Cryptocurrency is a high-tech field, so it's only logical that traders need an array of digital tools to successfully navigate Web3. From monitoring market data and transferring tokens to interacting with decentralized finance (DeFi) and filing crypto taxes, countless crypto-specific tools simplify all aspects of the digital assets space.
However, with so many crypto tools now available—and a wealth of opinions on which ones to use—choosing the right gear is a tricky task. So how do crypto traders distinguish between essential services and nice-to-have products when sifting through lists of popular tools?
In this guide, we’ll explore the ins and outs of crypto tools, why traders should use them, and the most commonly used tools across the crypto market.
What are crypto tools?
Crypto tools are products or services that help traders manage their virtual currency portfolios. Some of these tools serve practical functions—like sending, swapping, and storing crypto assets—while others provide traders with advanced analytics and market information to make informed trading decisions.
Whatever specific features a crypto tool offers, it purportedly aims to simplify a trader's life and reduce the stress of trading and using cryptocurrencies. A "good" crypto tool would decrease the time traders spend and the anxiety they may experience when building and rearranging their crypto assets.
Why use crypto tools?
It may seem like adding more crypto tools to a trading strategy makes life more complicated, but finding a collection of high-quality tools often simplifies a trader's experience. In addition to portfolio management, crypto tools possess the power to automate tedious tasks, spot unique opportunities, and record detailed transaction data for simplified analysis and reporting.
Without crypto tools like portfolio trackers, automated price alerts, and tax software, traders have to dedicate far more time to manually keeping tabs on their positions, which drains their limited resources and puts them at risk of human error.
Also, considering how the crypto market operates 24/7, it's impossible for traders to stay on top of their positions every day. Crypto tools leverage the advancements in software programs and artificial intelligence (AI) to offer traders a more convenient, consistent, and user-friendly crypto trading experience.
Commonly used crypto trading tools
Each crypto trader has unique needs and preferences, but many include the same tool categories in their arsenal. Understanding the basics of major crypto tool groups is an excellent way for everyone (from beginners to seasoned traders) to understand their options and start putting together their equipment.
Crypto wallets
No matter a crypto trader's strategy and objectives, they need a safe place to keep their virtual currencies. However, since cryptocurrencies live on decentralized distributed ledgers, traders can't rely on physical storage solutions or traditional institutions like banks.
In Web3, traders need crypto wallets to store digital assets and transfer virtual currencies between exchanges, fellow crypto users, and decentralized applications (dApps). Even if traders don't plan to move their cryptocurrencies for years, they need a reliable and compatible software application or device to keep their virtual coins safe.
When choosing a crypto wallet, consider a few classifications. First, determine the wallet type: custodial or non-custodial (or self-custodial). Custodial crypto wallets have custodians to watch over the cryptocurrency in users’ accounts. Self-custodial crypto wallets, conversely, allow traders to fully control their digital assets with a private key, giving them intermediary-free access to digital assets stored at their blockchain address––further mitigating counterparty risks and enabling access to Web3's decentralized services.
In addition to custodial versus self-custodial wallets, consider the pros and cons of hot versus cold crypto wallets. Hot crypto wallets like MetaMask and Phantom are software apps traders download on mobile devices or PCs. Cold wallets, however, are offline crypto storage solutions, such as paper QR codes or USB-like hardware devices like Trezor or Ledger.
Since cold wallets aren't constantly connected to the internet, they have a lower risk of hacks and exploits. Hot wallets are typically user-friendly and cheap, but hardware wallets are more known for their relative security.
Crypto exchange account
After setting up a crypto wallet, traders need a secure platform to buy, sell, and swap their favorite virtual assets. Although some crypto wallets let users purchase cryptocurrencies with fiat-to-crypto services, they often charge high fees, don't offer advanced order types, and only have a few available digital currencies. For greater customization and convenience, traders often sign up for one or more exchanges specializing in virtual assets.
Every crypto exchange has different fee structures and offers unique products and features, but they fit into one of two categories: centralized exchanges (CEXs) or decentralized exchanges (DEXs).
CEXs like Coinbase and Gemini offer eligible traders access to a suite of crypto-related services on centrally controlled trading platforms. Many CEXs let traders transfer their tokens off the exchange to self-custodial wallets, but then users have to deal with counterparty risks when interacting with the CEX's interface.
In contrast, DEXs like Uniswap and dYdX use blockchain technology to remove intermediaries from the trading experience. Instead of submitting personal know-your-customer (KYC) information to set up a CEX account, DEX traders link a compatible self-custodial crypto wallet and make peer-to-peer (P2P) transfers through their chosen protocol.
For a complete list of CEXs and DEXs, use the Exchanges tab on crypto price aggregator sites like CoinMarketCap and CoinGecko for detailed info when comparing different platforms.
Crypto portfolio trackers
The more often traders enter and exit the crypto market—and the more passive income opportunities they use in DeFi—the more challenging it is to get an accurate read on their yearly profits. Thankfully, tools called crypto portfolio trackers help traders aggregate data from multiple dApps and exchange APIs to neatly arrange their trading activity.
Portfolio trackers like Coinigy and Delta give a complete overview of a crypto trader's positions, automatically estimating the average buy and sell prices for various coins and their total gains and losses. Besides giving traders insight into the efficacy of their strategies, these trackers often have rebalancing features to adjust a trader's position sizes and maintain their preferred diversification.
Installing one of these crypto analysis tools is a way for traders to get a bird's-eye view of portfolio management.
Price alerts and news feeds
Despite being glued to crypto price aggregator sites, staying up to date on everything going on in this fast-paced market is impossible. One way to make monitoring the crypto industry manageable is to set up price alerts, news notifications, or widgets from trusted sources to get briefs whenever something significant breaks.
Some crypto exchanges also let traders sign up for email or push notifications for the tokens in their watchlists.
Crypto tax software
Crypto traders often complain during tax season. While properly recording crypto transactions for tax authorities is challenging, specialized software solutions make the tax reporting process less of a nuisance.
Programs like CoinLedger, CoinTracker, and Koinly connect with a crypto trader's public wallet address and exchange accounts to provide accurate transaction data and generate tax documents.
Installing crypto tax software usually costs extra, but these tools may save crypto traders considerable time and could help avoid potentially costly mistakes.
Charting tools
For day and swing traders, analyzing technical patterns on the most popular crypto charts is a common strategy to predict future movements and choose critical levels when setting up trades.
Crypto charting tools like TradingView make it easier to visualize these data points with multiple technical analysis indicators (e.g., Fibonacci retracements, Ichimoku clouds, and volume bars) and moving-average trendlines for historical and real-time chart data.
Traders often use the features on professional charting sites to identify the optimal entry and exit points according to their risk preferences, make educated predictions, and formulate effective trading strategies.
Trading algorithms and bots
Crypto trading bots are advanced software applications that automatically execute trades according to their predefined algorithmic instructions. Crypto traders who use bot trading either build custom-made algorithms or use a third-party bot provider like Shrimpy or 3Commas for automated exchange trading.
Trading algorithms promise to take the stress out of entering and exiting the crypto market, but they're only as good as their programming. These bots offer a less emotional way to enter and exit the volatile crypto market, but they aren't an entirely hands-off approach since traders need to constantly backtest their algorithms and monitor performance.
Check out the latest trading tools on dYdX
dYdX's decentralized perpetual exchange gives eligible traders plenty of tools to make confident trades in the crypto derivatives market. After connecting a compatible crypto wallet, eligible traders on dYdX enjoy instant access to slippage tolerance controls, leverage, and advanced order types for pinpoint accuracy when trading perps. Find out more about dYdX's latest features, upgrades, and services on our official blog. Also, check out dYdX Academy for more in-depth guides and trading tips for digital assets, and eligible traders can start trading on dYdX today.
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The content of this article (the “Article”) is provided for general informational purposes only. Reference to any specific strategy, technique, product, service, or entity does not constitute an endorsement or recommendation by dYdX Trading Inc., or any affiliate, agent, or representative thereof (“dYdX”). Use of strategies, techniques, products or services referenced in this Article may involve material risks, including the risk of financial losses arising from the volatility, operational loss, or nonconsensual liquidation of digital assets. The content of this Article does not constitute, and should not be considered, construed, or relied upon as, financial advice, legal advice, tax advice, investment advice, or advice of any other nature; and the content of this Article is not an offer, solicitation or call to action to make any investment, or purchase any crypto asset, of any kind. dYdX makes no representation, assurance or guarantee as to the accuracy, completeness, timeliness, suitability, or validity of any information in this Article or any third-party website that may be linked to it. You are solely responsible for conducting independent research, performing due diligence, and/or seeking advice from a professional advisor prior to taking any financial, tax, legal, or investment action.
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