Crypto Trading with DYDX – A Guide

With the advent of decentralized finance, investor interest in the cryptocurrency market has increased. They hope to profit from the interest rates on their cryptocurrencies or from long- or short-term wealth movements. To trade correctly, you need the right trading platform. In this article, we have taken a closer look at the dYdX crypto exchange and created a step-by-step guide to trading.

What is the dYdX platform?

dYdX is a decentralized exchange (DEX) platform that offers persistent trading options for more than 35 popular cryptocurrencies, including Bitcoin (BTC), Ether (ETH), Dogecoin (DOGE), and Cardano (ADA). It is one of the outstanding decentralized exchanges in terms of trading volume and market share.

Since its inception in 2017 by Antonio Juliano, the platform originally offered crypto margin trading, lending and borrowing services over Ethereum Layer-1

In August 2021, dYdX started permanent cross margin trading. Cross margin trading helps users reallocate their available balance on the platform, providing liquidity for existing trades. This in turn allows traders to avoid liquidations when volatility is high.

It is important to mention that the main focus of dYdX is derivatives trading. The price of derivatives changes over time based on the value of another asset. Any derivative in the crypto industry is one whose value mainly depends on the price of a particular coin. On such a platform, you can trade Bitcoin, Ethereum, USDC and DAI derivatives.

How to trade on dYdX?

dYdX is a powerful platform when used correctly. We analyzed the platform and wrote a step-by-step guide on how to properly use the dYdX platform.

Step 1: Connect your MetaMask wallet and generate your Stark Key

The first thing you need to do is transfer funds from the Ethereum mainnet to Starkware. Go to the official dYdX website and click “Connect Wallet” on the top left of the page. A pop-up will appear asking you to connect to an Ethereum wallet, e.g. B. MetaMask, Ledger, Wallet Connect or imToken.

For this guide we are using the most popular Ethereum wallet, MetaMask.

Generate STARK key on dYdX

After connecting the wallet to the platform, a pop-up window will ask you to generate a Stark Key. Stark Key is a way to support user account identity and create a secure interaction between Layer 1 and Layer 2.

Click Generate Stark Key. A signature request is then generated. Now accept the transaction. There shall be no fees.

Step 2: Onboarding

After creating a Stark Key, dYdX will ask you to confirm the legal terms. Click “I accept” to continue. Note that dYdX restricts access to US users.

Once you have accepted the terms, dYdX will ask you to create an account with an optional username and email address. To sign up without entering a username or email address, you can skip the prompt and click Create an account. A pop-up window will then appear in the wallet requesting a wallet signature and granting access to dYdX.

Step 3: Transfer USDC to your wallet

To start trading on dYdX, you need a stablecoin from the Ethereum mainnet. The platform only accepts stablecoin USD Coin (USDC) as collateral for trading. So you need to transfer USDC to your wallet.

When you add USDC to dYdX for the first time, you need to enable withdrawal via your wallet. This allows dYdX to withdraw USDC from the wallet using the project’s smart contract. To approve the transaction, you must pay a gas fee in ETH.

Then deposit the amount of USDC you want to trade with, a transaction that also requires payment of a gas fee. The USDC will then appear in your trading account so you can start trading cryptocurrencies now.

Step 4: Start shopping

Trade on dYdX
Shop at dYdX

To start trading, go to the “Trade” tab and then select a crypto asset that you want to trade. dYdX enables permanent trading of several major cryptoassets alongside Bitcoin. Click on the asset to open the trading window.

Buy at dYdX
Buy crypto on dYdX

The deposited funds are displayed as “Equity” on the trading interface.

Leverage in perpetual trading is the amount of money one borrows from the platform to complete a trade. You need to decide how much leverage you want to use, which is an important step in perpetual trading. dYdX allows up to 10x leverage trading. Using 10x leverage will result in liquidation if the asset moves 10% in the opposite direction of the trade you are making.

dYdX liquidates your position after a certain threshold, preventing the loss of borrowed capital. Before entering the trade, the platform automatically calculates the liquidation price of a position.

Step 5: Go geared long

Leverage trade dYdX
Leverage trade dYdX

You can then use the leverage slider to set your preferred level of risk. Then select “Submit Market Order” and the liquidation price will appear at the bottom right of the page.

Since the trade appears as a market order, it is executed immediately. The Portfolio tab shows all open positions.

limit orders

Place limited orders
Place limited orders

To close a position, you can create a limit order that sells tokens at a certain limit price. Go to the Trade tab, place a limit order to sell your asset, and then select a limit price. The platform automatically applies the same leverage that was used for the previous buy order.

How to place a stop loss

Place a stop loss order
Place a stop loss order

Risk management is essential when trading crypto, especially when using leverage. The best way to manage risk is to place a stop-loss order above the strike price when you have a long position.

dYdX also helps create stop-loss orders to minimize capital loss due to market volatility.

Conclusion

dYdX is liquid, combining spot and lending liquidity from various exchanges into a single source.

Trading derivatives is still very risky and not recommended for beginners. But if you’re looking for a reliable cryptocurrency trading platform, dYdX’s Layer 2 exchange seems like the best place to start.

The new StarkWare integration opens up new possibilities when trading perpetual swaps and other derivatives.

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