The trading of cryptocurrencies is a relatively recent phenomenon that has only truly gained traction over the course of the past few years. However, despite the young age of cryptocurrencies, they have developed into one of the most dynamic and valuable markets in the world.
Some of the world's most successful billionaire traders, as well as countless millions of smaller traders, now buy, sell, and trade cryptocurrencies on global markets on a daily basis. If you are considering trading cryptocurrencies and becoming a successful crypto trader, then read this comprehensive beginner's guide to find out everything there is to know.
First of all, let's start with explaining that the practice of 'cryptocurrency trading' actually entails. It is not just the mere buying and selling of various cryptocurrencies on the global marketplace.
Rather, crypto trading refers to the practice of speculating on the price movements of cryptocurrencies via a trading account. It also does denote the practice of buying and selling a variety of cryptocurrency coins on exchanges in an attempt to make a profit.
CFDs, or contracts-for-difference, are a hugely popular form of derivative trading that have been deployed within stock and bond markets for decades. As derivatives, they are not actually the asset (e.g. the stock or the bitcoin) itself. Rather, it is a contract between a buyer and a seller which allows a trader to speculate on the price movement of an asset, in this case, a cryptocurrency.
By going 'long', you are assuming that a particular cryptocurrency will rise in value and are betting on that outcome. If you are going 'short', then you are speculating that the cryptocurrency in question will depreciate in value within a given time period. Leverage is required to trade CFDs on cryptocurrencies, which is essentially a deposit, known as a margin. This size of this margin will determine your profits or losses when the CFD transaction is executed.
Unlike with CFDs, buying and selling cryptocurrencies via a licensed exchange consists solely of actually buying and selling the coins in question. You are taking ownership of the cryptocurrency you have purchased on the exchange and will, therefore, own it outright. Once you have purchased your cryptocurrencies on an exchange, they can be added to your e-wallet.
From here, you can allow it to accumulate in value so that you can sell it on the exchange at a later date. Or, of course, you can hang on to it as a long-term investment. To make a success out of trading cryptocurrencies this way, you will need to closely watch the markets and gain an in-depth understanding of the factors behind price fluctuations, so that you get a good idea of when to buy or sell.
There are many, many examples of popular cryptocurrencies that are worth trading on the global marketplace, as CFDs or otherwise. However, we thought we would begin by providing a rundown of the most in-demand and widely traded currencies on the market today.
Bitcoin is by far the most widely-traded and valuable cryptocurrency in the world. It has gone through headline-making booms and busts over the past few years and is traded on exchanges in virtually every corner of the globe. Due to the way that bitcoins are created, via the blockchain, there is a finite number of them in the world - 21 million to be exact.
When all of these are 'mined' from the system, there are no more bitcoins. To make things even more interesting, the value of bitcoin goes through an automated 'halving' every four years when a certain number of blocks are mined. This finite nature makes bitcoin highly volatile and, therefore, immensely popular among high-stakes traders.
Ethereum is the native cryptocurrency of the platform Ethereum, which utilises blockchain technology to produce secure smart contracts. It is a decentralized cryptocurrency, much like bitcoin, and is immensely popular as a traded asset on markets around the world.
It is largely considered to be less volatile than bitcoin, and is therefore preferred by traders looking to play the long game. While it has value as a genuine currency, its main value proposition as an asset comes from the fact that it is a decentralized supercomputer that will rent out its resources to app developers for years to come, driving up its value.
Ripple, also known as XRP, is an exchange network created by a company called Ripple Labs that uses its own native currency to process transactions. It essentially processes the global transactions of countless assets, using its own native currency, XRP, to drive down transaction costs.
It is one of the cheaper cryptocurrencies out there, and is largely not considered to be particularly volatile. Much of this is because there is a huge supply of Ripple coins available at the moment - 43,708,646,822 to be exact. It is an emerging cryptocurrency that will likely gain popularity with traders in the years to come.
Litecoin (LTC) is a spin-off of bitcoin that uses a different blockchain. It is faster, easier, and cheaper to mine and can handle a greater number of transactions. In the past, people have described Litecoin as the silver to Bitcoin's gold.
It might not be as valuable, but it is nonetheless a volatile asset that is well worth owning, selling, and trading. Like the other currencies listed here, Litecoin is a decentralized electronic currency that can be easily purchased from exchanges and stored in a digital wallet. It is volatile, high-value, and ideal for dedicated crypto traders.
Before you set up your crypto wallet and begin trading, it is important to learn more about how crypto trading actually works. While there are some similarities with the trading of assets such as stocks, bonds, and gold, there are also a lot of unique elements as well.
First off, it is worth noting that, before you can begin trading, there are some essential things you will need. In order to actually store the cryptocurrency you have purchased, you will need a cryptocurrency wallet, of which there are many to choose from. Virtually every cryptocurrency exchange in the world offers its own wallet for you to use.
In addition to a wallet, you will also need to create an account and join a cryptocurrency exchange. Given the complex legal arrangements governing cryptocurrencies in general, there is often a somewhat lengthy verification process to go through. This comes before you can access an exchange, and often spans several days at least. Once you are verified, you can begin buying and selling cryptocurrencies at your leisure.
If you are in possession of cryptocurrencies, you can usually quickly and easily sell them according to their current market value on the exchange that you are using. Simply open your e-wallet and select the currency you wish to sell.
There will often be a clearly identified 'sell' button which will allow you to instantly exchange that crypto for a fiat currency, such as US dollars. Those dollars will then be added to your wallet and you can choose to withdraw them directly into your bank account. There are also other ways to sell bitcoins and other currencies if you do not want to use a decentralised exchange.
You can cut out the middle man and sell your crypto directly to an in-person buyer in an exchange for cash. However, this comes with its own substantial risks and is not recommended. Alternatively, you can attend a crypto meeting or conference in your area to find people looking to buy what you have to sell.
If you wish to buy cryptocurrencies, you will first need to ensure that you have an e-wallet and are registered with a reputable cryptocurrency exchange. Once you have done this, you can simply purchase whichever cryptocurrencies you like at their current market value, via the online exchange.
You can usually use a wide variety of fiat currencies to complete the transaction, while some exchanges also allow you to use one cryptocurrency to purchase another.
These transactions are usually instantaneous, with the purchased crypto appearing immediately in your e-wallet. Once you have bought any cryptocurrency from an exchange, you then have taken ownership of it.
Whichever exchange you are using to buy, sell, and trade cryptocurrencies, you will likely come across a lot of lingo. This is especially true for traders that are shopping around to find the best exchanges and brokerage platforms for them.
The terms and lingo that govern the cryptocurrency industry are often used to describe the value of different trading methods and currencies. They denote the requirements for different types of trades, and the opportunities offered by different crypto platforms and services.
With this in mind, it is essential that any budding trader learn the lingo if they wish to get ahead. Here are the key cryptocurrency terms that you need to be familiar with.
This is basically a temporary loan given to a trader by a broker. It allows traders to trade more crypto with less capital investment. For example, a trader could invest $1000 in bitcoin with x10 leverage, giving you a position worth $10,000. Leverage amounts are usually capped by regulatory authorities and can magnify your profits and your losses.
Essentially the same as leverage, as it describes the practice of completing a trade using borrowed funds from a third party. It allows traders to magnify their buying power and open trading positions that are much larger than their 'actual' account balance.
Pip is actually an acronym that stands for 'percentage in point', but you will usually see it written in lowercase on crypto exchanges. It is most often used in forex trading, as fixed Pips cannot really be calculated for cryptocurrencies. It is simply the smallest possible unit that can be used to calculate a movement in the value between two currencies, and is usually equivalent to 1/100th of 1%.
A lot is a 'batch' of cryptocurrencies that is a standardised number of units of whatever asset is being traded. They are used when trading a single unit of an asset isn't viable. Exchanges determine the size of lots. They are simply a set amount of a particular asset, such as Litecoin, that you can buy and sell in each transaction with that exchange.
The difference between the buy and the sell prices that an exchange will quote for a particular cryptocurrency. The buy price is typically slightly above the market price, and the sell price is typically slightly below the market price. The price that you choose depends on the transaction you wish to pursue.
Trading cryptocurrencies has a number of advantages over the trading of assets such as stocks and bonds. Here are the main benefits associated with trading cryptocurrencies.
By its very nature, cryptocurrencies are decentralized. Unlike fiat currencies, they are not tied to nations or to central banks or federal reserves. This means that the trade of most cryptocurrencies is not affected by many of the economic issues that affect the trade of other types of assets, such as inflation or deficits.
Trading via a crypto exchange tends to be a very discrete and secure process. In order to make a crypto transaction, you do not need to actually provide an exchange with sensitive personal information such as your bank details. This can remove some of the security fears that accompany other types of digital trading.
Although the regulatory landscape for crypto trading is a patchwork and varies from region to region, there are no real restraints on cross-border crypto trade. No matter where you are, you can seamlessly and instantly trade cryptocurrencies around the globe.
To become a successful cryptocurrency trader, you will need to practice and pick up the skills that some of the best in the business have learned. Here are some tips to get you started.
Practice makes perfect in the world of crypto trading. Rather than immediately trading with real money and assets, you should get the feel for it by opening a demo account with a trading app. This way, you can see how the prices of different currencies fluctuate in real time, and learn the best ways to execute trades. Always practice with a free demo account before you start trading cryptocurrencies for real.
Another crucial tip is to never put all of your eggs in one basket. It can be tempting to invest solely in the 'flashy' assets like bitcoin, but this is simply exposing yourself to more risk. The more diversified your crypto portfolio is, the more you are protected from negative fluctations in the market. And the more you stand to gain from positive trends.
Many people trade cryptocurrencies in real-time on smartphones by using the most popular dedicated crypto trading apps. Here are the ones that you need to know about.
This easy-to-use app is immensely popular with beginner traders and has one of the highest trading volumes out of any exchange in the world. Once you have downloaded the app and created an account, you can deposit fiat currency, buy and store coins, and withdraw your coins into a wallet.
This is the relatively recent mobile app version of the largest exchange in the world, which shares the same name. The user-friendly app allows you to take advantage of almost 400 trading pairs and instantly sell crypto. You can also view your trading history and open orders in the app.
This is a minimalist yet effective trading app that allows users to instantly swap one cryptocurrency for another, via a decentralized exchange. It is great for convenience, as you don't need to wait for your deposit to clear to complete a trade. Executing a trade simply locks in the rate as it is at the time.
That being said, cryptocurrency trading comes with a number of risks attached that all traders should be aware of.
This is everything a beginner needs to know about cryptocurrency trading.
Trading cryptocurrencies comes with its own unique risks, owing to the volatility of the assets involved and the relative newness of the crypto market. However, as long as you use a trusted, regulated, and licensed cryptocurrency broker, your money will be safe. However, note that the Financial Conduct Authority's Compensation Scheme, which covers losses of up to £85,000 in the event that a trading company defaults, does not extend to cryptocurrencies. In addition, you should always use platforms that can guarantee your online security when trading cryptocurrencies and are SSL certified.
In a word, yes. Countries in the EU as well as the UK have taken a measured approach to the regulation of cryptocurrency trading over the years. Although there are no specific laws that govern the trading of crypto assets, there are no laws against it either. European traders can buy, sell, and speculate on cryptocurrencies freely without fear of breaking the law. As long as you are not using cryptocurrencies for money laundering or tax evasion purposes, you are OK.
Yes. In UK for instance, all profits made from the buying, selling, and speculating of cryptocurrencies falls under UK Capital Gains Tax. You will need to include these profits in your annual tax return, and you can expect to be taxed on them in the exact same way that you would with any other capital gains.
Many cryptocurrency trading platforms and exchanges may charge a small commission for each trade that is executed, but not all of them do. In addition, some platforms may charge a fee every time you withdraw crypto from your wallet. Always check the terms and conditions regarding cryptocurrency trading fees.
There are no golden rules when trading cryptocurrency. Every seasoned trader has their own winning strategy that they swear by. The best thing you can do is do your own research and use the resources available to you to figure out a trading strategy that works for you.