What You Need to Know about Cryptocurrency Trading

The rise of cryptocurrencies was slow and then the market exploded, sending the price of Bitcoin soaring before they ultimately crashed again. The growth in popularity and trading platforms has led to wider acceptance of cryptocurrency and a growing number of people becoming involved with cryptocurrency trading.

When people become interested in cryptocurrency trading, it is easy to get overwhelmed with the process and feel unsure of where to start. Fortunately, there are many resources available for you to learn to navigate the process. To get started with cryptocurrency trading, you will need to choose a cryptocurrency wallet and an exchange for trading.

What You Should Know before Getting Started

Before you get started with cryptocurrency trading, it is useful to know a bit about crypto and how the process works. Bitcoin is the original, and best known, cryptocurrency. Since 2011, countless new cryptocurrency have appeared, each seeking to challenge Bitcoin’s dominance. These cryptocurrencies are called “altcoins” and have been gaining market share at a staggering rate.

The standard currencies in the world, such as the US dollar, are referred to as fiat currencies. When you start trading, you will need to use fiat currency to purchase your cryptocurrency. You can then begin trading among different types of coins, such as from Bitcoin to other types of altcoins.

Cryptocurrency has more in common with stocks than with fiat currencies. When you purchase cryptocurrency, you are actually buying shares of tech stock, a part of the blockchain, and a piece of the network. There are two basic ways to accumulate cryptocurrency, through mining or by buying and selling cryptocurrency on an exchange.

If you have decided to buy crypto, rather than mining, you have some options. There are a few ways to invest in cryptocurrency, including through the GBTC trust sold on the stock market, by choosing an exchange to buy coins on and a wallet for storing coins, or an exchange-broker-wallet hybrid, such as Coinbase/GDAX.

Cryptocurrency Exchanges

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The exchanges are the most common places where cryptocurrency is bought and sold, similar to a stock exchange or a currency exchange in foreign airports. Fiat currency is used to buy and sell cryptocurrency. As with trading on the stock market, you will need a bank account and access to the exchange for cryptocurrency trading.

Although the process is similar, the cryptocurrency exchange is not part of the regular stock exchange. However, GBTC is a trust that owns Bitcoin and sells shares on the stock market. Some people prefer to start investing here since they can buy shares without engaging directly in cryptocurrency trading. It should be noted that bitcoins are cheaper than buying shares of the GBTC trust.

When choosing an exchange, there are several factors to consider to make sure you are choosing a reliable exchange. Information that can signal the quality of an exchange includes liquidity, fees, spread, trading volume, purchase and withdrawal limits, security, insurance, and the user interface.

Cryptocurrency Wallets

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Your cryptocurrency wallet is where you store the encrypted passwords that represent your coins. Coinbase and other exchanges have built-in online wallets that may be used to store your cryptocurrency. However, there have been several high profile hacks that have made people wary of keeping their cryptocurrency holdings on the exchange.

The other options for cryptocurrency wallets include paper wallet services, such as myetherwallet.com or a hardware wallet. Both paper wallets and hardware wallets remove the risk of keeping your crypto on the platform. You can send funds to your paper or hardware wallet from Coinbase, but there is a small transfer fee for this service

Market Volatility

Before you start cryptocurrency trading, it is important to understand the extreme volatility of this market. Fortunes are made and lost in a moment with bitcoin and other altcoins. It is important to consider mitigating your risks and choose the coins you want to trade. There is less risk of losing everything with bitcoin or the bigger altcoins, such as Ethereum than with some of the others.

How To Get Started in Cryptocurrency Trading

When you are ready to get started with cryptocurrency, you need to decide how you want to start. Do you want to try mining or go straight to investing in cryptocurrency by trading on the exchanges? The time and technology required for mining are thrilling for some people, but many prefer cryptocurrency trading on the exchanges.

It is essential to choose a company with a good reputation. If you are a beginner, you may want one that offers an exchange and a wallet, such as Coinbase. The convenience and ease of use have made Coinbase the most popular cryptocurrency website in the United States. They offer a single platform for a wallet and currency exchange, which is great for beginners. You can put money into your wallet and buy coins instantly without the wait time that is associated with buying directly from your bank account.

After you become comfortable with buying and selling cryptocurrency on Coinbase, you may be ready for some cryptocurrency trading among different currencies. You can try their GDAX exchange and then move on to other exchanges, such as Binance, Bittrex, or Kraken as you become more comfortable and confident.

Consider the coins you want to trade. Prominent coins are less risky, such as Bitcoin and Ethereum. However, large profits have been made on a good day with the lesser-known and newer coins.

Setting Up an Account

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You will need to set up an account with Coinbase or another exchange site before you start cryptocurrency trading. Your bank account, debit card, or credit card will need to be connected to your account so you can exchange digital currency in and out of your fiat currency. Yes, this requires providing personal information, such as your ID and bank account information.

The need to provide personal information can make some people uncomfortable, but it is necessary and other traders all had to go through the same process. This is another reason to select a reputable company. Using your bank account is often the best bet since fees are lower than when you use a credit card or debit card for transactions.

Once you have linked your bank account, you will have to wait for about three to five business days for your bank’s approval before you can start cryptocurrency trading. For this reason, you should verify your account and supply the required information and documents as soon as possible, as you won’t be able to start trading until the verification is complete.

Strategies and Tips for Trading Cryptocurrencies

For the beginner, purchasing a major cryptocurrency first, such as Bitcoin, is the safest bet and easiest to navigate. Once you get comfortable buying and selling one type of cryptocurrency, you can try trading Bitcoin or Ethereum for other cryptocurrencies.

There are limits to how much you can buy or sell in a week. These limits can increase in a few ways, such as by adding a photo ID and other payment methods to your account. In addition, the limits increase quickly as you engage in cryptocurrency trading. You will find that your limits increase fairly quickly once you start trading.

There are fees involved with cryptocurrency trading. These can vary, depending on the exchange you are using. Always be sure to read and understand the information about the fees that will be charged before you start trading, so there are no surprises.

You should also be aware of the tax implications of cryptocurrency trading. The tax implications can vary depending on whether you are buying, selling, or investing. Making a mistake in this area can be very expensive.

Keep your cryptocurrency safe. There have been several big hacks in various exchanges and once cryptocurrency is lost, you can’t get it back. For this reason, be sure to take the necessary steps to protect your account. One way to do this is to set up two-factor authentication. This secures your account by sending a code to your phone when you log in, which adds another layer of protection.

Bitcoin is expensive, but remember that you don’t have to buy a whole coin to get started. You can buy fractions of coins if you don’t have a lot of money to invest initially. As you continue cryptocurrency trading, these small fractions of coins can quickly add up.

Spread your investments among cryptocurrency. Some people purchase only Ethereum or Litecoin because they feel like Bitcoin is too expensive. However, you should also consider which cryptocurrencies are more likely to increase in value or retain their value over time. Pick a couple and buy them in equal dollar amounts, so you can enjoy the returns offered by each type of coin.

Conclusion

Cryptocurrency trading has increased in popularity, as crypto has become more widely accepted. The market is highly volatile, so it is important to start off slowly until you learn to navigate the process. By taking the time to learn what you need to know before you start and following some tips and strategies, you can learn to invest wisely and have a great time in the process.

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