How to Trade Ethereum (ETH) - A Detailed Guide | LiteFinance (2024)

Trading Ethereum is available to everyone. Sign up to theLiteFinance Client Profile, open a trading account, make a deposit, and start trading. However, not everyone can make substantial profits. If you want to make money trading crypto, you need to understand numerous aspects, such as the nature of Ethereum, the cryptocurrency features and peculiarities, the factors determining pricing, and so on.

This article will explain essential aspects of trading Ethereum, the ETH network features, and factors affecting price trends. You will also learn about trading CFDs, ETH cryptocurrency pairs and complex instruments, and profitable trading strategies.

What Is Ethereum?

Ethereum Classic is an altcoin that is basically the source code for Ethereum. It was created in 2015 by Russian-born Canadian programmer Vitalik Buterin. In 2016, after the scandalous scam of The DAO running on the Ethereum blockchain, an unprecedented decision was made to make a copy of the original branch (token fork) to protect victims of The DAO. The Ethereum clone took over the original name of the token and its ticker ETH, while the old branch was named Ethereum Classic and the ticker ETC. Today,ETH is second only to Bitcoin in terms of market capitalization.

If in 2015 the ETH token cost $1, then today, 14.09.2024 the price of Ethereum versus the US dollar is 2 413.52. No wonder the investment portfolio of every second crypto trader includes this coin. You can sell or buy Ethereum on any centralized or decentralized exchange.

Ethereum is a decentralized currency, and its price is very volatile. At the same time, it can be used like a regular fiat currency: receive, send, lend, etc. That is, it is just a payment network that does not depend on central banks. The Ethereum blockchain offers more sophisticated tools for a fundamentally different economy based on smart contracts.

How Ethereum Is Different From Bitcoin

Ethereum and bitcoin trading form a significant part of the cryptocurrency market. Therefore, traders and analysts often compare these underlying assets.

What do the Bitcoin and Ethereum ecosystems have in common:

• Both cryptocurrencies are based on a decentralized transaction confirmation mechanism.

• New tokens in both systems are generated by miners.

• Both cryptocurrencies are extremely volatile. However, Ethereum is more volatile than Bitcoin. Many other cryptocurrencies can be classified as a risky asset. Also, Bitcoin outperforms Ethereum in terms of market capitalisation.

The differences between Ethereum and Bitcoin

• Users of the Ethereum system can enter into SMART contracts without programming knowledge. There is no such possibility in the Bitcoin system.

• The Ethereum virtual machine (EVM) allows multiple applications to run on the same platform at the same time. Due to the decentralized computing machine, there is no need to create a separate token for each application.

• Bitcoin is based on the Proof-Of-Works algorithm, which encourages miners to perform more computing operations on their hardware. In September 2022, Ethereum switched to the Proof-Of-Stakes protocol, that is, it is enough just to stake ETH tokens to distribute the reward.

• You can create your own coins on the Ethereum basis without developing your own blockchain. As a result, in 2017, there was an ICO (initial coin offerings) boom. The ease of creating an altcoin, the anonymity, and the hype around the cryptocurrency attracted a lot of scammers to this industry, and in 2018 many projects went bankrupt. The first large-scale crisis has begun in the cryptocurrency market.

What Drives Ethereum’s Price?

In your investment strategy, you should take into account factors that can affect the value of an asset. It is especially acute for margin trading, as due to the use of leverage, there is a risk of losing money rapidly due to leverage.

The Ethereum value depends on many factors:

1. Bitcoin price. Centralized and decentralized exchanges mainly trade Bitcoin; this cryptocurrency dominates on retail investor accounts. Therefore, it is important to closely monitorBTC prices - their change often sets the sentiment for the entire cryptocurrency market, including Ethereum. Here it is important to study the Ethereum price chart. If the ETH rate does not correlate with the movement of Bitcoin, then the Ethereum trend is likely to change soon.

2. The number of projects in the Ethereum ecosystem. The Ethereum blockchain is not focused on balancing supply and demand but primarily on creating a global decentralized platform for the development of other projects, which, as a rule, contain a lot of ETH on their balance sheets. However, the reports of project hacks have a negative impact on the Ethereum market.

3. The attractiveness of mining. The price of ETH tokens and crypto derivatives largely depends on the attractiveness of the decentralized network among miners. After switching to POS consensus, miners began to receive rewards from staking crypto coins. If the investment attractiveness of Ethereum falls, then there is a risk of mass sales. As a result, the value of the Ethereum token will decrease.

4. Wide use. Large companies are increasingly using digital currencies and cryptocurrency exchanges as an alternative to traditional fiat currencies and banks. If Ethereum is preferred, its price will also go up.

5. Growing popularity of derivatives. Instead of the classic spot market, more and more people are starting to trade Ethereum financial derivatives with leverage. This allows you to multiply initial investment but also affects the volatility of the instrument, as, in addition to buying, you can open sell positions.

6. Processing capacity. Ethereum's processing speed is quite slow, with only 15 transactions per second. Because of this, many popular ecosystem projects have technical problems, and developers are forced to switch to other networks. Such cases negatively affect the blockchain's popularity and ETH's price.

7. Ethereum development. Developers are gradually upgrading the network: a global update of Ethereum 2.0 is planned, which is being introduced in stages. At the moment, the first stage has been completed - the blockchain has switched to the PoS protocol. In the future, the development team is going to increase the speed of transaction processing and improve the security and scalability of the network. If successful, the ETH rate will rise.

Benefits of Ethereum smart contracts

A smart contract is a very convenient financial instrument that provides transparent conditions for interaction between Ethereum users due to its decentralized nature. This is a kind of alternative to legal contracts, while the significant risk of non-execution of transactions is minimized by blockchain technology. As long as Ethereum exists, it is impossible to introduce alternative database structures, that is, to change the contract in any way or cancel it.

Let us consider smart contract capabilities using the example of a soda machine. The buyer puts the coins in the tray, and they are stored in the machine until the automatic execution of the contract, that is, until the soda is provided. Similarly, retail traders, under the terms of the contract, invest a certain amount of ETH, which is blocked by the system until the obligations are fulfilled. And while the soda machine can fail, in the case of the blockchain, the own risk of non-execution or delay of the contract is close to zero.

There are other benefits of smart contracts:

• Smart contracts are easy to track and verify, the contracts are in the public blockchain.

• The support of complete privacy, which is not possible, for example, when using a bank account.

• Any participant can get acquainted with the program code of the contract, that is, make sure that the public conditions are transparent.

Major problems of Ethereum

When choosing a digital currency, it is important to explore its advantages and disadvantages. The main problems of Ethereum, which the developers themselves recognize and plan to fix in the future, include the following:

1. Safety problems. Traders usually hold Ethereum to fund their trading account or for other financial transactions. Few people hold large amounts without a specific purpose; there is a risk of theft through a crypto exchange and fraudulent projects on the network. Also, the user may lose private keys and permanently lose access to their digital funds.

2. When going to buy Ethereum, the user counts on cryptocurrency confidentiality. However, Ethereum trading does not imply total confidentiality of transactions. If you want to ensure complete anonymity on the network, pay attention, for example, to Monero.

3. Trading Ethereum on crypto decentralized or centralized exchanges often requires a lot of transactions. However, Ethereum has problems with scalability, its processing speed is limited to only 15 transactions per second. If there are more computational operations, the speed will suffer.

4. High transaction fee. The commission in the Ethereum blockchain is formed according to the principle of an auction: the first one is served who pays more. As a result, during periods of peak loads on the Ethereum network, the cost of one transaction can reach $50 or even $100.

How to Trade Ethereum

Before you start to buy or sell Ethereum, find out how to trade Ethereum. One of the key indicators for leveraged trading is the exchange rate of the c in relation to bitcoin. As with traditional trading, crypto trading uses technical analysis based on past performance.

How to trade Ethereum with maximum efficiency? To answer this question, you need to know the Ethereum trading hours. ETH, like other cryptocurrencies, is traded around the clock without interruption. The activity on the exchanges decreases from 23:00 to 00:00 (CET) on weekdays. At weekends and on holidays, periods of low trading activity are longer. I strongly do not recommend trading at such times, as trading becomes the most unpredictable and dangerous.

It is extremely important to choose the right platform where you can trade cryptocurrency pairs and other assets with minimal costs. So, when tradingETH on the Ethereum blockchain, you will pay huge commissions.

LiteFinance is an award winning trading platform that offers a wide range of crypto assets for trading with competitive spreads. As a regulated broker, LiteFinance provides complete security as well as instant execution of trading orders.

Best Ethereum trading strategies

Successful Ethereum trading is possible only with a carefully calibrated strategy. For example, the spread of prices allows you to make money on arbitrage trading. Ethereum intraday trading is also popular among traders. Day trading Ethereum is quite profitable because ETH is more volatile than BTC and some other crypto assets.

Arbitrage trading strategy

Arbitrage trading is quite simple. You buy an asset where it is sold cheaper, and you sell it where traders are willing to buy it at a more expensive price. In the simplest case, one can buy Ethereum on one exchange and then resold at a higher price on another platform.

In the screenshot above, you can see that the price of ETH is different on each decentralized or centralized exchange at the same time. With sufficient trading volumes, this difference can cover all commissions. For example, if ETH is $1519 on Binance and $1529 on Bittrex, then you buy crypto on Binance and then sell it with a profit on Bittrex. This is how classic arbitrage traders work.

Another trading strategy is sub-arbitrage. It means making a profit through the actions of arbitrage traders. First, a cryptocurrency is purchased on a low-liquid exchange with higher volatility. The same asset is massively bought by arbitrageurs, who then sell it on another site. Due to a sharp increase in demand, the price of a cryptocurrency on a low-liquidity exchange will rise. This can be used to make money.

Arbitrage strategies have a downside. Unexpected fluctuations in ETH prices can reduce potential profits or even cause losses. You can lower risks in two ways.

• resell immediately after purchase;

• trade in a sideways trend when the volatility is low.

For each transaction, I recommend separately calculating the profit from the price difference, taking into account all fees so as not to face a loss.

Intraday trading strategy Ethereum

Ethereumday trading has great potential, as ETH has high volatility and there are no breaks between trading sessions. An important factor here is the time of maximum trading volumes in order to open positions during periods of strong price movements. As a rule, the most active trading takes place from 10:00 to 18:00 UTC.

Let me outline a few major rules and some investment advice for intraday trading Ethereum:

• enter and exit trades within the same day;

• trade in short-term timeframes, such as 30 minutes or one hour;

• continuously monitor the market, detect and analyze trading signals;

• enter a trade on the news, trend reversals, or breakouts of strong support or resistance levels;

• set easily achievable targets to make profits within a day;

• set a stop loss at a short distance from the entry point to lower a potential loss.

Let us look at an example of intraday trading the ETHUSD. The trade is entered on the resistance level breakout, marked by the purple line. Enter a trade when the next candlestick opened, the blue line. A stop loss is set at the last local high, the red line. The target profit is set at the strong resistance level (the green line); a take profit is set here. The price reaches the target profit in five hours; the trade is executed with a profit.

Trading Ethereum: Tips & Advice

Don't forget analytics. Before making trading decisions, traders study all the necessary information. This is especially acute when trading Ethereum, whose price can change dramatically with the release of any news.

Combine technical analysis with media publications. Technical analytics will help build the concept of price movement. Monitoring the news will help reduce potential losses, which could be caused by sharp chart reversals.

Trade according to your strategy, and predict the price movement in advance. Traders trade on a trading system with a strict set of rules for entering the market and taking profits, taking into account possible risks. Before opening deals, you should have a clear forecast that takes into account the price movement in the short term, in which cases quotes can turn in the opposite direction, and what trading goals can be achieved.

Be cautious, especially if you trade with leverage. I have already written that Ethereum is quite a volatile currency. Therefore, you need to be on the lookout. When trading on shorter timeframes, monitor signals in real time while at least one position is open. Do not choose too high leverage: any slight price movement can lead to serious losses, and a sharp price swing can completely destroy your deposit.

Conclusion

Ethereum is a promising asset for crypto traders. Ethereum is second only to Bitcoin in terms of market cap. Its high volatility and large trading volumes allow you to make profits even in short timeframes. The crypto market operates 24/7, so you can trade ETH at any time. However, when trading this cryptocurrency, you need to be cautious and control possible losses. In addition to technical analysis, it is important to keep track of news about Ethereum and the cryptocurrency industry, as various events can affect the value of Ethereum.

Price chart of ETHUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.