A Beginner’s Guide To Trading Crypto On an Exchange
Investors trade cryptocurrency for various reasons. As crypto is a very volatile asset, many cryptocurrency traders target bull runs and make quick investment profits. They see it as a more viable option than traditional investments.
How you trade crypto currency will be determined by the end goal that you have in mind for your investment. Will you be HODLing your assets over the long term or are you just planning to make some short-term profit?
There are many platforms where you can conduct crypto exchanges. Venmo, Cash App, Robinhood and Coinbase, amongst others, are reputable crypto exchanges. This article will explain how a beginner can trade cryptos. However, we will be using Coinbase Exchange as an example.
Coinbase is a popular crypto exchange platform that launched in 2012. It has over 70 million users from more than 100 countries. It also provides options for both beginners and experts; with Coinbase as its base level and then Coinbase Pro as a step up, which has more options than the regular version. With this platform, you can buy, hold and sell cryptocurrency assets like Ethereum, Bitcoin, and other altcoins.
Opening A Crypto Exchange Account
Provide Your Details: Opening an account on Coinbase is easy. You need to provide your phone number, email address, date of birth, address and a valid form of photo ID. Then you will need to create your password. The password must be unique to prevent hackers from getting access to your account. This is the same process for other crypto exchanges like Binance, Huobi Global, etc.
Funding the Account: Setting up the account also requires registering a payment method. It could be a debit card, bank account, wire transfer, or PayPal. After setting up the digital wallet, you can start trading. It is worth noting that while Coinbase adds new coins to its setup regularly, it doesn’t have all the altcoins.
Wire transfers are the most affordable and flexible payment, while PayPal is the least. With a wire transfer, you can carry out crypto exchanges with little to no cost, whereas PayPal only allows you to trade crypto with fiat currencies and not with other cryptocurrencies.
Funding your account might differ slightly for various exchanges, but they are similar. The majority of exchanges like Kucoin and FTX, allow for credit/debit card deposits and wire transfers. But not all accept PayPal as a payment method.
What is the Best Cryptocurrency to Invest In?
Picking a crypto to invest in is determined by your preferences. Expert cryptocurrency traders allocate most of their crypto portfolio to Bitcoin and Ethereum while giving a small percentage to other altcoins.
Small cryptos are high risk but high reward, while Bitcoin and Ethereum also provide returns on investment, but not as much. Risk-averse investors will tend to choose Bitcoin and Ethereum as they are less risky and supported by an established Blockchain.
On the other hand, risk-tolerant investors can take a punt on the small altcoins that they believe will be the next big thing. While they could lead to multiple profits from upsurges, they could also plunge easily and provide a zero return on investment (ROI).
Crypto traders can pick from a plethora of trading strategies. Many factors affect the price when trading cryptocurrency. Therefore, as a beginner, it is advisable to take a course to fully understand the market trends that are at play in cryptocurrency.
On the other hand, if you are an experienced trader, you will have developed a specific strategy that works for you.
There are different types of trading strategies like; day trading, scalping, swing trading and position trading. While most of them are short-term trading strategies that can be carried out within minutes or a day, some are for long-term investments.
So, it’s advisable to analyze the market carefully and choose your trading strategy before getting involved.
We also have spot trading and margin trading. Spot traders buy cryptos at the current market price and margin traders increase their portfolio by using borrowed funds based on their price analysis of coins and predictions.
For beginners, it is advisable to start with spot trading and move over to margin trading when you have garnered enough experience in the crypto ecosystem.
After choosing a strategy, you might alternate it with automated trading. Automated trading provides a system designed to give the best return on investment. It has various trading options, whether you want to be neutral, conservative or aggressive in your trading. It allows you to diversify your portfolio, hold coins and make money. A well-known automated trading platform is Coinrule.
Things to Consider When You Start Investing
Most investors aim to buy small and sell big. However, with cryptocurrency recently hitting record prices, it’s becoming harder to predict whether it will continue to reap profits or whether it will reach a price ceiling and start a downturn. No one knows where the market will go over the next few years. So, you should only invest as much as you are willing to lose.
With that being said, there has been exciting news in the cryptocurrency space in recent months. In November, Bitcoin hit an all-time high of $68,000, while Ethereum hit $4,800. Altcoins and meme coins have made strides too. DogeCoin and Shiba Inu experienced significant rises in the 2021 Crypto bull run; DogeCoin appreciated by over 8000%.
The recent cryptocurrency bull run was confirmed by Binance on November 10, 2021.
Trading Cryptocurrency on Coinbase
Source: Coinbase Pro
For the majority of newbie investors, buying a Bitcoin at over $60,000 per coin is not an option. Other altcoins also cost more than what an investor would be willing to spend on cryptocurrency. Coinbase solves this problem by allowing traders to buy a fraction of coins. You can trade as low as $2 worth of digital currency on Coinbase.
Coinbase does not charge fees for holding crypto assets in their digital wallets or transactions within the Coinbase network. However, it charges fees for trading via other platforms. Coinbase prices are usually higher than Coinbase Pro.
Coinbase charges a fee of 0.50% on each transaction. The price includes a fixed flat fee and a variable fee determined by what surrounds the payment.
On the other hand, Coinbase Pro charges according to the volume of transactions. Charges set for $50000 worth of transactions are different from what will be charged for $20000 of transactions.
Storing your Cryptocurrency
Buying and selling requires having a reliable digital wallet that can hold the currencies during transactions. These wallets can either be hardware or software wallets. Whichever one you choose, the fundamental question is, are your cryptos safe there?
Hardware Wallet: This allows you to have exclusive access to your wallets. These wallets, also known as code wallets, store cryptocurrency on a USB-connected device that can’t be connected to the internet. Examples of hardware wallets include Ledger Nano X and Trezor Model T. Though these wallets are very safe, you could lose your cryptocurrency by forgetting the password to the wallet.
Software Wallets: There are also many digital wallet providers. One of them is a Coinbase wallet. Coinbase wallet allows you to trade and store Cryptocurrency on the same system.
You can use a hosting wallet in which a third party holds your crypto. Forgetting your password doesn’t mean that you lose your assets.
On the other hand, you may want a non-involved third party for your cryptocurrency; if this is the case, you should use a non-custodial wallet. While there’s little risk of your cryptocurrency being hacked, you must never forget your password or you lose your cryptos.
Coinbase stores most of its hosting customers’ cryptocurrencies offline. Coinbase and Coinbase Pro also fully insure their hosting wallets. In case of any kind of breach or hack into the system, the company is certified by the Federal Deposit Insurance Corporation (FDIC).
Cryptocurrency exchange and trading are lucrative investments if you can master them. Due to crypto’s high price volatility, it can reap big profits, but it can also cause significant losses in the space of months.
So, you should always be cautious when trading cryptos.
Cryptocurrency trading, although profitable, requires the user to be patient and ready to lose small to win big in the future.