A while back, people wanted to start trading cryptocurrency and it became very popular in investment circles. However, it gained much more popularity during the past few years. Some investors see it as an alternative investment that involves a lot of risk, mostly because it is speculative. Other investors find it to be a legitimate option to be considered for all portfolios of investors.
More importantly, as a first-time crypto investor, be aware that buying cryptocurrency is at its core a risky venture like all investments. So, just prior to making the investment, understand how each type of cryptocurrency works and how to buy sell and trade cryptocurrency.
What is Cryptocurrency?
To start trading cryptocurrency, first learn about cryptocurrency. Cryptocurrencies have no central authority, be it a company or government, managing or regulating them relative to other digital currencies. Unlike traditional currencies used in a country, such as the U.S. dollar, cryptocurrencies have no governing bank or government to support them.
Their eyes are on them instead by a decentralized network of people on the internet. Cryptocurrencies are usually thought about and discussed as being a form of digital coins or notes. They are very safe because blockchain technology encrypts them.
You can spend it online just like cash, except it is tougher to find places that take crypto than it is to find places that take money or credit cards. When you make a crypto exchange, a network of computers operating blockchain software checks to see if a payment is legitimate. If everything checks out the deal goes through.
A blockchain is essentially a digital public ledger of everything going on, and miners or validators get paid to do this. When a deal is verified through the blockchain network, the owner of the money received can use his secret code, known as a “private key,” to access his money.
More people buy cryptocurrencies in hopes that their value will go up, like buying stocks or gold; even more popular is the use of cryptocurrencies as money.
Consideration Before Trading Crypto
It pays to do your due diligence when you decide to invest in something, and this includes crypto. On things to consider to start trading cryptocurrency for you, think of the following:
Project Information: There are differences in investment theories, consensus mechanisms, and usage for each type of cryptocurrency. You should know about their specifics and how they can help you make money before you start investing in cryptocurrencies.
Your Risk Level: You should be honest about your risk tolerance and how volatile a coin is. If you’re an investor in crypto, you expect the price to drop to a pretty considerable point.
Investment Goal: Think about how such an investment in crypto would fit into your broader financial plans. Be careful not to over-lean on your cryptocurrency investment for significant goals in your life, like retirement. Planning and diversification are very important.
If you don’t feel you’re ready to fully plunge into the world of crypto, there are many other ways to add this component to your wealth mix.
How to Buy and Trade Cryptocurrency?
To start trading cryptocurrency seems kind of complicated to the unexposed bitcoin person, but through the following easy steps, you are good to go investing in cryptocurrencies.
Step 1: Choose a Broker or Cryptocurrency Exchange
To purchase cryptocurrencies, you’ll need to select a platform. There are really only two main options: brokers and exchanges.
Cryptocurrency Brokers
Brokers make it easy to buy cryptocurrencies .
Examples: Robinhood and SoFi are popular brokers.
Pros: User-friendly; perfect for beginners.
Cons: They might charge more than the standard fees, and also they may have restrictions on transferring your coins into different wallets.
Cryptocurrency Exchanges
The exchange is a platform where you can buy and sell digital currencies.
Examples: Coinbase, Gemini, and Binance.US are some of the most famous exchanges.
Pros: They offer a wider variety of cryptocurrencies.
Cons: They can be confusing for new users and sometimes cost more to use compared to simple trading platforms.
Tip: You may need to choose a friendly exchange or broker if you are a beginner in the market, depending on the one that best suits your needs.
Step 2: Get an Account
After settling for a platform, you now settle to make an account to start trading cryptocurrency.
Register: Locate the website or app for the selected brokerage firm or exchange.
Fill out Personal Information: You will be asked to fill out personal information which may include your full name, email and sometimes even your phone number.
Know Your Customer (KYC): To verify your identity you will be required to upload a picture of your driver’s license or passport. Some platforms also require a selfie
Step 3: Funding Your Account
You’ll have to fund your account in order to buy cryptocurrency.
Deposit Options: These are the options for adding funds:
Bank Transfer: You can link your own bank account where money will be transferred directly from there.
Wire Transfer: This is a direct transfer of money from your bank.
Debit or Credit Card: Use your card to add funds.
Availability of Funds: The length of time it takes depends on which deposit option you have chosen.
Warning: Cash advance If you use a credit card, beware; some providers classify the transaction as a cash advance, leading to higher interest and charges. You may end up losing up to 10% of your investment to charges.
Step 4: Buying Your Cryptocurrency
You’re all set and ready to start trading cryptocurrency now that you’ve funded your account
Determine The Cryptocurrency You Want to Buy: This is the process of deciding which digital currency you want to buy. Bitcoin, for example, has a short form where it is termed BTC.
Enter the Amount of Cryptocurrency You would like to Purchase: Decide the number of units of the cryptocurrency you would like to buy. Most trading systems allow you to purchase fractional parts of a single coin, which enables you to afford a greater stake even using minimal capital.
Complete the Purchase: Review your order and confirm the transaction. The newly purchased cryptocurrency will be added to the client account.
Investment into cryptocurrencies is an enterprise that begins with coming to know some of its basics and the appropriate platform. This is an easy process by which you will confidently enter the world of digital currency. Remember to be well-informed, begin small, and always prioritize security.
Pro Tip For Beginner Crypto Traders
Therefore, those people who are about to start trading cryptocurrency for the first time will start learning the basics of cryptocurrency and how the market works. Cryptocurrency is a type of digital or virtual currency that uses cryptography to secure financial transactions and operates on a technology called blockchain. That has a decentralized means, thus resulting in a peer-to-peer transaction without a bank intermediary.
To begin the crypto venture, one must become aware of the various types of cryptocurrencies available and how they operate. There are thousands of such types, each offering unique characteristics and usage. Some popular ones are Bitcoin, Ethereum, and Litecoin, but there are many altcoins offering good investment opportunities.
Knowledge of Market Forces
For you to really and effectively start trading cryptocurrency, you need to know the dynamics of the market. The prices of cryptocurrencies are often unstable and changeable due to various market dynamics ranging from market sentiment to events, news, and even new developments in the technological world. Keeping an eye on all this will make decisions for you.
Tools such as CoinGecko or CoinMarketCap may provide more detailed market trends, price movements, and market capitalization in various cryptocurrencies. Analyzing Market Trends daily will make your trading strategy stronger.
Which Coins to Invest in?
Here are criteria to determine which cryptocurrencies to invest in:
Market Capitalization: Coins with higher market caps tend to be more stable and less volatile.
Historical Performance: See how a coin acted during previous price swings when the market was oscillating.
Project Basics: Learn what problem this coin is aiming to solve, and what technology it is using, to see what’s going on behind the coin.
It is also interesting to compare such investment decisions with popular cryptos in the space, like Bitcoin and Ethereum. How much does the crypt give when studied against the better-known crypts? It would give a glimpse about the coin’s activity rate compared to more popular ones.
Secure your Cryptocurrency
It is easy for thieves and hackers to get into cryptocurrency markets. You could lose your investment if you lose or forget the entry codes to your account. That’s why it’s very important to store your cryptocurrencies somewhere safe.
“In the crypto space, it’s important to take extra steps to protect your investments.” “Adding two-factor authentication adds an extra layer of security that makes it harder for people who aren’t supposed to be there to get your money,” says Jeff Rose, CFP, founder of GoodFinancialCents.com.
When you start trading cryptocurrency through a broker, the cryptocurrency is generally kept in a crypto wallet that is connected to the exchange. You can move your assets to a different hot or cold wallet if you are unhappy with the exchange’s service provider or would rather store them somewhere safer.
Hot Wallets: Hot wallets are digital cash wallets that can be used on tablets, computers, phones, and other internet-connected devices. Even though they are handy, they are more likely to be stolen because they are always connected to the internet.
Cold Wallets: Because they’re not linked to the internet, cold wallets like USB drives and hard drives offer the highest level of security for storing cryptocurrency. There are, however, some risks. If you lose the keycode or your device breaks, you might not be able to get to your coin again.
There may be a small price to move your crypto off of the exchange, depending on the exchange and the amount being sent.
Risk Management in Crypto Trading
Risk management is crucial to start trading cryptocurrency. Among the critical strategies of risk management includes, but not limited to:
Diversification: This is spreading your investments across various cryptocurrencies to reduce exposure.
Position Sizing: This is how much of your capital you allocate to a particular trade given your risk tolerance.
Setting Stop-Loss Orders: This is to limit potential losses on trades.
These risk management techniques are rewarding to apply. They will keep your investments secure and help develop an overall better trading strategy.
Portfolio Structuring
Portfolio structuring depends strictly on the specific risk profile of the investor. General, this shall be the following structure:
Conservative Approach: 80-90% established cryptocurrencies like Bitcoin and Ethereum.
Aggressive Approach: If risk is not a problem, one should invest 20% to 40% of one’s portfolio in some of these low-capital coins with higher returns.
Portfolio monitoring and its change are mandatory with changing conditions in the market and personal financial objectives to start trading cryptocurrency.
Creating a Trading Strategy
A good trading plan will help see through the volatility of a crypto market. Here’s a simple strategy that can guide you on when to buy and sell:
Use the Technical Indicators: This strategy will see your trading platform viewed with some of the principal indicators, which include the Moving Averages, applied in identifying trends. From there, use the indicators to time when to enter or when to exist based on the trend patterns in movements of price.
Monitor the Market Conditions: Keep an eye on all the current market news and sentiments and adjust your strategy according to those changing conditions.
Most importantly, a disciplined trading strategy can help a lot in bringing about significant improvements in the chances of making profitable trades.
Pros and Cons to Start Trading Cryptocurrency
There are various reasons for investing in cryptocurrencies. Amongst them, decentralization, accessibility, and diversification are the most preferable advantages. Still, for most investors, the key benefit from investing in crypto is the ability to generate money.
The largest advantage is the possibility to make a lot of money. Crypto assets like BTC and ETH have given investors some of the biggest gains in history within their short history, according to R.J. Weiss, CFP, CEO of the personal finance site The Ways to Wealth.
There are also risks in dealing with crypto. Prices of cryptocurrencies rise and fall very much, and this will likely be the case as rules from governments change. Another normal worry is safety. There are all different kinds of crypto projects, and a lot of investors have lost money to scams and fraud in the field.
“The prices of cryptocurrencies go up and down all the time, so you need to be able to handle that,” says Stephen Rischall, CFP, partner at Navalign, a wealth management firm. “Only put in as much as you are willing to lose,” he adds.
Some people have made a lot of money in cryptocurrencies while others have lost a lot of money.
There’s no such thing as a free lunch. As you start trading cryptocurrency, there’s the possibility of tremendous gains in crypto but also the possibility of tremendous losses. Your investment may lose a lot of value, and because the crypto market is so large and prominent today, it becomes difficult to estimate whether future returns will be similar to those made in gold, though sure to be less dramatic.
Conclusion
It can be a very exciting yet scary to start trading cryptocurrency adventure. Learning How to buy and trade cryptocurrency or which coins to choose, managing risks, and what kind of trading strategy you should follow might all make one begin and steer further along this quite dynamic market’s path. Remember to keep learning; find a community for yourself, enroll in courses that can fill gaps in your knowledge and more so as you enter into this journey.