Cryptocurrencies let you exchange them for goods and services, just like conventional money, or trade them for profits. However, unlike conventional money which is issued and controlled by governments, digital currencies are decentralized and there is no single entity that controls their issue.
The first cryptocurrency to be created was bitcoin in 2008 by a mysterious person or group going by the name Satoshi Nakamoto. Bitcoin’s introduction was only the beginning of an influx of a myriad of cryptocurrencies, all launched with the aim of replacing bitcoin. All those other currencies that came after bitcoin are today known as altcoins – alternatives to bitcoin.
What is Cryptocurrency?
Although there are many different types of cryptocurrencies, they all have one thing in common: they operate on blockchain technology, making them decentralized. Decentralization of financial operations through cryptocurrencies has several efficiencies over the traditional financial system, including:
- Cuts out almost all the overhead costs associated with banks
- Less expensive transactions that can be sent and received internationally
- Inflation or finite supply that’s written into code — no need to trust the Federal Reserve
- Financial derivatives like trading strategies and loans can be coded directly onto certain cryptocurrency blockchains, replacing the need for financial intermediaries.
The largest cryptocurrency is Bitcoin and it’s used as a “digital gold.” Essentially, Bitcoin is a commodity used as a store of value. Ethereum is the 2nd-largest cryptocurrency with a market cap of 0 billion. Developers can develop smart contracts on Ethereum’s blockchain to create decentralized alternatives to traditional banking functions, like lending and trading.
How to Trade Cryptocurrency
Take a look at the 6 steps to trading cryptocurrency.
Step 1: Make a cryptocurrency brokerage account.
Unless you already own cryptocurrency, you’ll need to make an account with a crypto brokerage. Coinbase, Gemini and eToro are among the best crypto brokerages on the market. All 3 of these options offer a simple user interface and a variety of altcoins to choose from.
To make an account, you’ll need to provide your crypto brokerage with personal identification information, similar to opening an account with a stock brokerage. Some common information you need to provide when setting up your account includes your Social Security number, address, date of birth and email address.
Step 2: Fund your account.
Once you’ve signed up with a crypto brokerage, you’ll need to connect your bank account. Most crypto brokerages offer bank funding through debit cards and wire transfers. Wire transfer is typically your cheapest option to fund your account –– it’s free on Coinbase and Gemini.
Step 3: Pick a crypto to invest in.
Most active cryptocurrency traders allocate most of their capital to Bitcoin and Ethereum. These cryptos move more predictably than smaller altcoins, so trading with technical indicators can be easier.
Many crypto traders allocate a portion of their capital to smaller altcoins. Although small mid-market cap cryptos are riskier than large-market cap cryptos, they offer higher upside potential. Many small altcoins have risen over 1,000% in a matter of months, making them attractive investments for risk-tolerant investors.
Step 4: Choose a strategy.
There are a plethora of trading indicators to choose from, and most traders take multiple factors into consideration when buying and selling cryptocurrency. If you’re new to investing, you may want to consider purchasing a cryptocurrency trading course.
Asia Forex Mentor is a popular choice that can teach you how to invest in foreign currency along with other items—including cryptocurrency. The One Core Program has been featured by several financial information sites, and it is a favorite of Benzinga. Check out a review of the platform, consider signing up and change your approach to trading.
If you’re an experienced trader, you may already have a strategy you use to trade stocks. Stock trading strategies are also commonly used for cryptocurrencies. A personal favorite trading strategy that many traders use is Elliott Wave Theory. Elliott Wave Theory focuses on the psychology behind the market sentiment, so it works particularly well for speculative assets like cryptocurrencies.
Step 5: Consider automated crypto trading.
When you seek out a crypto trading strategy, you might try automated crypto trading with a platform like Coinrule. Trading bots enact a strategy that is intended to give you the best results given your investment goals. Because automated trading can provide you with a conservative, neutral, or aggressive method, you can make money quickly, hold your coins or diversify your portfolio.
You might also consider actively trading cryptocurrency on some platforms while using automated trading with others.
Step 6: Store your cryptocurrency.
If you’re actively trading your cryptocurrency, you’ll have to store your funds on the exchange to have access to them. If you’re buying your cryptocurrency to hold for the mid to long term, then you should get a cryptocurrency wallet.
Cryptocurrency wallets come as software wallets or hardware wallets. Both are secure, but hardware wallets offer the best security, as they store your crypto on a physical device, offline. Ledger is a great hardware wallet brand many investors trust to store their crypto assets on. If you’re looking for a software wallet, there are several options on iOS, Google Chrome and Android that are free to use.
One of the best software wallets available to cryptocurrency traders is ZenGo. The mobile wallet uses secure 3-factor authentication to protect your digital assets, offering comparable security to other wallets on the market. Plus, ZenGo lets you buy, sell and earn interest on digital assets directly from your wallet.
A beginner’s guide to cryptocurrency trading
The first step in cryptocurrency trading is to find a suitable cryptocurrency trading platform and create an account. Different cryptocurrency traders have different needs and goals when it comes to trading. Fortunately, there are a variety of trading platforms to choose from on the internet. There are various factors to consider before choosing a platform such as security, ease of use, number of assets supported and many others.
After selecting a reliable platform, the next step is to create an account. Most platforms will provide you with a registration form to complete. You will need to enter a valid email address, choose a strong password and then click register. You will then be required to verify your account: an email will be sent to your address with a code that you use to verify your account.
After successful verification, the next step is to deposit your initial capital and begin your cryptocurrency trading journey. There are several methods of depositing funds such as credit/debit cards, Skrill, bank transfer, etc.
Trading cryptocurrencies might sound simple. However, there are many factors that determine whether you will be successful or not. Cryptocurrency trading is not a get-rich-quick scheme, but a wealth building and income generating method that requires discipline, patience and skills. Here are some tips to help you become a good cryptocurrency trader:
Do your research
The crypto market is a vast market with different protocols of trade. Therefore, it would be best if you understood the market from your point of view. Your research should include the crypto exchanges, cryptocurrencies, and platforms for trade. Be wise to check the pros and cons of investing in such a diverse market. Once you are convinced with the information gathered, you can progress to trading.
Practice different trading strategies
The crypto market is volatile, and it changes daily. So there is no better way to understand the market than to start trading the same assets. Dummy accounts help with the practice of how the actual market operates. There are multiple dummy accounts online for different coins. Pick the tab that best serves your interest.
Pick a cryptocurrency and start trading.
There are about 7,000 cryptocurrencies in circulation in the current market. Pick a crypto currency based on the criteria of performance and its longevity in the market. You want to trade a currency that will offer you reasonable returns in the long run. As a beginner, avoid trading initial coin offerings (ICOs) because you do not know their success rate or how legitimate they are.
Diversify your investments
As the saying goes, “do not put all your eggs in one basket” and this rule applies in digital assets as well as stocks. Investing in digital assets can be lucrative but, likewise, the possibility of total loss come in equal measure. Diversifying across several altcoins helps you to cut your losses in case one cryptocurrency drops in price.
Don’t put all your life savings into trading
Like any other financial asset, cryptocurrencies can either be profitable or you can lose money. The crypto market is risky and, as an investor, it would be wise to only invest sums of money you can afford to lose. The current market crash was not predictable, yet it happened. There have been other crashes before, and likely more will occur in the future. There is never a 100% guarantee that you will get back your money’s worth even if you do everything according to the book.There are internal and external prospects that lead to losses in investment. They include government interferences, hard economic times, malware attempts, and hacks. In addition, the market is volatile and easily susceptible to control. So please make sure not to invest all your savings and your retirement plan.
Avoid fear of missing out (FOMO)
Trading cryptocurrency has become a global phenomenon in recent times. Almost everyone is trading, and there is a human tendency to do what everyone else is doing. There is a version of trading in crypto known as day trading which is more like the stock market in traditional finance. If you decide to participate in day trading, watch out for fear of missing out, also known as FOMO, as it is the fastest way to lose money. You should also avoid trading when you feel pressured.
Keep yourself up to date with cryptocurrencies
The cryptocurrency market is evolving daily, and with it comes new aspects of the trade. To do well in investments, you should stay up to date on what is going on. Social media platforms such as Twitter, Facebook and Telegram, as well as cable news, are excellent channels to get reliable bitcoin news. As the market changes, adjust your investments accordingly to ensure profits.
Learn trading methods and staking
There are two trading analysis methods used in the crypto market. They include fundamental analysis and technical analysis. Technical analysis shows the entire price history of a security, for example bitcoin, while fundamental analysis revolves around the current affairs that affect the price of a security such as news events. A combination of both methods works best to maximize profits. You can always start staking your crypto and earn passive income. This is one of the easiest methods to gain from crypto in the long term.
Mistakes do happen
Cryptocurrency trading is not a get-rich-quick scheme. It takes discipline, practice and skills to succeed in trading. However, even professional traders at times do make mistakes while trading and realize losses. Cryptocurrencies are volatile and risky and trading might result in the loss of capital. As such, learning skills such as risk management and trading discipline. And don’t lose hope when you, when mistakes happen. Learn from the mistakes.
Pros and Cons of Investing in Cryptocurrencies
Investors are attracted to cryptocurrency due to its high volatility. It’s not uncommon for a cryptocurrency’s price to fluctuate over 10% in a single day. This is great if you’re looking for high returns, but if you’re a risk-averse investor then investing in cryptocurrency may not be for you.
Cryptocurrency Trading vs Stock Trading
Cryptocurrency trading is often seen as more high risk than stock trading, but it depends on what stocks or cryptocurrency you’re trading and how you’re trading it. Trading penny stocks or trading options can be equally, if not more, risky than trading cryptocurrency.
Before trading cryptocurrency, you should be aware that you risk losing your money to the market. If you really believe in the future of cryptocurrency, holding your crypto assets for the long term may be more beneficial than trying to time the markets.