Trading Cryptocurrency Basics: Orders, Margin, and Why Most Traders Lose

Book: Cryptocurrency QuickStart Guide
Author: Jonathan Reichental
ISBN: 978-1-63610-041-8

Trading Is Not Investing. This Chapter Makes That Clear.

While Peter Forrest is busy “hodling” his crypto portfolio, his 18-year-old son Alan wants to trade his way to startup capital. Chapter 9 follows Alan’s crash course in cryptocurrency trading, and it’s one of the most honest chapters in Reichental’s book.

The difference matters. Trading is short-term. You’re trying to profit from price swings by buying low and selling high. Investing is long-term. You study an asset’s fundamentals and hold for years. Traders watch daily charts and news cycles. Investors care about team quality, use cases, and market longevity.

Alan thinks he can double his money in weeks. His family is skeptical. Peter cites the stat that less than 5% of traders make money over the long run. Tori makes Alan paper trade first. Smart move, as it turns out.

Why Crypto Attracts Traders

Two big reasons: volatility and accessibility.

Crypto is young. Valuation norms aren’t settled. News about regulation or celebrity endorsements can swing prices hard. Litecoin went from $100 to $400 in eight days back in December 2017. That’s the kind of move traders dream about.

Markets are also open 24/7. No weekends off, no holiday closures. Compare that to US stock markets (9:30 a.m. to 4:00 p.m. Eastern) or forex (closed Sunday in London). If you want action at 2 a.m. on a Tuesday, crypto delivers.

The flip side: that same volatility wipes people out just as fast.

Trading Styles You Should Know

Reichental covers the standard vocabulary:

• Arbitrage: Buy on one exchange where a coin is cheaper, sell on another where it’s pricier. Crypto’s hundreds of exchanges make this more doable than in mature markets, but fees eat into profits fast.
• Day trading: High volume of small trades, all closed by end of day. Limits overnight risk.
• Swing trading: Hold positions for days or weeks. Alan tries this first.
• Position trading: Hold for a month or more, often waiting on a news event.
• Scalping: Rapid-fire small profits from tiny price moves. Alan’s nickname for it: “picking up nickels in front of a steamroller.”

Alan’s Paper Trading Disaster (Then Partial Redemption)

Tori sets up Alan on CryptoParrot with the username “AlanTheGreat.” He goes long on Litecoin, Cardano, and Ripple with a swing trading plan.

It goes badly. ADA drops from $0.50 to $0.47. He loses $323.55 after fees. LTC and XRP also tank. His biggest hit: $800+ on a $10,000 XRP position. All of this happens while BTC drops too, dragging altcoins with it. A familiar pattern.

Then Alan tries scalping Polkadot (DOT). It’s up 7.12% for the day. He places a buy stop at $7.08. It executes. He sets a limit sell at $7.19. Ten minutes later, he’s up $300+. Textbook buy low, sell high.

Feeling confident, he tries margin trading. He goes 3x leveraged long on BTC at $23,800, putting up $10,000 to control $30,000 worth. He sets a stop at $23,730 and a target at $23,875. He walks away for coffee.

When he comes back, BTC crashed through his stop. Slippage means he exits at $23,689, not $23,730. Loss on the trade: $140. Add leverage fees and trading fees: $363.96 total. His DOT winnings? Gone.

Alan decides to study more before risking real money. Good call.

Order Types That Actually Matter

If you’re going to trade, you need these:

• Market order: Buy or sell at whatever the current price is. Fast, but you might get a worse price than expected in volatile markets.
• Limit order: Set your exact price. Like an eBay bid. Stands until filled or cancelled (GTC orders can last 30-90 days).
• Stop order: Triggers a market order when a price is hit. Used for entries and stop losses. Alan used one to enter his DOT trade at $7.08.
• Stop limit order: Triggers a limit order instead of a market order when the stop price is reached. More price control, less guarantee of execution.

Reichental’s rule: place a stop loss on every trade. Crypto moves too fast to wing it.

Charts, Backtesting, and Bots

Traders study price charts to spot trends. Bar charts show daily ranges, open/close prices, and trading volume. Hundreds of chart types and indicators exist. Even the best traders lose regularly. They just win more than they lose.

Backtesting means testing your strategy against historical data before risking real money. Keep a trading diary too, tracking both your techniques and your emotional state.

Trading bots automate trades based on market conditions. Some exchanges offer them free. Programmers build their own. Test in a practice account first.

Platforms like Altrady and Coinigy connect to your exchange for research and charting while you trade on the exchange itself.

Derivatives: Even More Volatility

Beyond buying coins directly, you can trade derivatives. These are contracts whose value comes from an underlying crypto. Available for Bitcoin and ether now, likely expanding.

• Call options: Right to buy at a set price by a set date. Bet on price going up.
• Put options: Right to sell at a set price by a set date. Hedge against drops or bet on declines.
• Futures contracts: Obligation to buy or sell at a set price on a set date. Usually settled in cash, not actual crypto.
• Perpetual swaps: Like futures but no expiration date. Used for hedging and trading.

Reichental’s warning: crypto is already volatile. Derivatives compound that. Proceed with caution.

The Risks Nobody Wants to Hear About

Volatility creates opportunity and danger. Use stops.

Emotion kills traders. Doubt and fear make you sell too early. Greed makes you hold too long. Paper trading builds the discipline to fight this.

Pump and dump schemes are everywhere in crypto. Influencers buy a small coin, hype it on social media, sell while others bid it up. If a celebrity posts about a “sure-fire” altcoin, be skeptical.

The numbers are brutal. Studies in Brazil and Taiwan found only 3-5% of day traders profitable over periods ranging from 300 days to several years. Around 90-95% lose more than they gain.

My Take

Chapter 9 is Reichental at his most direct. He doesn’t sugarcoat trading. Alan’s story is relatable: the excitement of a win, the gut punch of leverage, the humility of realizing you’re not a genius.

The chapter works because it separates trading from investing without dismissing either. If you want to trade, paper trade first. Learn order types. Use stops. Study charts. Accept that you’ll lose often. And only risk what you can afford to lose.

For most people, the investing approach in Chapter 10 is probably the better path. But if you’re going to trade anyway, this chapter gives you the vocabulary and the warnings you need.

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