How do you trade cryptocurrency? A beginner’s guide to buying and selling
For a lot of people, understanding cryptocurrency is half of the battle.
There are so many myths and misconceptions surrounding Bitcoin, Ethereum and the other currencies that it feels like most conversations on the subject are taken up with explaining that trading Bitcoin is something that anyone can do, not just hackers and Wall Street traders. For example, you could have asked your friend about what trading crypto actually involves but ended up on a wild tangent talking about mining and realise that you never actually got your question answered.
So, with that in mind, this article is going to break down what you need to know about trading cryptocurrency, from double checking that you have a clear understanding of what it is that you want to be trading on to how to make sure that you are keeping your assets and your information secure. Let’s get started.
Do you know what you mean by trading Cryptocurrency?
This may sound like an obvious question to start with but this is an important distinction to make. Do you want to buy and sell actual units of cryptocurrency, or do you want to trade on the value of cryptocurrency? If you use cryptocurrency CFDs (contracts for differences) then you can trade on the value of Bitcoin, for example, but it is important to note that doing this is fully committing to playing the extremely volatile nature of crypto and it comes with risks.
If you choose to trade the units of cryptocurrency, then you obviously have to pay the full price of ownership up front, but then you will at least have something in your pocket to trade later if its value should suddenly decrease. This will come up again in this article, but the value of cryptocurrencies can fluctuate wildly, so a cautious approach may well be the most sensible one.
Choose which unit of cryptocurrency you want to trade
If you have never done much research into the world of cryptocurrency, you might assume that “cryptocurrency” is one uniform thing, or that cryptocurrency and Bitcoin are the same thing, for example. Well, neither of these ideas are correct, and if you are going to start trading then you are going to need to decide which you want to invest in.
The reason for the Bitcoin comment is because this is still the most popular unit of cryptocurrency and it is still the most widely known. When Elon Musk is tweeting about crypto, he’s generally tweeting about Bitcoin, for example. However, it is far from your only option. Ethereum is a great example of another cryptocurrency that has been making huge strides forward over the last few years as well as making headlines. Each cryptocurrency will have been developed for a specific purpose (you may have seen the news about Facebook developing their own, for example), and as you start looking at newer and lesser-known units, you will start to see increasing volatility. Do your research and make sure that you are comfortable with your chosen unit before you put any money down.
Choose a cryptocurrency exchange platform and create a profile
The next step once you’ve decided which unit you want to be trading with is picking the right platform for you. Unsurprisingly, if you go looking for cryptocurrency exchange platforms you are going to be swamped with options, and there will be pros and cons for each of them. It is important to remember that some of these platforms will be set up for veteran crypto traders and that they may be somewhat inaccessible or hard to navigate for total newcomers. You could also be looking at a situation where you are looking at higher fees taken by the exchange platform as a result of better security measures on their end, such as an insurance option if your account is hacked.
You might also find that there are some restrictions that limit your ability to trade. Some exchanges will have geographical restrictions, for example, and may not be available where you are. Others may not offer the less well known and widely used cryptocurrency units, so make sure you double check that before you sign up. Some, but not all, crypto exchanges will allow users to trade other assets besides cryptocurrency, which may be a better fit for you if you are looking at a varied portfolio.
As we mentioned, there are a lot of different options out there and they will all come with their own unique selling points, drawbacks and quirks, so you should do as much research as possible before you commit. Traders of Crypto has put together a guide to what you should be looking for in a cryptocurrency exchange, and they have plenty of other resources available to help you get started trading as smoothly as possible.
Think about where you’re going to store your Crypto
This point only applies to people who will be buying and selling cryptocurrency rather than its value, but it is a step that cannot be skipped. If you are going to be buying crypto, then you need to have somewhere to store it. Cryptocurrency wallets are the most common way for traders to hold onto their coins and offer both security and ease of access. However, you should be aware of the difference between a hot wallet and a cold wallet. The former is a digital wallet for your cryptocurrency that allows maximum ease of access, and you can either go for an online wallet or one for your desktop. Most of the bigger, more popular cryptos will have a wide variety of different hot wallets available and they are generally free of charge.
However, most crypto traders will also opt to have a cold wallet, which is an offline storage device. Again, there are several different options available but generally it is a USB device that are specifically designed to hold cryptocurrency. One of the biggest benefits is that they are extremely portable while also being even safer than their digital equivalents. Anyone who is worried about a cybersecurity attack can simply unplug it. The main point against them is that they can be quite expensive, but they still offer ease of access, particularly if you choose a model with a touchscreen.
Don’t slack on your own security
As you can probably gather from the length of the section above, security is obviously of paramount importance to anyone trading crypto. It is highly sought after and with the rise in cybercrime over the course of the pandemic, it pays to be a little paranoid and be a little safer. Between 2019 and 2020 there were 53,000 cases of online fraud in the south east of the UK alone. So, once you have your crypto storage set up, you need to take a good long look at how you manage your online security. Any email account that you use to trade crypto should have a two-factor authentication, and you should use a password generator for any account that you have. Be extremely careful opening emails from anyone you don’t know, and double check the security on any site where you are trading.
If you get into good security habits early on and keep to them, then you should be able to trade with good peace of mind.
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