How to Trade Cryptocurrency

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Simpler Trading Team

Jun 29th 2022  .  13 min read

Trading Cryptocurrency is becoming increasingly popular, although many are still unsure what it is or how it works. There are a few things to consider when trading cryptocurrency – primarily the risks involved and where to begin. 

Bitcoin, Ethereum, and Litecoin are all examples of cryptocurrencies. However, a lot of speculation surrounds cryptocurrency, enhancing the asset’s risk aspect. The word elicits images of digitized gold coins or dollar bills freely traveling through cyberspace.

That isn’t exactly the case, but you can understand why there could be some confusion. While there is only one gold, there are numerous types of cryptocurrency. The digital currency and investors are still scrambling to determine whether cryptocurrency is here to stay and how the cap of 21 million and fractionalized coins ultimately affect traders.

Let’s delve into the basics of cryptocurrencies and a few platforms traders can utilize when trading cryptocurrency.

What is Cryptocurrency

Cryptocurrency is a decentralized digital currency based on blockchain technology – a distributed ledger enforced by a network of computers. Unlike the U.S. dollar, cryptocurrencies are generally not issued by any central authority or government.

The asset has its basis in a digital or virtual currency secured by cryptography, making it nearly impossible to counterfeit. However, not all cryptocurrencies are the same. There are many types of cryptocurrency, that traders and investors can choose from, but some of the digital currencies can cost thousands to own, while others are less than a penny.

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What is Cryptocurrency Trading?

Trading cryptocurrency is not the same as trading stocks in the stock market; if anything, it’s more related to forex trading. The crypto asset class is speculative and involves taking on added risk in exchange for greater potential.

Cryptocurrencies are bought and sold through an online exchange. Although trading crypto is risky, many investors and traders have been attracted to the new digital currency. Many trade cryptocurrency short-term, while others hold on to it as a longer-term investment. As an untested asset class, investors are still trying to determine how to value the currency properly and benefit from it.

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How Does Cryptocurrency Work?

Bitcoin was the first and remains the most well-known cryptocurrency. This digital coin was created in 2009 by Satoshi Nakamoto.

Cryptocurrencies are decentralized, which means they are not subject to government or financial institution control. Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units.

Crypto trading involves buying and selling these digital tokens. Forex traders will find similarities in crypto trading, where they attempt to purchase coins at a low price and sell them at a higher price to profit. However, there are some critical differences between the two. 

Cryptocurrency markets are highly volatile, meaning prices can rise and fall dramatically in a short period. In addition, governments or financial institutions do not regulate cryptocurrencies, which adds another level of risk.
Even with that, decentralized crypto is a strong selling point to investors interested in cryptocurrency.

Cryptocurrency

What are the Risks?

The risks of volatility can not be understated; cryptocurrencies are highly volatile, which means prices can rise and fall dramatically in a concise period. This makes it difficult to predict what will happen in the market and how the cryptocurrency is valued. 

Since cryptocurrency markets are decentralized, there is no one to protect investors from fraud or regulate the market. This lack of regulation makes it easier for scams to take place. When trading cryptocurrencies, it is crucial to be aware of the risks and approach the crypto market cautiously.

What is the Best Trading Platform for Crypto?

When selecting a platform, it is essential to consider fees, security, and ease of use. Some of the most popular trading platforms are established and have gained a favorable reputation among traders.

Coinbase

Coinbase is a digital currency wallet and platform where merchants and consumers can transact with new digital currencies like bitcoin, Ethereum, and litecoin. Coinbase is based in San Francisco, California. Founded in 2012, Coinbase is a US-based digital asset exchange platform that allows you to buy and sell cryptocurrencies using fiat currencies or through Bitcoin, Ethereum, and Litecoin exchanges. 

In addition to serving as an exchange, Coinbase also has a Wallet service that stores your private keys offline and encrypts them. Traders can create a wallet on Coinbase and then keep coins or use Coinbase to buy coins. Traders who use Coinbase to buy Bitcoin, Ethereum, or Litecoin with fiat currencies must first create an account to verify their identity. 

Traders must link their bank account or credit card to the Coinbase account to fund purchases. Coinbase stores coins in the online Wallet service. Your private keys are stored offline and encrypted should you use the online Wallet service.

Binance

Binance is a global cryptocurrency exchange that provides a platform for trading more than 100 cryptocurrencies. Since its launch in 2017, Binance has become one of the world’s most popular cryptocurrency exchanges. In 2019, Binance launched its blockchain platform, Binance Chain, and its native cryptocurrency, Binance Coin (BNB). 

Binance offers two types of trading accounts: Basic and Advanced. Basic accounts have lower trading limits, while Advanced accounts have increased limits. Binance also offers a mobile app for trading on the go. In addition to its cryptocurrency exchange business, Binance also has a venture capital arm, an incubator program, and a charity foundation.

Kraken

Kraken is a US-based cryptocurrency exchange that offers Crypto-to-Fiat (CAD, EUR, GBP, USD) and Crypto-to-Crypto pairs. Kraken was founded in 2011 and is one of the oldest Bitcoin exchanges still in operation today. In addition to Bitcoin, Kraken also trades Ethereum, Litecoin, Monero, Dash, Ripple, Stellar Lumens, Zcash, and more. 

Kraken includes a few exchanges that allow investors to trade on margin. Margin trading allows trading with leverage – traders put down a small sum of money and then borrow money from the exchange to trade. Margin trading includes an added element of risk as it amplifies your potential losses (and potential profits).

Cryptocurrency Trading Apps

Crypto trading apps have gained popularity as more investors look to diversify their trading portfolios. There are several apps available, each with advantages and disadvantages. Some trading apps are designed for more experienced traders, while others are more user-friendly and suitable for those starting in crypto trading. 

Trading apps for proficient traders offer a comprehensive set of features. Others tend to focus on a specific aspect of trading, such as price analysis or news coverage. Traders should spend time selecting an app that appeals to them, meets their trading requirements, and charges affordable fees. 

Traders have a few trading apps to consider:

  • Coinbase
  • Crypto.com
  • Gemini
  • Kraken

When choosing a crypto trading app, be aware of your trading methods and experience level. Traders could look for a user-friendly app with comprehensive features or an app that focuses on a specific area, such as price analysis or news coverage. 

Websites That Trade Cryptocurrency

Websites that allow cryptocurrency trades serve as intermediaries between buyers and sellers. These websites typically charge a fee for their services. Popular cryptocurrency trading websites include Coinbase, Kraken, Bitstamp, and Binance. Each website has its strengths and weaknesses.

When it comes to choosing a website to trade cryptocurrency, consider the following points:

  • Fees charged by the website: Understand the fees and whether they are reasonable.
  • Security features of the website: Does it offer two-factor authentication? Does it hold user funds in cold storage?
  • Consider customer support options: Does it have a live chat feature? Is customer support responsive?
  • Study the user interface of the website: Is it easy to use? Does it offer all the features you need?

Brokerage Firms That Trade Crypto

Another option for digital trading currency is using a brokerage firm that offers crypto-trading services. These brokerages act as intermediaries between buyers and sellers and typically charge a commission. Some popular firms include crypto-trading services with their brokerage services:

eToro

eToro is a social investing and trading platform that allows users to buy and sell stocks, commodities, currencies, and other financial instruments. The company was founded in 2007 by brothers Yoni and Ronen Assia and has since become one of the most popular online brokerages. 

eToro offers a variety of features that make it attractive to experienced investors and those who are somewhat new to the world of online trading. One of the unique aspects of eToro is its social platform that allows users to connect with other investors and follow their trades. This can be valuable for learning new investment strategies and gaining market insights. 

In addition, eToro offers a variety of tools and resources to help users make more informed trading decisions. These include an extensive education center, real-time market data, and various analysis tools. eToro is a comprehensive investing platform that provides users with the tools needed for an overall positive trading experience.

Robinhood

Robinhood is a commission-free stock and cryptocurrency trading app that allows users to buy and sell various financial instruments. This company was founded in 2013 by Vladimir Tenev and Baiju Bhatt and has since become one of the most popular online brokerages. Robinhood offers a simple, user-friendly platform for traders and investors to consider.

Robinhood provides users with tools and resources to help them make more informed trading decisions. These include real-time market data, price analysis tools, and an extensive education center. Robinhood is an excellent choice for those looking for a simple yet effective way to trade stocks and cryptocurrencies.

Coinbase Pro

Coinbase Pro is a cryptocurrency trading platform that allows users to buy and sell various digital assets. The company was founded in 2012 by Brian Armstrong and Fred Ehrsam and has since become one of the most popular online brokerages. In addition, Coinbase Pro provides users with several tools and resources to help them make more informed trading decisions. These include real-time market data, price analysis tools, and an extensive education center. Coinbase Pro is an excellent choice for a simple yet effective way to trade cryptocurrencies.

Whether trading cryptocurrency with a trading app, a website or a brokerage firm, these are essential to consider:

  1. Look at the fees charged by the brokerage. Make sure you understand what these fees are and whether they are reasonable.
  2. Check out the security features of the website. Does it offer two-factor authentication? Does it hold user funds in cold storage?
  3. Consider the customer support options offered by the website.

Crypto platforms use blockchain technology to facilitate peer-to-peer transactions without the need for a central authority. When users trade directly with each other without paying fees to the forum, crypto platforms can provide a cost-effective means to trade cryptocurrencies.

Conclusion

Remain cautious when considering cryptocurrencies. While there are opportunities to be had in the crypto markets, there is a considerable amount of risk associated with cryptocurrency. There are two types of traders in the crypto market – those who make money and those who lose money. 

If you do choose to enter into speculative investing, it’s important to use money that you don’t live on or that you can’t afford to lose. Remember position sizing and risk threshold, and maintain your trading discipline.

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FAQs on Cryptocurrency

Q: Can I trade crypto in the same markets as stocks?

A: Cryptocurrencies are not supported on the New York Stock Exchange (NYSE) or other exchanges. However, some brokerage firms do include cryptocurrency trading in their services.

Q: Is trading crypto the same as trading currency?

A: No. While Forex traders will find a few similarities in that they buy a currency at a lower price and sell at a higher price, that is where the similarities end. Cryptocurrency has a much higher volatility rate and involves more risk.

Q: Is cryptocurrency based on the U.S. Dollar?

A: No. Cryptocurrency has no relationship to FIAT, or government-issued currency. It is secured by cryptography, which makes it nearly impossible to counterfeit. Many of the cryptocurrencies in the market are decentralized networks based on blockchain technology, a distributed ledger enforced by a network of computers.

Q: Can cryptocurrency still be mined?

A: Yes it can be mined, however, research and proper equipment are needed because the expenses to mine cryptocurrency are very high. You may have to run a realistic cost analysis to understand the possible profit margin. In the past miners could do it from their garage with a computer. Now miners have become extremely sophisticated with the most up-to-date technology and apps. So yes, mining cryptocurrency is possible, but the competition and the technology needed can be overwhelming.

Q: How do I cash out my cryptocurrency?

A: Online cryptocurrency wallets can either provide traders with a card, such as Bitpay, that can be used as a debit card or the coin can be transferred to FIAT currency and transferred to your bank account.

Q: Can I trade crypto in the same markets as stocks?

A: Cryptocurrencies are not supported on the New York Stock Exchange (NYSE) or other exchanges. However, some brokerage firms do include cryptocurrency trading in their services.

Q: Is trading crypto the same as trading currency?

A: No. While Forex traders will find a few similarities in that they buy a currency at a lower price and sell at a higher price, that is where the similarities end. Cryptocurrency has a much higher volatility rate and involves more risk.

Q: Is cryptocurrency based on the U.S. Dollar?

A: No. Cryptocurrency has no relationship to FIAT, or government-issued currency. It is secured by cryptography, which makes it nearly impossible to counterfeit. Many of the cryptocurrencies in the market are decentralized networks based on blockchain technology, a distributed ledger enforced by a network of computers.

Q: Can cryptocurrency still be mined?

A: Yes it can be mined, however, research and proper equipment are needed because the expenses to mine cryptocurrency are very high. You may have to run a realistic cost analysis to understand the possible profit margin. In the past miners could do it from their garage with a computer. Now miners have become extremely sophisticated with the most up-to-date technology and apps. So yes, mining cryptocurrency is possible, but the competition and the technology needed can be overwhelming.

Q: How do I cash out my cryptocurrency?

A: Online cryptocurrency wallets can either provide traders with a card, such as Bitpay, that can be used as a debit card or the coin can be transferred to FIAT currency and transferred to your bank account.

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