Cryptocurrency markets sit between traditional finance and a new asset class with its own rules. Bitcoin’s daily spot volume now regularly exceeds $30 billion across centralised exchanges; Ethereum, Solana, and the broader altcoin universe add tens of billions more. Crypto trades 24/7/365 across hundreds of venues, from regulated CySEC-licensed brokers to centralised exchanges to decentralised protocols. This guide is the canonical Volity resource on how crypto trading actually works, the regulatory split between spot and derivatives, the venues that matter, and how to build a strategy stack that survives the volatility unique to this asset class.

How crypto markets are structured

Crypto markets are fragmented across three layers: centralised exchanges (CEX) like Binance, Coinbase, Kraken; decentralised exchanges (DEX) like Uniswap, Curve, dYdX; and CFD/derivative venues like CySEC-regulated brokers and CME futures.

Centralised exchanges hold custody of client coins, match orders against an internal order book, and provide most retail liquidity. Decentralised exchanges run as smart contracts on public blockchains; users keep custody of their wallets and trade by interacting with the contract directly. CFD venues offer leveraged price exposure without taking actual delivery of the coin.

Volume flows are split roughly: 60% centralised spot, 25% CEX derivatives (perpetual futures, options), 10% on-chain DEX, 5% CFD and regulated futures. The split shifts during market stress, DEX share rises when CEX withdrawal restrictions appear, derivatives volume spikes during liquidation cascades.

Spot vs derivatives vs CFDs

Spot trading: buy actual cryptocurrency, take ownership, optionally self-custody in your own wallet. The trader has all the rights and responsibilities of holding the asset, including the ability to use it on-chain (DeFi, payments, staking).

Perpetual futures: leveraged contracts on cryptocurrency price with no expiry. Funded continuously via funding rates that anchor the perp price to spot. Major venue for active speculation; concentration risk at large exchanges (Binance, Bybit, OKX) makes counterparty selection important.

Crypto CFDs: regulated retail derivatives at CySEC/FCA/ASIC brokers. Leverage capped 1:2 in EU retail. Mandatory negative balance protection. Suits traders who want regulated counterparty + leverage but don’t need on-chain functionality.

Each form has its place in a portfolio. Spot for long-term holding and on-chain use; perpetuals for active short-term leverage; CFDs for regulated retail leverage with consumer protections.

Volatility, drawdowns, and position sizing

Crypto realised volatility is materially higher than other asset classes: Bitcoin’s daily volatility is typically 3-5% in calm periods, 8-12% during regime shifts. Altcoins are 2-3x more volatile than Bitcoin during the same windows.

Standard 1% per-trade risk caps that work in forex are too aggressive for crypto. Retail crypto traders should typically cap at 0.5% per trade given the higher likelihood of an outsized adverse move. Daily max-loss limits at 2-3% of equity prevent emotional revenge trading.

Bitcoin has experienced multiple 70-85% drawdowns from prior all-time highs over its history. Altcoins typically draw down 90%+ from cycle peaks. Position sizing must assume drawdowns of this magnitude are not edge cases but recurring features of the asset class.

Common crypto trading strategies

Hodl/long-term spot: buy and hold actual coins through cycles. Suits investors with multi-year time horizons and tolerance for 70%+ drawdowns. Self-custody removes counterparty risk.

Day trading: open and close positions within 24 hours on liquid coins (BTC, ETH, SOL). Suits traders who can monitor markets during high-volume sessions (12:00-20:00 UTC) and have a documented edge over fees + slippage.

Swing trading: hold positions 2-14 days targeting multi-day trends. Suits traders with full-time jobs who can’t monitor continuously. Risk is sized at 1% of equity with stops at structural levels.

Arbitrage: capture price differences across venues (cross-exchange, futures-spot basis, DEX-CEX). Margins compressed at retail level due to MEV bot competition; institutional infrastructure is now the deciding factor.

Algorithmic strategies: rule-based code on exchange APIs. Common at retail: simple moving-average crossovers, mean-reversion scalping, market making on smaller venues. Requires backtesting discipline and walk-forward validation.

Frequently asked questions