How to Trade Cryptocurrency – Are you new to the world of cryptocurrency and want to learn how to trade cryptocurrency but don’t know how to start? You are not alone or the only one getting confused on this subject. Since cryptocurrency is a highly volatile asset, you need to time the market right if you want to make much higher returns.
Since cryptocurrency prices are so volatile it’s not uncommon for traders to lose money quickly while trading cryptocurrency. This is why you need to learn the basics of trading cryptocurrency in order not to fall a victim. So in this article, we are going to start with the very basics to give you the balance you need as regards everything crypto.
What is Cryptocurrency?
Cryptocurrency comes in different types, in fact currently there are over 4,000 cryptocurrencies in existence. However they all have one thing in common which is, operating on blockchain technology which makes them decentralized. Decentralization of financial operations via cryptocurrencies have several efficiencies over the traditional financial system.
The largest cryptocurrency is Bitcoin which is used as “digital gold”. Essentially, bitcoin is a commodity that is used as a store of value. In the second position after bitcoin is Ethereum which has a market cap of $210 billion. On Ethereum’s blockchain, developers can develop smart contracts to create decentralized alternatives to traditional banking functions like lending and trading.
Choosing a Cryptocurrency
When it comes to choosing the best cryptocurrency, it is best to state here that there is no best single cryptocurrency . Rather there are best cryptocurrencies depending on what you are using it for. Most of the best cryptocurrency projects rank in the top 50 market capitalization of cryptocurrency.
Most small market cap cryptocurrencies, on the other hand, have questionable use cases or have under-delivered in their promises. Typically, small market cap crypto are generally more riskier than larger market cap coins like Bitcoin and Ethereum.
Thus it is quite important to invest in cryptocurrencies that have a solid team backing the project. To learn more about a particular cryptocurrency, its best to read the cryptocurrency’s whitepaper. This will give you a better understanding of how the crypto works as well as its intended use.
How Does Cryptocurrency Work?
The term cryptocurrency refers to digital assets which are powered on the blockchain. Blockchain technology on the other hand, stores a ledger of every transaction of the cryptocurrency on every node which powers the blockchain. Nodes here, refer to computers which are connected to Bitcoin’s network to mine Bitcoin. Once one of these miners tries to enter false transactions, it gets nullified by the correct ledger.
Now understand that the correct ledger is determined by the majority of miner’s records. In order to transact with a cryptocurrency, you’ll need to have a set of public and private keys. These keys are like passwords which are generated by your cryptocurrency wallet. Your public key is connected to your wallet’s address which enables people to send you cryptocurrency. Your private key is used in approving transactions that are being sent from your wallet. You are the only one with access to your private keys.
Advantages & Disadvantages of Investing in Cryptocurrencies
What attracts investors to cryptocurrency is its high volatility. As such, it is not uncommon for a cryptocurrency’s price to fluctuate over 10% in a single day. This will actually be great if you are looking for high returns. However, if you are an investor who is risk-averse, then you may have to opt-out of investing in cryptocurrency.
How to Trade Cryptocurrency
Here are the five steps you can use in trading cryptocurrency:
Set up a cryptocurrency brokerage account
The first step you’ll need to take, would be to set up a cryptocurrency brokerage account. eToro, Gemini and Coinbase are among the best crypto brokerages out there that you can choose from. These 3 brokers, offer a simple user interface as well as a variety of altcoins which you can choose from.
To make an account, you’ll need to provide your crypto brokerage with personal identification information like your social security number, address, date of birth as well as email address.
Fund your account
The next step you’ll be taking, is to fund your account. This you will do by connecting your bank account. Most crypto brokers, offer bank funding via debit cards and wire transfers. When it comes to funding your account, wire transfer is typically your cheapest option. Wire transfer is free on Coinbase and Gemini.
Decide on a crypto to invest in
You can start by trading with technical indicators which is a lot easier. This is why most active cryptocurrency traders allocate most of their capital to Bitcoin and Ethereum. This is because these cryptos move more predictably than smaller altcoins.
However, most crypto traders allocate a portion of their capital to smaller altcoins, even though they are a lot riskier than large market cap cryptos, because they offer higher upside potential. Be it as it may, many small altcoins have risen above -1,000% in a matter of months, which makes them attractive investments for risk tolerant investors.
Choose a Strategy
You can choose from the plethora of trading indicators. Most traders take more than one factor into consideration when buying and selling cryptocurrency. If you are new to the investing terrain, you may want to consider purchasing a cryptocurrency trading course.
If you are already experienced in crypto trading, you may already have a strategy you use in trading stocks. Most stock trading strategies are also commonly used for cryptocurrencies.
Store Your Cryptocurrency
If after carrying out the first 4 steps, you are successfully trading your cryptocurrency, you will have to store your funds on the exchange in order to have access to them. If you are buying your cryptocurrency to hold for maybe a mid to long term, then you have to get a cryptocurrency wallet.
Cryptocurrency wallets are designed as software wallets or hardware wallets. Both of these wallets are secure even though the hardware wallet offers the best security. This is because they store your crypto on a physical device offline. One of the great hardware wallet brand that many investors trust to store their crypto assets on is Ledger. If you want to use a software wallet, you can find several options on iOS, Google, Chrome and Android which are free to use.
Some of the Best Cryptocurrency Brokers
Some of the best cryptocurrency brokers includes:
- Robinhood – Best for Beginners
- eToro – Best for Social Trading
- Gemini – Best for Ease-of-Use
- Coinbase – Best for New Investors