately when the value of LTC reaches or exceeds $120. The LTC is sold at the set price, and the profit is deposited into your account.
Limit orders give traders more control and help manage and mitigate losses. However, it requires expertise, patience, and a thorough understanding of the cryptocurrency market.
Litecoin Trading Example Using an Online Broker
Online brokers are intermediaries between you and the financial market and grant you access to trade various assets, including cryptocurrency.
One of the ways you can trade Litecoin through an online broker is by a Contract For Difference (CFD).
A contract for difference (CFD) is a financial derivative that tracks the price of a specific asset. It allows traders to trade assets like Litecoin without directly owning them, similar to trading on an exchange.
A CFD allows you to control a large portion of the market with relatively small capital, a strategy known as leverage trading.
For example, if you have $100, you can buy a CFD of 5 Litecoins, predicting a price increase to $150. If the price of Litecoin rises to $150 as expected, there will be a profit of $50 on each of the 5 Litecoins bought in the CFD, resulting in a total gain of $250. However, if the price drops to $70, there is a loss of $30 on each Litecoin, totalling a loss of $150.
For spot trading, you would need to own the Litecoins directly, and 5 LTC would have cost almost $500. CFDs allow you to speculate and benefit from price movements even with a small capital. It is essential to note that the risks are higher than those associated with spot trading and are more suitable for experienced traders.
Tips for First-Time Litecoin Traders
Here are some valuable tips for trading Litecoin as a first-time trader.
Choose a Reliable Exchange
Before choosing an exchange, inquire into its security features, user reviews, customer service reviews, and trading volume.
Conduct your Research
It is essential to conduct research by analyzing trends, market conditions, and price actions before executing a trade.
Use Technical Analysis
Learn to read LTC price charts and understand technical indicators to identify market trends.
Stay Informed
Stay informed about the latest developments and recent events in the cryptocurrency sector and financial markets to make informed trading decisions.
Use a Strong Password and Multi-factor Authentication
Be sure to use a strong password and multi-factor authentication on your Exchange account and wallet to enhance the security of your assets.
Set Realistic Goals
Set desired but achievable investment goals, especially as a first-time trader. Assess your available capital and determine your risk tolerance before entering the trading market.
Avoid Sharing Private Keys
Your private keys grant unfettered access to manage your wallet. You should avoid sharing, posting, or uploading your private key online.
Be Wary of Phishing Links
By clicking on a phishing link, you have granted access to your wallet and private keys to a hacker. Therefore, confirm links from the right social media platforms before clicking.
Diversify your Portfolio
The cryptocurrency market is very volatile; therefore, it is not recommended to have a portfolio of only one investment. Diversification of a portfolio is effective in mitigating risks and making a profit.
Mitigate Risk
A well-known saying in the cryptocurrency space is to trade only with money you can afford to lose. Mitigate risk by trading only a percentage of one's capital, not the entirety.
Benefits of Trading Litecoin
The primary purpose of trading Litecoin or any other cryptocurrency is to make a profit. However, some other benefits of trading Litecoin can help generate and maximize profit.
Affordability
At the time of writing this article, Litecoin currently trades at $96. Litecoin is a more affordable investment option than Bitcoin and Ethereum, with potential for higher returns on investment. This makes it more suitable for beginners with less capital.
Adoption & Usage
Litecoin has gained widespread adoption as a payment option for everyday payments and microtransactions by payment platforms and merchants.
Similarly, Litecoin is positioned for more institutional adoption as its filed ETF applications await approval from the SEC. More widespread adoption of Litecoin can lead to a positive price impact.
Shared History and Features With Bitcoin
Litecoin was created from a copy of Bitcoin's source code; therefore, its origin can be traced to Bitcoin. It also retained most of Bitcoin's features, such as POW and halving.
Litecoin and Bitcoin often follow a similar developmental path. Recent developments, such as the Lightning Network and Segregated Witness (SegWit), have been implemented on both cryptocurrencies. As a result, Bitcoin's price trend often affects and impacts the price of Litecoin.
Low Transaction Fees
Litecoin has a very low transaction fee, ranging from $0.03 to $0.1. This makes Litecoin a suitable and cost-effective option for traders with little capital. Litecoin's low transaction fee also makes it ideal for everyday transactions.
Large and Passionate Community
Litecoin has one of the largest and most passionate crypto communities. Since its creation in 2011, it has garnered strong community support that has continued to grow over the years.
Risks of Trading Litecoin
Despite the benefits of trading Litecoin, it is not without its risks. First-time traders should be aware of the risks associated with trading and devise effective strategies to manage and mitigate them.
Lack of Dominance in the Market
Unlike Bitcoin, Litecoin lacks a dominant market position or presence. It also competes with other altcoins for market share and adoption. This could hinder adoption and negatively impact price action in the long term.
Slow development
Compared to other cryptocurrencies, Litecoin is slower to advance its technical infrastructure and adapt to evolving technological standards. This may limit its adoption and potential for a significant price impact.
Volatility
Although Litecoin is considered relatively stable and less risk-averse compared to Bitcoin, it remains volatile and susceptible to fluctuating market conditions.
Conclusion
Litecoin remains one of the most affordable and reliable investment options for beginners and first-time traders.
However, given the volatility of crypto assets, it is essential to devise a trading strategy to help maximize profits and mitigate losses.
Please be advised, that this article or any information on this site is not an investment advice, you shall act at your own risk and, if necessary, receive a professional advice before making any investment decisions.
Roman Klochko