journalist, tech entrepreneur
The crypto market cap is now about $300 bn with more than 1500 crypto coins. It comes as no surprise that more and more people worldwide are deciding to get into this industry and starting to invest in crypto. However, at the beginning trading crypto can seem confusing as the process itself differs from trading on fiat exchanges and what many investors and traders are used to.
Today we will outline the four essential steps that will help you kick off your crypto trading.
Just like fiat finance, to invest in cryptocurrencies you need a place where these coins are traded. To commence you will need to register and put some funds into your account, and then start buying and selling crypto.
There are a number of popular crypto exchanges, for example:
Such websites can have different terms of service and their trading platforms may differ a lot, so it is best to research and go through several reviews of exchanges (here are two: one, two). This will help you to choose a venue that suits you best.
According to CryptocoinCharts’ statistics, there are currently almost 200 cryptocoin exchanges with a total daily trade volume of $3.24 bn though not all of these marketplaces are reliable. Situations where crypto traders lose their money due to the exchange being hacked happen on a regular basis (here are some examples: one, two, three). There are also some cases where exchanges suddenly terminate their operations with little explanation, leading to the complete loss of funds by investors. So it is crucial to choose a trusted exchange. In the beginning, it is a good idea to go with the biggest and most well-known options.
Important note: not all exchanges accept fiat money, so you may have to buy cryptocurrency first and then deposit coins into the exchange to start investing (however, there are also exchange-broker-wallet hybrids like Coinbase where you can do everything in one place).
This leads us to the next step of obtaining a cryptocurrency wallet.
As there are lots of exchanges, investors have to transfer funds between them somehow and also have a place to store their assets. Cryptocurrency wallets are tools that allow you to store and send crypto coins back and forth.
Currently, there are several types of crypto wallets (mobile, desktop, hardware, paper ones). To get started, you will need a mobile or desktop (web) hot wallet, connected to the internet. Read more on the topic in this guide.
Almost all cryptocurrencies nowadays have their official wallets such as the Bitcoin Core Wallet, Ethereum Wallet or MyEtherWallet, Litecoin-QT, and Dash Core. You will find a link to their official wallet on most cryptocurrency websites.
Multi-currency wallets are also available, here are several examples:
As mentioned above, there are some opportunities to use exchanges with built-in wallets, such as Poloniex or Coinbase.
When you’ve chosen the wallets you’d like to use, you are all set and ready to start investing.
Cryptocurrencies are highly volatile assets whose prices can go up and down in large percentages in a few short hours. Such moves can be triggered by multiple events, so a crypto trader must constantly monitor market information.
Before putting your money into a coin it is a good idea to study the asset. One of the best tools for this research is Coinmarketcap, a website where you can find information on every coin and token available. The data includes capitalization, supply, trade volume etc. So the site can be used for cryptocurrency comparisons. Cryptocompare is another useful site for this sort of data.
The best way to track crypto-related news is to follow major publications and blogs in the industry: Coindesk, News Bitcoin, The Merkle, Hackernoon. Even more useful information can be found on social media — you should dig into crypto-related subreddits, Telegram and Discord channels, and Quora threads, for example.
Another great way of sourcing data is a CoinMarketCal which tracks crypto-related events which can potentially affect coins traded on exchanges.
By now you are equipped with some knowledge and instruments for trading. However, compared with the fiat investment process there are still some elements missing.
First of all, fiat investors can use stock indices for benchmarking when building their portfolio — S&P500 and Nasdaq Composite are perfect examples of such benchmarks. They allow investors to trade whole sectors easily and manage complicated portfolios in a straightforward investment, reducing the risks and volatility of the portfolio.
You need to find similar tools for the crypto market — for example, Cryptoindex 100 (CIX100) is an automated index calculated by a machine learning algorithm which analyzes cryptocurrencies. This tool allows traders to reduce volatility and risks for their portfolios as well as the cost and effort inherent in investing in multiple coins, resulting in substantial savings in trading.
After the portfolio is built you can track coins via specialized apps such as Blockfolio or Delta, which provide valuable insights (real-time exchange prices, the order book for every coin etc). Using such tools also enhances productivity.
Cryptocurrency trading has a range of differences when compared with the traditional fiat exchanges. To succeed in crypto, you will need to find trustworthy information sources, perform your research carefully, pick the most suitable exchange and wallet, and find benchmarks and tools for portfolio management.