Beginner's Guide to Trading Cryptocurrencies

FinanceTrading / Investing

  • Author Jerry Smith
  • Published November 30, 2022
  • Word count 732

Cryptocurrencies have boomed in popularity over the last year. Bitcoins, Ethereum, and other digital currencies have seen unprecedented growth in their market prices and userbase. As more people become aware of these currencies, their adoption continues to grow. But trading cryptocurrencies isn’t as simple as buying a stock or selling real estate. It’s much more complicated than that because you’re dealing with digital assets that don’t necessarily follow the same set of rules you see with traditional currency markets. With that being said, if you’re interested in jumping into the world of cryptocurrency investing, this beginner's guide will help get you started on the right foot – so read on and stay informed!

What is Cryptocurrency?

Cryptocurrencies are digital assets that are used as a form of payment. The most notable example of this would be Bitcoin. Cryptocurrencies are maintained by a decentralized network of computers around the world. These computers use cryptography (hence the name) to create new coins and verify transactions. The main attraction of cryptocurrencies is that they allow for quick and cost-effective online transactions. Unlike a credit card, you don’t have to go through a centralized system to verify the transaction. Instead, the payment is verified by the network of computers that is running the currency.

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How to Buy and Sell Cryptocurrency

Cryptocurrencies are typically bought and sold through online exchanges. These exchanges function as an online marketplace where sellers and buyers can connect. Once you’ve decided which cryptocurrency you’d like to buy, you’ll need to find a cryptocurrency exchange to make the purchase. Most exchanges will use some form of electronic money for payment. That means you won’t have to transfer cash to the exchange to buy cryptocurrencies. You’ll just have to link your bank account to the exchange and purchase them with a debit or credit card. After you’ve purchased your cryptocurrency, you can store it on the exchange or in a digital wallet. Storing your cryptocurrencies on the exchange is risky because there’s a chance the exchange could get hacked.

Understanding The Basics of Trading

When you invest in stocks or commodities, you’re buying a piece of a company. Cryptocurrency, on the other hand, is not tied to a specific company. Instead, these digital assets are tied to supply and demand. Crypto investors buy/sell coins for the expectation that demand for the coin will increase and the price will go up. The value of cryptocurrencies can fluctuate wildly. If you buy Litecoin at $100 and the price skyrockets to $1000, you’ve just made a huge profit. However, if the price drops from $100 to $1, you’ve just lost all of your money.

Where to Trade Cryptocurrency

  • Coinbase

Coinbase is one of the biggest cryptocurrency exchanges in the world. They’ve got hundreds of thousands of customers and billions of dollars in transactions. They’re one of the most trusted cryptocurrency exchanges. When you buy cryptocurrencies on Coinbase, they store them in a digital wallet.

  • Binance

Binance is a rapidly growing cryptocurrency exchange that’s quickly overtaking Coinbase in terms of userbase. They’re led by a team of technology experts and have a strong track record of providing high-quality service. Binance is known for its low trading fees, high liquidity, and robust security features. - GDAX - GDAX is the digital currency exchange of Coinbase. It’s a robust trading platform that allows users to buy and sell cryptocurrencies.

  • Kraken

Kraken is a large cryptocurrency exchange with a strong reputation and a substantial userbase. Kraken’s low trading fees and wide range of deposit options make it a good choice for most crypto traders. - Gemini - Gemini is an American exchange that’s based in New York. It’s one of the most secure exchanges in the world thanks to its robust security features. Gemini is also insured, which means that customer funds are protected from hackers.

Bottom line

Cryptocurrencies have had a wildly successful first decade of trading. Experts expect this trend to continue in the future. If you’re interested in getting in on the action, it’s important that you learn as much as you can before you begin trading. Make sure you understand how cryptocurrencies work and how they differ from trading stocks or real estate.

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