How to Trade Cryptocurrency? A Beginner Guide
It seems like everyone is looking to earn passive income, and those dreaming of becoming millionaires overnight are trying to hitch their wagon to the cryptocurrency gravy train. There's a good reason behind that thinking: people are making an absolute fortune through digital currencies, and crypto trading is the buzzword everyone is getting behind.
However, it remains a perplexing mystery for most people as making sense of cryptocurrency or crypto trading is not for everyone. This guide is meant for anyone currently looking to trade digital assets, currencies, and specifically cryptocurrencies like Bitcoin, Ethereum, and the rest. Read on if you want to learn the basics of crypto trading, specifically buying and selling cryptocurrency.
What Is Crypto Trading?
Crypto Trading involves speculation surrounding price movements of cryptocurrency through difference trading account (CFD) contracts. It can also involve buying and selling digital coins from a cryptocurrency exchange. Many investors are making an absolute killing through CFD trading, a derivative allowing to place bets on price changes of Bitcoin (BTC) without owning any digital currency.
For instance, you can purchase (go long) if you have reason to believe that the cryptocurrency value of a digital asset will increase soon. You can also sell (short) if you think the value will decrease. They are instruments of leverage, meaning you can deposit a small amount, called margin trading crypto, and have access to the underlying market completely.
However, since your profit and loss will depend on your investment level. You can magnify your losses and earnings by leveraging trading crypto. Investors also use cryptocurrency options to increase market exposure or reduce their risk. Crypto options trading denotes 'derivative' financial instruments, whose values derives from the price of other assets. Which will be the underlying cryptocurrency.
Before you put all your ducks in a row and dive headfirst into the world of cryptocurrency trading, pay attention. You must gain a thorough understanding of the technologies and assets involved. That means putting all your attention on Bitcoin first. As it is the cryptocurrency from which all other crypto have originated and grown.
You must also understand that crypto trading is incredibly complex and involves various components similar to financial markets and stocks. The first crypto asset, Bitcoin, was launched in 2009 and is the biggest cryptocurrency in prevalence and market capitalization.
However, other digital assets have emerged in the industry and are traded for profit over the years. Every other cryptocurrency that isn't Bitcoin (BTC) is called an altcoin, and the biggest of them is known as Ether (ETH) or Ethereum.
How to Trade Cryptocurrency for Beginners?
When it comes to trading cryptocurrencies, you can adopt several approaches. If you want to start crypto trading, you must first do as much research on the subject as possible. And then, build your knowledge about the industry. It is essential to understand the laws and associated risks that are applied in trading cryptocurrencies, so you can make appropriate decisions that don't come back to haunt you.
Therefore, we will provide you with a step-by-step analysis for crypto trading so that you can learn how to invest, buy, or sell cryptocurrencies today. Here are the steps for crypto trading:
1. Sign Up for a Cryptocurrency Exchange
The first thing you must do is find a reliable and suitable cryptocurrency exchange and open an account with them. The best crypto exchanges currently on the market are Gemini, Coinbase, and eToro. All three services have a user-friendly interface and an extensive range of altcoins you can trade with through the brokerage.
Opening an account with a crypto exchange is straightforward. As far as you will need to provide your personal identifying information (PII), similar to opening an account with a stock exchange. You will need to share:
your name, address, email address, phone number, Social Security number (if you're in the U.S.), and your date of birth, along with fulfilling all requirements for Know Your Customer (KYC).
2. Put Funds into Your Account
You can't start crypto trading without any money, which is why the next step is funding your account with the crypto brokerage. It's fairly simple as you want your bank account connected with your account at the crypto exchange. You can also use wire transfers and bank deposits through your debit/credit cards to fund your account, as most crypto exchanges accept them.
The most cost-effective way for funding your bank account with a crypto exchange like Gemini and Coinbase is through wire transfers.
3. Pick a Cryptocurrency to Invest In
Most crypto traders and investors tend to invest in either Bitcoin or Ethereum, mainly because these two cryptocurrencies are more predictable with their movements compared to smaller altcoins. You can easily trade with Ether or Bitcoin using technical indicators.
However, it's also best to diversify your assets and find an altcoin that may become the cryptocurrency trading industry's next 'Big' thing. Therefore, putting a small amount of your money into smaller or lesser-known altcoins is the smart thing to do. However, it's also much riskier than putting money into cryptocurrencies with large market caps, but your potential upside will also be more significant.
4. Start Trading
There are different ways to start crypto trading, and if you don't want to get into the technicalities, you can use automatic crypto trading software. They will provide you with a trading strategy. They will have a specifically designed process that will offer investors the biggest returns possible based on their investment objectives.
Automated crypto trading is gaining popularity because you can diversify your portfolio, make money quickly, and keep your coins. The best part is that you can experiment with your crypto trading strategy this way and try out aggressive, conservative, or neutral trading styles.
5. Storing Your Cryptocurrency
If you have decided to trade Bitcoin (BTC) actively, your funds must be kept on the exchange so you can access them easily. For instance, if you're purchasing Bitcoin and want to hold it for as long as you can, you will have to buy a Bitcoin wallet or digital wallet until you decide to sell it.
The two main cryptocurrency wallet types are hardware and software wallets. They are both safe options for storing your money. Still, you get enhanced protection with hardware wallets since your cryptocurrency isn't connected to the internet and, therefore, can't be hacked by others and stored on a physical device.
One of the biggest aspects of crypto trading is risk assessment and management. Before entering any trade, you must understand what you're willing to risk losing if that crypto trade incurs a loss. That can be based on numerous factors like your trading capital. For instance, you may only want to risk a 1% loss on your overall trading capital per trade or in total.
Crypto trading is risky as the cryptocurrency industry is decentralized and isn't regulated. That makes it harder to accurately predict market activity, which is why you must be prepared to use your best judgment in crypto trades and ensure that you're thoroughly educated about the industry.