How to Trade ETHUSD
Ethereum is the original alt-coin. After Bitcoin, it created waves around 2015. Today, Ethereum has the second-largest market capitalization among all cryptocurrencies.
In this article, we will dig deeper into what Ethereum is, what it offers, and how the US economy is doing. We will also look in more detail at how to trade Ethereum vs the USD, also known as how to trade ETHUSD.
Lastly, we will explore various factors and mindsets when creating Ethereum trading strategies and mention a few words about risk management.
Are you ready to learn more about how to trade ETHUSD? Let’s get started.
Table of Contents
The USD and the American Economy at a Crossroad
The largest economy in the world, in dollar terms, is still the United States. While China continues to catch up, the US is still ahead and has several advantages over China.
The US has one of the most talented human resource pools in the world which plays a big part in the US leading the world when it comes to innovation and technology.
However, the technology stock sector has gone through a slump lately. The pandemic-time policies of the US and the accumulation of debt over a few decades mean the US faces a tough financial environment.
The Federal Reserve fights inflation, rising interest rates, and other challenges. However, the labour market remains tight. Bank collapses triggered by the SVB bank episode also continue to be a concern.
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A Closer Look at Ethereum
Ethereum is a decentralized blockchain-based platform and the currency to transact on the Ethereum platform is called Ether.
However, most people refer to Ether as Ethereum, and the terms are often used interchangeably - even though they actually mean two different things.
Ethereum made the concept of dApps (decentralized apps) popular. It brought terms like ‘smart contracts’ to the fore.
The Ethereum platform allows developers to create decentralized apps and program smart contracts.
Smart contracts are self-executing contracts that find use cases in a wide variety of applications like supply chain management, voting, and crowdfunding.
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How to Trade ETHUSD
When one wants to buy Ether (ETH), one has to pay for it by using a base currency.
Usually, the US dollar is used to transact. However, people in other countries use the Euro, the Pound, the Yen, or many other currencies.
Let us take the example of the US dollar. Let us assume that you want to purchase one Ether. At an exchange rate of $1750, one can pay that amount to buy one ETH. ETH/USD denotes the Ethereum-US Dollar pair.
ETH is the base currency while the US dollar is the quote currency. The idea is to either go long or short the pair. A pair is like a ratio. If you think Ethereum will become more valuable and its price will rise, you would go long and pay US dollars to buy ETH.
If you think that ETH will face challenges or its price will fall for whatever reason, you could go short ETH/USD.
One can trade an ETH/USD Contract for Difference (CFD) and optionally use leverage for the trade. Leverage allows traders to place orders on ETH CFDs significantly higher than their actual deposit.
However, just as leverage amplifies profits, it can also give you outsize losses. We will talk more about that in the risk management section towards the end of this article.
You can view the Daily fluctuations of ETHUSD, below, via the TradingView widget, to gain a better understanding of the price movements:
*Past performance is not representative of future results.
How to Trade ETHUSD: Advantages and Disadvantages
As with all trading and investing activity, there are both advantages and disadvantages to consider before implementing any given strategy or decision with a financial asset.
Naturally, not every financial asset will be suitable for all individuals; it’s important to always first consider your risk management tolerance while also making sure to monitor the performance of your positions.
Some advantages of trading ETHUSD can include:
- Have exposure to the largest alt-coin in the cryptocurrency space
- Exploit the correlation between Ethereum and the USD
- Trade in two assets that are among the most widely traded assets.
Alternatively, we also look at some of the disadvantages of trading ETHUSD:
- Finding it tough to find any pricing anomalies as ETH and USD are widely traded assets
- Dealing with the high volatility of cryptocurrency assets in general
How to Trade ETHUSD: Potential Scenarios
Let us discuss how one may consider strategies that could be used when deciding how to trade ETHUSD.
For any trade, one may generally follow either a discretionary approach or a rules-based approach. A discretionary approach is ad-hoc - you spot an opportunity and you trade. Your instinct and psychology play a big part in this approach.
A rules-based approach has predefined rules. If those rules are triggered, you take the trade. You then don’t think about how the market is or how your mood is or what your hunch says. You blindly follow the system that you have created.
No one approach is better than the other. You can follow whatever you are comfortable with. In both approaches, you can use one or more of the technical indicators that Admiral Markets offers its users.
You can use these indicators to design rules, create trigger points, and analyze the price action. Some popular indicators include the relative strength index (RSI), the moving average (MA), and the Bollinger bands.
One moving average strategy could be to go long when the ETHUSD exchange rate is above its 200-day moving average. On the other hand, one could go short ETHUSD if the price is below its 200-day moving average.
Traders may also use the RSI indicator to spot when the price action is bullish (RSI>50) or bearish (RSI<50) and accordingly go long or short.
These are general examples of how to use the indicators mentioned and should always be compared with other market factors. Please also always consider your risk tolerance and risk management style before entering into any given trade.
How to Trade ETHUSD: Conclusion
We wouldn’t want to end this discussion on how to trade ETHUSD without a word on risk management. It is recommended that a risk-reward ratio is defined before executing any trade.
It is also recommended that position sizes are such that you don’t cross your maximum loss threshold even if your stop-loss level is hit. It is important to use features like price alerts and stop losses to effectively execute a trading strategy.
We hope that you now have a solid understanding of how to trade ETHUSD. By now, you should have a basic idea of where the US dollar is and what the value proposition offered by Ethereum is.
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What is ETHUSD?
The acronym ETHUSD is the representation of the price of the Ethereum cryptocurrency against USD when represented in foreign exchange.
How do you trade Ethereum with USD?
It's possible to trade Ethereum with USD (ETHUSD) via Contracts for Difference (CFDs) at a regulated broker (like Admiral Markets) or you can trade ETHUSD on a traditional cryptocurrency exchange.
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