Structure of a crypto trade On Basics of cryptocurrency trading

A cryptocurrency trade consists of a buyer and a seller. Since there are two opposing sides to a trade — a purchase and a sale — someone is bound to gain more than the other.

Hence, trading is inherently a zero-sum game: There is a winner and there is a loser. Having a basic understanding of how the cryptocurrency markets operate can help minimize potential loss and optimize for potential gain.

When a price is agreed upon between a buyer and seller, the trade is executed (via an exchange) and the market valuation for the asset is set.

For the most part, buyers tend to set orders at a lower price than sellers. This creates the two sides of an order book.

When there are more buy orders for crypto than sell orders, the price usually goes up, as there’s more demand for the asset.

Conversely, when more people are selling than buying, the price goes down. In many exchange interfaces, buys and sales are represented in different colors.

This is to give the trader a quick indication of the state of the market at a given moment.

You may have heard the common adage in trading: “Buy low, sell high.” This saying can be difficult to navigate in that high and low prices can be relative, although the adage does give a basic representation of the incentives of buyers and sellers in a marketplace.

Simply put, if you want to purchase something, you want to spend the least amount possible. If you want to sell something, you want to make as much out of the deal as possible.

While this is generally good wisdom to follow, there is also the added dimension of longing an asset vs. shorting an asset.

To go long on an asset (longing) means buying an asset and earning profit based on its upward price movement.

In contrast, going short on an asset (shorting) essentially means selling an asset with the intention of buying it back when its price falls below the point at which you sold it, profiting from a price drop.

Shorting, however, is slightly more complicated than this brief description and involves selling borrowed assets that are paid back later.