Cryptocurrencies are undoubtedly the most volatile and hyped up asset class in finance this year. There is so much volatility to capitalize on both the long and short side. In order to capitalize on this volatility, it must be understood that there are many differences from trading stocks. Here are three important differences between day trading cryptocurrencies versus stocks:
- 24/7 Market Hours
- No Pattern Day Trading Rule
- Larger Intraday Range
Market Hours: The US stock market is open from 9:30 AM – 4:00 PM EST Monday-Friday. Cryptocurrencies, however, trade 24/7. This results in several different changes in your trading approach. First of all, the hours of the best volatility and cleanest moves in cryptocurrencies are not at the same time of day as stocks. US stocks tend to have the best moves right as the market opens at 9:30AM until around 11 AM.
The most volatile hours of trading cryptocurrencies are the early morning hours from 4AM – 7AM. This also means that cryptocurrencies are easier to day trade for those with daytime jobs. You can trade cryptocurrencies whenever you want. Day Trading stocks with a day job is much harder because the market hours are when most people work.
Pattern Day Trading Rule: The pattern day trader rule is a law that prohibits individuals with US brokers with less than $25,000 from making more than three day trades per week (A day trade is defined as buying and selling a stock in the same day).
However, there is no pattern day trading rule in cryptocurrencies. You can open a $200 account if you wanted to with a cryptocurrency exchange and buy and sell as many cryptocurrencies as you want every day. This means that if you do have a strategy with an edge trading cryptocurrencies, you will be able to grow your account much faster than with a $2000 E-Trade account.
Range: The most liquid cryptocurrencies have much greater intraday ranges than the majority of most liquid equities in the stock market. The cryptocurrency Ethereum (ETH) for example moves 15-30 dollars most days. With it trading in the $200s at the moment, you’re looking at 5-10% moves in either direction every day.
Remember that when trading an instrument with a large range you have to widen your stop loss in order to capture these bigger moves in cryptocurrencies. It is much rarer to catch a 5-10% move intraday in stocks (outside of penny stocks).
Cryptocurrencies are an incredibly new frontier in the financial markets. To prepare yourself for capitalizing on this exciting new opportunity, check out our cryptocurrency chat room CryptoStreet.
Bulls on Crypto Street is a trading education website dedicated to digital assets such as Bitcoin, Ethereum, DeFi, NFTs, and other new advancements in the Metaverse.