If you’re interested in trading cryptocurrencies, you might not really know where to start.
But first things first, there are two important “tools” you need: a wallet in which you’ll store your cryptocurrency and cryptocurrency exchange, which is basically where you’ll be trading your cryptocurrency.
What is the best cryptocurrency exchange?
Don’t worry – you’ve taken the leap but you don’t have to jump into the unknown! Here’s our guide on bitcoin trading so that you’ll know exactly how to make your first trade without a hassle. Follow these tips and you’ll be well on your way to trading bitcoin and other cryptocurrencies.
- 1 Choose Your Cryptocurrency Exchange
- 2 How You Can Protect Your Cryptocurrency
- 3 How To Choose A Safe Wallet
- 4 The Two Main Types Of Crypto Trading
- 5 Different Trading Strategies To Know About
- 6 Tips For Successful Crypto Trading
- 7 Related Questions
- 8 Conclusion
Choose Your Cryptocurrency Exchange
There’s a dazzling variety of cryptocurrency exchanges you can use to trade. It’s not always easy to know which one is worth it, especially if you’re just starting out and don’t really know much about cryptocurrencies.
Here are some things to look for when researching cryptocurrency exchanges so that you make the best choice.
What Coins Are Supported?
While the major exchanges will offer many coins to their users, if you’re keen to trade with a lesser-known coin then you’ll have to find the appropriate exchange for it.
If you’re interested in trading bitcoin, or another popular coin, then you’re in luck because almost all crypto exchanges will support these types of cryptocurrency.
Your best bet is to choose an exchange that has a variety of cryptocurrencies for its users as this makes it more versatile. An example is Binance, which supports over 150 coins.
Check If Your Country’s Supported
Your country might not be supported by the exchange, so always check if you’re allowed to use it. Some exchanges avoid operating in certain countries due to regulations. An example is Binance. In 2019 it stopped making its services available to traders from the U.S.
This was as a result of dealing with challenging regulations in the country, but it has now set up Binance.US which caters to traders from that region.
Research The Trading Fees
You don’t want to be heavily charged when using a cryptocurrency exchange, so make sure you research its fees. Trading fees on exchanges will usually be made up of taker and maker fees.
What this means is that the exchange will give a transaction rebate to makers, or people who provide liquidity (the ease in which an asset can be converted into cash without its market price being affected, as Investopedia reports).
It then charges takers, otherwise known as the people who take that liquidity.
When an exchange has flat fees, this means that it doesn’t set different fees for takers versus makers. An exchange such as Binance will have flat fees for its users.
However, bear in mind there are also other fees that you will have to consider before signing up to a cryptocurrency exchange, such as credit card and bank transfer fees.
What are some of the crypto exchanges that have the lowest fees?
Binance comes out as one of the crypto exchanges that offers the lowest fees. When it specifically comes to keeping credit card and bank transfer fees low, however, Coinbase and Bitpanda are good choices that achieve those goals.
Choose The Best Deposit Method
Now that you’ve decided what cryptocurrency you wish to start trading in and you’ve chosen the best crypto exchange, you have to consider how you want to deposit your funds. Some exchanges don’t support fiat currency deposits, while others do.
In addition, some exchanges will only allow you to make deposits by using a selected number of payment providers, therefore it’s really important to make sure that your preferred method of making deposits is supported by the exchange you wish to use.
Examples of exchanges that support fiat deposits include Cezex, Gemini, and Bittrex.
What To Know About “Fiat-To-Crypto” Enabled Exchanges
Will you be able to convert fiat into cryptocurrency via the exchange, or is it just a crypto-to-crypto exchange?
Fiat-to-crypto currency options are very beneficial, especially if you’re just starting out as a trader because they enable you to convert you fiat money into crypto coins safely and without a hassle.
Some exchanges only offer crypto-to-crypto opportunities, which means that you’ll be able to exchange one type of cryptocurrency (such a bitcoin) into another (such as Litecoin).
If you’re interested in fiat-to-crypto exchanges, you should look for important features, such as that you have a wide variety of fiat currencies and crypto coins at your disposal, and that the process is easy to do and fast to enable smoother transactions.
An exchange that does all of these is Changelly, so it’s one worth checking out.
Choose An Exchange With The Best Reputation
Reputation is important when considering a crypto exchange. You want to be sure that the exchange is truthful to its users, such as when it comes to how it handles personal data and stores its users funds, and your exchange should be as transparent about these things as possible.
For example, Coinbase is an exchange that has made it clear to its clients that it stores 98 percent of users’ funds offline, where they are much safer, in order to prevent theft.
It goes without saying that a crypto exchange’s reputation can be influenced by scams and hacking. You should therefore conduct internet searches to learn more about exchanges and how these issues have been dealt with in the past.
You can also browse customer reviews or the company’s social media platforms to see what people who’ve used the exchange have had to say about its service and reputation.
Choose A Secure Exchange
You want to feel safe when trading on the cryptocurrency exchange. The exchange should have some important security measures in place for its users. These include the following:
The exchange should make use of two-factor authentication when its users log into it.
This basically means that, along with using a username and password to login, the user should provide information that only they know. The good news is that many exchanges make use of two-factor authentication, so it’s become quite standard.
The exchange should have cold storage (in other words, offline storage) for the clients’ funds. This is much safer and prevents theft.
What about whitelisting?
Whitelisting is something else to look for when scrutinizing the security features that a crypto exchange has to offer. When exchanges allow you to whitelist, this means you can whitelist, or allow access to, your IP address to secure your account so that hackers won’t be able to gain access to your account.
Or, you might be able to whitelist your cryptocurrency address. This prevents hackers from withdrawing your cryptocurrency to their address. It ensures that only your whitelisted (or accepted) address can be used for transactions.
Look At Its Exchange Rates
Exchange rates on crypto exchanges will vary from one to another. Different exchanges will offer different exchange rates for cryptocurrencies that are quoted in national currency. It’s important to scrutinize the rates provided by the exchange.
For example, Coinmama sets its prices in euros and dollars, so if you’re using a different currency your credit card or bank may consider a currency exchange fee to be added onto your cost.
How You Can Protect Your Cryptocurrency
If you’re trading your cryptocurrency, you will need to prioritize keeping your assets as secure as possible.
It’s not enough to rely on the crypto exchange that you’re using. You need to choose the right cryptocurrency wallet for your needs. Before we look deeper into that, we first have to define public keys and private keys.
- Public keys are basically cryptographic codes that enable users to receive digital money into their cryptocurrency accounts. These are visible when making transactions as they will appear on the Bitcoin blockchain.
- Private keys, on the other hand, are completely private. They’re a secret number that only you as the wallet owner will know about. This ensures that no one else can have access to your crypto account and funds.
How To Choose A Safe Wallet
Your wallet is where you store your digital money. You therefore need to ensure that you choose the safest one possible. There are five main types of wallets. Let’s take a look at them.
These bitcoin wallets store your private keys on devices, such as USBs. They are cold, meaning they’re offline, and therefore quite secure. Their drawback is they tend to be expensive.
They are worth the purchase if you are going to be storing thousands of money’s worth of cryptocurrency in your wallet so you need it to be super-safe. Examples of popular hardware wallets include Trezor and Ledger.
Bottom line: hardware wallets offer good protection, such as in the form of PIN protection for your transactions, but they’re best for larger funds.
These wallets are prized for their convenience because they are online wallets. That said, they can be less safe than other types of wallets because they’re used online.
If you’re opting for a web wallet, you want to use a private and noncustodial wallet such as BitAmp. Noncustodial means that the wallet has private keys, which means that you as the owner of the wallet will have full control over it.
You can also choose wallets that are used on your personal computer. These are known as desktop wallets and they can be hot wallets if your device is always connected to the internet. FYI, hot wallets basically means that they’re connected to the internet.
These wallets are known for their safety but what makes them risky is that your computer or laptop could be attacked by viruses, and that would make the wallet susceptible to theft.
There are many desktop wallets on the market, such as Electrum and Exodus. You can keep your desktop wallet safe by not connecting to the internet with your device. A bonus about desktop wallets is that your private keys don’t get stored on a third-party server, which can be risky.
These are software wallets, just like desktop wallets, but they tend to be smaller. This is because they’re built to be convenient so that you can use them when you’re on the move.
One of their downsides, however, is that if something happens to your phone, such as if it goes missing, you’ll lose access to your mobile wallet. Examples of mobile wallets include Exodus and Jaxx.
What About Paper Wallets?
Paper wallets are basically cold storage for bitcoins. How they work is that you need to print out your private and public keys on a piece of paper. You will store these in a secure place. When you want to use the paper wallet, you will send funds to your wallet’s public address.
You’ll do transactions, such as withdrawing or depositing money, by entering your private keys. Alternatively, you can scan the paper wallet’s QR code. Although paper wallets can be extremely secure, their drawback is that they aren’t really that easy to use for regular transactions.
Should Your Wallet Be Online Or Offline?
Still can’t decide if you should have an online or offline wallet? Choose online wallets if:
- You’re not going to be storing large amounts of bitcoin in your wallet so if something happens to your money it won’t be a major loss.
- You want to ensure that you’ll always have web access on your computer or mobile device, and you’ve jacked the device up with up-to-date security features to keep your wallet safe.
- You want convenience and user-friendliness.
- You’re sharing the wallet with another person.
Choose an offline wallet, such as a hardware wallet, if:
- You’re going to be storing larger bitcoin funds.
- You won’t be using the wallet on a regular basis.
- You’re worried about privacy and want the safest option.
The Two Main Types Of Crypto Trading
When you decide to trade cryptocurrencies, you’ll want to choose between short- and long-term trades. Here’s how they’re different.
Short-term trades are when you notice that the price of the cryptocurrency has either dropped or increased and you make the most of that by engaging in a trading strategy (more on trading strategies in the next section!).
This is an active and potentially stressful way to trade but there are benefits you can reap from it, such as earning profits really quickly.
These result in you purchasing cryptocurrency and then holding onto it for a long time – this can be for weeks or even years.
The goal of doing this is to sell your asset when the value of the cryptocurrency increases. The benefit of long-term trades is that it cuts out the stress of regular trading.
Different Trading Strategies To Know About
Now that you know more about the types of wallets and trading that are available to you, we can move on to trading by looking at the different trading strategies you can use. Trading strategies basically assist you in finding the right time to trade so that it will be most beneficial for you.
These trading strategies, or styles, will also help you to take advantage of changes in price. So, with that in mind, let’s look at some common trading strategies and what they’re all about.
If you like the idea of quick trades, you’ll love the strategy of day trading. This is when you open and close a trade within the timeframe of one day. This enables you to try to make faster, but small, profits from price changes within 24 hours.
The benefit of day trading is that it prevents you from taking risks from holding positions overnight.
That said, it’s not really beneficial for people who are just starting out as crypto traders because you need to dedicate time and attention to analysing the market and prices before making your move.
A note on position: you might wonder what a position means in crypto trading and since we’ll be using this term a lot it helps to know that one’s position in trading is basically how they will make a profit.
There are “open” and “closed” positions. An “open position” is a term for a trade that is either reaping a profit or suffering a loss while a “closed position” is when a trade has been stopped.
This also forms part of day trading. The aim of scalping is to take small profits from many trades. To achieve it, you have to open positions by entering and exiting the market many times as it develops and changes.
This is a short-term trading strategy because individual trades can be held for a few seconds at the most! It’s fast-paced.
The pros of scalping include how you can nip off some profits earlier if the market is changing in a positive way while also reducing your risk of suffering losses, but you have to be fast so that you move quickly when you need to.
In order to help you do this, you’ll need to make use of active candlestick charts that show you currency prices that are up to the minute. In cryptocurrency trading, these financial charts will show you what happened to an asset’s price in any time frame so they’re valuable to use.
The goal with trend trading is to try to get the most profits by holding a position open for as long as possible – you need to resist the temptation to close it until the right time. If an asset value increases, then a trend trader would probably decide to purchase it.
Similarly, if it decreases, then the trader could choose to sell it. Trend trading is all about making decisions according to the momentum, or lack thereof, of an asset. That explains why it’s called “trend” trading.
Since the trends can develop over a shorter or longer period of time, this type of trading can be a short- or long-term strategy used by traders.
That said, you have to be knowledgeable about the market trends and ones that are emerging so that you can make the most of this style of trading to make a profit.
Earlier we talked about holding a position for a day, but position trading is about holding it for much longer than that – you might even hold it for years in the hope that your asset’s value will increase.
The whole point is to have a long-term position on a cryptocurrency and this can be beneficial because you don’t have to concentrate on the cryptocurrency’s daily fluctuations because you’re taking a bigger-picture view.
It does, however, require lots of patience but it can pay off when thought of as a long-term investment.
Another style of trading that requires you to have knowledge about the market, swing trading is when you pay attention to price changes within a trend. The goal is to use how volatile the market is to your advantage – you can do this by trading moves in different directions.
Swing trading can take place over the course of a few days to a few weeks, and if you’re good at analyzing patterns it can make sense to try your hand at swing trading.
One of the dangers involved with swing trading is that, since you’re holding your position for longer than one day, you can risk suffering larger losses.
As its name sort of implies, automated trading makes use of a computer program to make trade orders on an automatic basis.
Also known as mechanical trading systems, these can be customized to be simple or complicated as they monitor markets and then open or close trades at the most favourable times. How it works is that the system will make use of software that’s connected to a direct access broker.
A reason why some traders choose this trading style is because it takes the stress out of trading because once certain requirements are met, trades can go ahead without hesitation or the involvement of human emotions.
That said, mechanical failures can occur, so these systems do need to be monitored.
Tips For Successful Crypto Trading
Now that you know more about crypto trading styles and what you need in order to start trading, there are also some important tips you should follow to increase your chances of making a profit.
Understand Your Style And Motive
Before you can start trading cryptocurrencies, you need to have a clear idea about your trading style (as discussed earlier) and why you want to enter the trade.
This is important because for every single trading profit there is a loss. By having clear goals and strategies, you’ll prevent making mistakes that can cost you lots of money.
Avoid Purchasing On The Cheap
You might think that it makes the most sense to quickly purchase cryptocurrency when it’s super-affordable, but this is actually a common mistake that beginners make. Instead of focusing on how affordable the coins are, rather focus on its market cap.
A coin’s market cap can be defined as the value of a cryptocurrency, and you should compare it with other types of cryptocurrency. Now, a coin with a higher cap is better to invest in.
Make Sure You Watch Bitcoin
Even if you’re interested in trading with other cryptocurrencies, it’s a smart move to keep an eye open for what’s happening with bitcoin.
This is because all other cryptocurrencies are influenced by bitcoin, so if the price of bitcoin drops, this will cause the others to drop too, and the opposite also rings true. When bitcoin rises, the others will rise.
Get Into The Habit Of Using Stop Limits
A stop limit means that the order will be executed when the cryptocurrency reaches a certain price or higher.
These limits can be put in place to minimize your losses but they also have another benefit: they help you to decide how much of a loss is acceptable, thus becoming a way for you to measure how effective your strategy is.
Remember To Diversify
After starting out with bitcoin trading, you might be tempted to stick to what you know, such as when it comes to using the same coins.
But this is risky because, just like you would diversify your offline money, you should be diversifying your cryptocurrency. A good tip is to therefore invest in different types of coins.
Protect Yourself From Scams
Cryptocurrency is prone to hackers as well as scams, so you need to ensure you don’t fall prey to them. An example of a recent, popular scam is the fake cryptocurrency scam.
How it works is that a seemingly legit cryptocurrency appears to enter the scene as an alternative to bitcoin but it’s actually being run by scammers. An example of such a currency was My Big Coin, which stole millions from customers and then got shut down.
To avoid being scammed, never share your private keys with anyone, always research opportunities well before accepting them, and do your research. It’s also wise to stick to using renowned cryptocurrencies and crypto exchanges that are backed by a good reputation and positive user reviews.
Go In With A Plan
You know what they say: never trade money that you can’t afford to lose! With that in mind, a good strategy when engaging in crypto trading is to have a plan.
Your plan could look something like this: you might say that you will sell 30 percent of your bitcoin for every $1,000 that its price increases so that you’ll earn some profits. On the other hand, you might say that you’ll quickly sell your bitcoins if its price decreases to a certain point.
So, you’d need some stop-limit orders in order to make this plan work in the way you want it to.
This isn’t necessarily a plan that you should take on, but it merely shows you that you should set out what amounts you wish to trade with, focusing on what’s most reasonable for you and your budget, bearing in mind you could lose them.
This type of plan will also prevent you from getting swayed by what others are doing, which could result in heavy losses.
Should you choose a crypto exchange that’s located in your region?
This is sometimes recommended as it can help to make things easier from a legal point of view. It simply makes it easier to meet the exchange’s regulatory rules and changes.
Is cryptocurrency regarded as “real” money?
It can be said that cryptocurrencies are alternatives to traditional money, and these days cryptocurrencies are becoming so mainstream that you can find many shops and companies that accept cryptocurrencies as payment.
Is your public key the same as your wallet address?
This is not the case, and that’s what makes it a bit confusing. The two are related, however. Your bitcoin wallet address is a shortened version of your public key: a public key is 256 bits long but your wallet address is 160 bits long.
Bitcoin trading doesn’t have to seem complicated or overwhelming anymore, and it’s certainly no longer reserved for experienced traders.
After reading this guide, in which we’ve featured important tips to help you get started, you’ll have all the important information you need to be a successful cryptocurrency trader without falling prey to hackers or beginner mistakes.
Last Updated on July 7, 2020 by Eito