You have come here because you are curious about how to trade on the crypto market, right? Good! We’ll tell you what your options are if you want to trade cryptocurrency and will also warn you of the risks faced by new traders.
Many traders are attracted to cryptocurrency trading because the market is highly volatile, raising the hopes of high returns in a short amount of time. However, trading cryptocurrency is a highly risky business, and it is difficult to get into for a beginner trader, mostly because it requires some technological savvy. The cryptocurrency market is very volatile, so you can make a lot of profit if you can correctly anticipate how the market moves. But for that, you have to have serious talent in sniffing out market sentiment. You can trade spot cryptocurrency 24/7, as the market, unlike traditional markets, is open all the time; so you can start trading whenever you want. The often unregulated landscape of cryptocurrency trading also makes it easier to enter the market.
There are several issues to consider before you dive in. Let’s take a look!
How to trade cryptocurrencies?
Pick a crypto currency you want to invest in
Most cryptocurrency traders go with the two coins that have the biggest market capitalization, Bitcoin and Ethereum. These two currencies dominate the cryptocurrency market and are the best-known coins. However, smaller, more obscure cryptocurrencies might also have great technology or ideas underpinning them, and as they are usually low-priced, they can provide an alternative investment opportunity. You might of course decide to hold more than one type of cryptocurrency.
How to trade cryptocurrencies?
Pick a platform for cryptocurrency trading
Decide whether you want to buy and sell your cryptos on cryptocurrency exchanges or via traditional brokers. Cryptocurrency exchanges like Coinbase and a few traditional brokers like Robinhood can get you started investing in Bitcoin or other cryptocurrencies. You should also check out our review of online brokers for cryptocurrency trading and our detailed guide to investing in Bitcoin.
Setting up an account at a cryptocurrency exchange, which is basically a cryptocurrency trading platform, takes only a few minutes. You'll need to provide some information, such as your bank account or debit/credit card number that will be used to fund your crypto exchange account. They may also ask for a photo ID before allowing you to start crypto trading.
Check the transaction fees crypto exchanges charge to find the right one for you. Also make sure the exchange has adequate security features. Some of the more popular exchanges include Coinbase, Binance.US, Gemini and Coinmama. Find out more about Bitcoin trading here.
Not all exchanges offer all the coins, so do some research before committing to an exchange. It is also important to note that cryptocurrencies can be traded in several forms, including spot trades, CFDs, ETFs/ETNs or futures. Let’s discuss these one by one.
There are only a few traditional brokers that allow customers to buy or sell spot crypto. Robinhood was the first mainstream broker to offer Bitcoin (Robinhood Crypto is available in most, but not all, US states). Like on its stock-trading platform, Robinhood charges no fees for Bitcoin trades. TradeStation also offers trading cryptocurrency, including Bitcoin, as does eToro.
Several online brokers offer cryptocurrencies as CFDs (Contracts for Difference). CFD trading allows you to invest in cryptocurrencies by betting on their price movements, using your favorite online broker, without actually taking ownership of the crypto coins. The advantage of trading CFDs is that brokers are regulated by financial authorities, adding a degree of safety.
Several Exchange Traded Funds (ETFs) or Exchange Traded Notes (ETNs) are also available that can give you various levels of cryptocurrency exposure. Cryptocurrency ETFs/ETNs track a single cryptocurrency or a basket of different crypto tokens. This form of investment likewise doesn’t require you to manage the digital assets themselves, and is therefore a good alternative for mainstream investors or those who seek a bit more security as they enter the cryptocurrency market.
You can also trade in Bitcoin futures, a feature available at TradeStation. However, this is recommended only for experienced traders, not for beginners. Find out more about futures here.
If you want to start crypto trading, there is also the option of a digital currency asset manager, such as Grayscale Investments. Two of its investment trusts, Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Classic Trust (ETCG) are publicly traded over the counter, which means you can buy them through many discount brokers.
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How to trade cryptocurrencies?
Decide how you want to store your crypto currencies
Cryptocurrency exchanges come with a wallet where you can keep your digital currencies. You can also decide to move your crypto coins to your own wallet, which means you are in better control of them. Wallets are only relevant for spot crypto trading; when trading cryptos as CFDs, ETFs/ETNs or futures, you only get exposure to crypto price movements but don’t actually own the coins, therefore you don’t need to worry about storage.
Think about what kind of wallet works best for you; we explain the main types of crypto wallets here.
In short, hot (online) wallet storage works like a bank account, while a cold (offline) wallet is much like cash kept in your home safe. Hot wallets are more vulnerable to online theft or hacking, but they are easier to access. You will get two keys to your wallet. One is a public key, which is the address where the coins will be sent, and you are free to share it. The private key, however, should never be shared because you may lose your funds if someone gets hold of it.
Depending on how comfortable you are with risk and what your aim is with cryptocurrency trading, you should choose your trading strategy carefully. One popular strategy in the Bitcoin community when trading crypto is “HODL”, which basically means holding on to the currency for the long term. The name comes from a meme-inspired intentional misspelling of the word “hold”. You can also opt for a short-term strategy, which requires you to follow the cryptocurrency market very closely and react to any possible changes very quickly.